NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). These unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash
flows for the periods presented.
The Company was incorporated in Utah in 1907 under the name Croff Mining
Company (“Croff”). The Company changed its name to Croff Oil Company in 1952 and in 1996 changed its name to Croff Enterprises, Inc. In the twenty (20) years prior to 2008, the Company’s operations consisted entirely of oil and
natural gas production. Due to a spin-off of its operations in December 2007, Croff had no business operations or revenue source and had reduced its operations to a minimal level, although it continued to file reports required under the Securities
Exchange Act of 1934. As a result of the spin-off, Croff was a “shell company” under the rules of the Securities and Exchange Commission (“SEC”).
Agreement and Plan of Reorganization
On July 6, 2009, Croff entered into an Agreement and Plan of Reorganization (the “Agreement”) with AMHN
Acquisition Corp., a newly formed Delaware corporation and wholly owned subsidiary of Croff (“Merger Sub”), America’s Minority Health Network, Inc., a Delaware corporation (“America’s Minority Health Network”) and the
major shareholders of the America’s Minority Health Network (the “Major Shareholders”). The terms of the Agreement provide for (i) the transfer of 100% of the issued and outstanding shares of common stock of America’s
Minority Health Network in exchange for the issuance to the shareholders of American’s Minority Health Network of an aggregate of 13,693,689 shares of common stock of Croff (the “Croff Common Stock”) at a conversion ratio where one
share of America’s Minority Health Network is converted into 13,693.689 shares of Croff; (ii) the resignations of the Company’s officers and directors prior to the consummation of the Agreement and the election and appointment of
officers and directors as directed by America’s Minority Health Network; and (iii) America’s Minority Health Network to become a wholly owned subsidiary of Croff. A full description of the terms of the Agreement (the
“Transaction”) is set forth in the Agreement as filed as an exhibit to the Report on Form 8-K filed with the Securities and Exchange Commission on July 10, 2009.
On July 27, 2009, the Closing Date of the Transaction pursuant to the terms and conditions of the Agreement, Croff
acquired 100% of the issued and outstanding shares of America’s Minority Health Network in exchange for the issuance of an aggregate of 13,693,689 shares of Croff Common Stock. In accordance with the provisions of this triangulated merger,
Merger Sub merged with and into America’s Minority Health Network as of the Effective Date of the Agreement, as that term is defined therein. Upon consummation of the Agreement and all transactions contemplated therein, the separate existence
of Merger Sub ceased, Croff became the surviving parent corporation, and America’s Minority Health Network became its wholly owned subsidiary (the “Company’s subsidiary”).
As a result of the Transaction, Croff ceased being a shell company. The sole business of Croff became that of its
operating subsidiary, America’s Minority Health Network. Croff experienced a change in control and the former shareholders of America’s Minority Health Network acquired control of the Company. For accounting purposes, the Transaction was
treated as a reverse merger. As a result of the Transaction, the figures contained in the financial statements are those of America’s Minority Health Network, the operating company.
7
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Agreement with Global Arena Capital Corp.
On September 11, 2009, the Company’s Board of Directors approved an agreement with Global Arena Capital Corp.
(the “Global Agreement”) through which Global Arena Capital Corp. (“Global”) would serve as the Company’s exclusive placement agent in an attempt to raise up to five million dollars ($5,000,000) through the offer and sale by
the Company of its securities. Under a related private placement memorandum (“PPM”), the Company offered twenty-five (25) units for the purchase price of two hundred thousand dollars ($200,000) each (the “Offering”). Each
unit consisted of 200,000 shares of the Company’s Common Stock and a detachable, transferable Warrant to purchase 70,000 shares of the Company’s Common Stock. The Warrant was exercisable in whole or in part during the five-year period
following issuance at an exercise price of $1.10 per share. The Offering period was for sixty (60) days and could be extended for an additional sixty (60) day period. No funds were raised under the Offering and the Offering was closed on
January 9, 2010.
Upon execution of the Global Agreement, the Company agreed to pay a retainer to Global
through the issuance of 76,075 Warrants exercisable for one cent ($0.01) which represented one half of one percent (0.50%) of the then issued and outstanding shares of Common Stock of the Company. The Warrants were accounted for in the third quarter
of 2009, but have not yet been issued. The Warrants have not been registered under the Securities Act or the securities laws of any state, and such securities will be issued in reliance upon exemptions from the registration requirements of such
laws, which depend in part, on the intent of the warrant holder not to make distribution of such securities.
