Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010, for AMHN, Inc. (formerly Croff Enterprises, Inc.). Following a reverse merger in July 2009, the Company operates as a place-based provider of digital video education targeting African-American communities in medical office waiting rooms. As of the filing date, 140 of 160 subscribed offices were live. The Company is classified as a smaller reporting company and faces substantial doubt regarding its ability to continue as a going concern due to its start-up nature and reliance on related-party financing.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2010 | As of Mar 31, 2010 |
|---|---|---|
| Operating Revenues | $15,329 | - |
| Net Loss | $(347,392) | - |
| Loss Per Share (Basic & Diluted) | $(0.02) | - |
| Cash and Cash Equivalents | - | $48,049 |
| Total Current Assets | - | $65,359 |
| Total Current Liabilities | - | $1,498,296 |
| Working Capital Deficit | - | $(1,432,937) |
| Accumulated Deficit | - | $(2,237,465) |
| Related Party Debt | - | $800,000 |
| Net Cash Used in Operating Activities | $(140,817) | - |
| Net Cash Provided by Financing Activities | $199,300 | - |
Material Changes vs. Prior Period
- Revenue Generation: The Company recorded $15,329 in operating revenues for the quarter, compared to $0 in the same period in 2009, marking the beginning of commercial operations.
- Expense Growth: Total operating expenses were $354,190, driven by General and Administration ($180,469), Sales and Marketing ($83,196), and Depreciation/Amortization ($57,900). No comparable expense data was provided for the prior year quarter.
- Debt Increase: Promissory notes payable to a related party (Seatac Digital Resources, Inc.) increased from $600,000 at December 31, 2009, to $800,000 at March 31, 2010, reflecting additional borrowings of $200,000 during the quarter.
- Liquidity: Cash balances increased slightly from $42,066 to $48,049, primarily due to financing proceeds offsetting operating losses.
Outlook, Risks, and Contingencies
- Going Concern: Management explicitly states substantial doubt about the Company's ability to continue as a going concern. The Company has generated only $25,897 in revenue since inception and relies entirely on loans from a strategic vendor/shareholder.
- Capital Needs: The Company anticipates needing additional capital to reach profitability, which is not expected until the late fourth quarter of 2010 or upon deployment of 1,000 locations. A private placement offering to raise $5 million was closed in January 2010 with no funds raised.
- Subsequent Event (Debt Restructuring): On April 1, 2010, the Company converted $800,000 of prior demand notes into a single 4% Secured Promissory Note due June 30, 2010. This note is secured by a blanket lien on Company assets and the subsidiary's stock. Default triggers an interest rate increase to 10%.
- Related Party Dependence: Operations are heavily dependent on Seatac Digital Resources, Inc., which provides funding, guarantees the office lease, and serves as a major shareholder and director.
Investor Verification Checklist
- Verify the status of the $800,000 Secured Promissory Note due June 30, 2010, and the Company's ability to refinance or repay it.
- Confirm the actual number of live sites versus the target of 1,000 locations required for profitability.
- Review the terms of the non-binding funding commitments from Seatac Digital Resources, Inc. to assess the likelihood of future capital availability.
- Assess the valuation of the "Segment Library" intangible asset ($361,833 net) given the Company's current revenue levels.
- Monitor the status of the unissued warrants (76,075 shares) and restricted stock for consulting services ($258,000 accrued) to understand potential future dilution.