Name Change
On September 14, 2009, the Company changed its name to AMHN, Inc. Unless otherwise stated or unless
the context otherwise requires, the description of our business set forth below is provided on a combined basis. The Company’s office is located at 100 North First Street, Suite 104, Burbank, California 91502.
On September 23, 2009, the Company’s Board of Directors approved the redomicile of the Company from Utah to
Nevada and approved the AMHN, Inc. 2009 Long Term Incentive Compensation Plan (“LTIP”). On March 28, 2010, the Company’s Board of Directors approved a revision to the Plan to increase the number of shares available for issuance
to an aggregate of 1,500,000 shares. All other provisions of the Plan remain unchanged. The Company subsequently approved a change in the par value of the Company’s Common and Preferred Stock to $0.001 per share. On July 20, 2010, the
Company’s shareholders who own an aggregate of 8,900,898 shares (or 55%) of the Company’s outstanding shares approved the actions.
Acquisition of Spectrum Health Network, Inc.
On June 1, 2010, AMHN entered into an Agreement and Plan of Reorganization (the “Spectrum Acquisition
Agreement”) with Spectrum Acquisition Corp., a newly formed Delaware corporation and wholly owned subsidiary of AMHN (“Merger Sub”), Spectrum Health Network, Inc., a Delaware corporation (“Spectrum”) and the sole shareholder
of Spectrum (the “Sole Shareholder”). The terms of the Spectrum Acquisition Agreement provided for (i) the transfer of 100% of the issued and outstanding shares of common stock of Spectrum to AMHN in exchange for the issuance to the
Sole Shareholder of Spectrum of an aggregate of 500,000 shares of common stock of AMHN (the “AMHN Common Stock”) at a conversion ratio where one share of Spectrum is converted into 500 shares of AMHN; (ii) AMHN’s assumption of
all the assets and liabilities of Spectrum; (iii) the officers and directors of Spectrum to retain their respective positions in the Merger Sub; and (iv) Spectrum to become a wholly owned subsidiary of AMHN.
8
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Acquisition of Spectrum Health Network, Inc. (Continued)
On June 11, 2010, the Closing Date of the Transaction pursuant to the terms and conditions of the Acquisition Agreement, AMHN acquired 100% of the issued and outstanding shares of Spectrum
in exchange for the issuance of an aggregate of 500,000 shares of AMHN Common Stock. In accordance with the provisions of this triangulated merger, Merger Sub was merged with and into Spectrum as of the Effective Date of the Acquisition Agreement,
the separate existence of Merger Sub ceased, and Spectrum became a wholly owned subsidiary of AMHN. In conjunction with the Acquisition Agreement, AMHN assumed the assets and liabilities of Spectrum totaling approximately $247,000 and $480,000,
respectively. The excess of the purchase price over the net liabilities assumed was recorded as goodwill on the consolidated balance sheet.
Discontinued Operations
On July 30, 2010, the Company and Seatac sent joint instruction to the escrow agent, pursuant to which the escrow
agent was instructed to transfer the stock certificate representing all of the outstanding shares of America's Minority Health Network being held in escrow to Seatac. The Company also entered into a trademark assignment with Seatac whereby the
Company transferred all rights, title and interest in the mark “America’s Minority Health Network, Inc.” and the goodwill associated with such mark. The Company’s settlement with Seatac did not include the surrender of Spectrum
or the satisfaction of a trade payable to Seatac in the amount of $455,061. (See Note 5).
Business Overview
America’s Minority Health Network is a place-based provider of digital video education for medical
practices who primarily service minorities. Research has shown that due to socioeconomic and sociopolitical issues, African-Americans suffer from exceptionally high mortality and morbidity rates. Lack of proper healthcare education has been cited as
one of the factors leading to higher health risks for the African-American community. The Company’s subsidiary provides a digital platform to increase African-American health education awareness that can increase the longevity and well-being of
African-American men and women, while providing relevant advertising of related products. The Company’s subsidiary has created a viable solution to meet the needs of physicians who are constantly searching for ways to better inform their
patients and for advertisers that are searching for ad space to communicate specific products to African-Americans.
America’s Minority Health Network currently provides direct-to-consumer television programming across the United
States to subscribing medical offices with a predominantly African-American patient base. Currently, 174 offices have subscribed to the service with 141 offices live and receiving programming. Our rollout plan calls for one thousand
(1,000) subscribing locations in our first phase. Each month updated healthcare segments and relevant advertising are digitally delivered in high definition directly to waiting rooms filled with a well defined African-American target audience.
Medical office waiting rooms provide a captive audience with the typical presence of over 1,000 patients per month per location, where viewers are pre-disposed to watch and listen to the pertinent information offered.
Spectrum sells its network to independent physician associations (“IPAs”) and currently has 152 offices
subscribed to the service with 126 live sites. Spectrum’s new business plan is to market as a subscription service for a one-time fee of $3,500 per location for each system, plus an ongoing monthly service fee ranging from $102 to $250 per
month per location. To date, Spectrum has not converted any of its existing client base to a subscription service. If Spectrum is able to convert its existing client base to a subscription service, then at the
9
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Business Overview (Continued)
lowest price threshold, Spectrum expects to net approximately $13,000 per month in network maintenance revenue. Spectrum has developed a primary target list of prospective IPAs which, if
subscribed, would represent a minimum of 640 potential locations, with each location supporting its own system. There are approximately 3,500 IPAs operating in the United States. Of this total, an estimated 2,000 fall under the category of the
“Staff Model” where staff are fulltime employees directed under a corporate management structure; another 1,500 are considered a “Staff/Hybrid Model” where the IPA is created to facilitate a Primary Care Group and still enable
specialized physicians to maintain their own practices, but also the benefits of achieving economies of scale from the formation of an association to operate and help manage their practice.
Accounting Standard Codification
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All
other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (“ASUs”).
The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document
have been updated for the Codification.
Going Concern
The financial statements of the Company have been prepared in conformity with generally accepted accounting principles in
the United States of America, and assume that the Company will continue as a going concern. Due to the start-up nature of the Company’s business, the Company expects to incur losses as it expands. To date, the Company’s cash flow
requirements have been entirely met with funds raised through loans from a strategic vendor and shareholder of the Company. There is no assurance that additional funds will be available for the Company to finance its operations should the Company be
unable to realize profitable operations. These conditions, among others, give rise to substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
These financial statements have been prepared on a going concern basis which implies the Company will continue to realize
its assets and discharge its liabilities in the normal course of business. The Company has generated revenues of only $5,734 since inception from continuing operations and has an accumulated deficit of $2,506,552 through June 30, 2010. The
Company needs to raise additional funds to carry out its business plan.
10
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Going Concern (Continued)
Besides generating revenues from proposed operations, the Company may need to raise additional capital to expand
operations to the point at which the Company can achieve profitability. The terms of financing that may be raised may not be on terms acceptable by the Company. If adequate funds cannot be raised outside of the Company, the Company’s current
shareholders may need to contribute funds to sustain operations.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or
less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.
Fixed Assets
The Company currently has 267 live sites commissioned as of this filing, 126 sites are continuing operations and 141 sites
are discontinued operations. Depreciation commences on the first day of the month following the installation of the sites and is calculated using the straight-line method over the estimated useful lives of the related assets. Costs of maintenance
and repairs will be charged to expense as incurred. Depreciation of $62,106 for continuing operations and $125,125 for discontinued operations was recorded through June 30, 2010.
Segment Library
The segment library is reflected as intangible assets on the accompanying condensed consolidated balance sheet with a
useful life of 5 years. These costs represent the production costs relating to producing the segments that will be presented in the professional offices. Management has determined the life of the segment library to be 5 years. As of June 30,
2010, the Company has 55 segments available for play on its discontinued operations network. The Company amortizes the segments commencing on the first day of the month following the segments placed into service. Amortization expense was $7,872 for
continuing operations and $71,667 for discontinued operations for the period April 2, 2009 (Inception) through June 30, 2010.
Recoverability of Long-Lived Assets
Although the Company does not have any long-lived assets at this point, for any long-lived assets acquired in the future
the Company will review their recoverability on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment will be based primarily on the
Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired; the impairment recognized is the amount by
which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell.
11
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Fair Value of Financial Instruments
The carrying amount reported in the balance sheet for cash and cash equivalents, accounts payable, and accrued expenses
approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.
Stock-Based Compensation
The Company adopted the provisions of ASC 718-10
“Share Based Payments”
. The adoption of this principle
had no effect on the Company’s operations.
ASC 718-10 requires recognition of stock-based compensation
expense for all share-based payments based on fair value.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has elected to use the modified-prospective approach method. Stock-based compensation
expense for all awards granted is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each
award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.
The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50,
“Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
The fair value of the option issued is used to measure the transaction, as this is
more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the
counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. For common stock issuances to non-employees that are fully vested and are for
future periods, the Company classifies these issuances as prepaid expenses and expenses the prepaid expenses over the service period. At no time has the Company issued common stock for a period that exceeds one year.
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred
taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
12
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Discontinued Operations
The gains and losses from the disposition of certain income-producing assets and associated liabilities, operating
results, and cash flows are reflected as discontinued operations in the consolidated financial statements for all periods presented. Although net earnings are not affected, the Company has reclassified results that were previously included in
continuing operations as discontinued operations for qualifying dispositions.
Revenue Recognition
The Company generates revenue from the sale of advertising spots on its network. The revenue will be recognized in the
month in which the spots run.
Loss per Share of Common Stock
Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted
earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per
share when the Company reports a loss because to do so would be anti-dilutive. The following is a reconciliation of the computation for basic and diluted EPS.
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Six Months Ended
June 30, 2010
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Six Months Ended
June 30,
2009
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Net loss
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$
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(616,479)
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$
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-0-
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Weighted-average common shares outstanding (Basic)
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15,842,695
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-0-
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Weighted-average common stock equivalents:
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Stock options
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-0-
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-0-
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Warrants
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-0-
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-0-
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|
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|
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Weighted-average common shares outstanding (Diluted)
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|
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15,842,695
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|
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-0-
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|
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|
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Uncertainty in Income Taxes
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This
interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management will evaluate their
tax positions on an annual basis.
13
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued
Accounting Standards
In September 2006, ASC issued 820,
Fair Value Measurements
. ASC 820 defines
fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning
after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.
In February 2007, ASC issued 825-10,
The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of ASC 320-10
, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In December 2007, the ASC issued ASC 810-10-65,
Noncontrolling Interests in Consolidated Financial Statements
. ASC
810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated
net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity
investment.
ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of ASC 810-10-65 will have on the Company’s financial position, results of operations or
cash flows.
In December 2007, the Company adopted ASC 805,
Business Combinations
(“ASC
805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity
that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total allocated cost of the acquisition. ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that date.
14
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards (Continued)
ASC 805 will require an entity to recognize as an asset or liability at
fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that
date. This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted and the ASC is to be applied prospectively
only. Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of ASC 805 is not expected to have a material effect on the
Company’s financial position, results of operations or cash flows.
In March 2008, ASC issued ASC 815,
Disclosures about Derivative Instruments and Hedging Activities
”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why
an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results
of operations or financial position.
In April 2008, ASC issued ASC 350, “Determination of the Useful
Life of Intangible Assets”. This amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350. The guidance is used for determining
the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent
to, adoption. The Company does not believe ASC 350 will materially impact their financial position, results of operations or cash flows.
Effective April 1, 2009, the Company adopted ASC 855,
Subsequent Events
(“ASC 855”). ASC 855
establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an
entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial condition. The Company has
evaluated subsequent events through August 3, 2010, the date the financial statements were issued.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05,
Fair Value Measurement and Disclosures (Topic 820)
(“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10,
Fair Value Measurements and Disclosures –
Overall
, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to
measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of a liability.
15
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards (Continued)
ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an
asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial
condition.
In January 2010, the Company adopted FASB ASU No. 2010-06,
Fair Value Measurement and
Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements
(“ASU 2010-06”). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The
standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and
disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the roll-forward of information in Level 3 are required for the Company with its first
interim filing in 2011. The Company does not believe this standard will impact their financial statements.
Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon adoption.
NOTE 3 – STOCKHOLDERS’
EQUITY (DEFICIT)
Preferred Stock
The Company has 10,000,000 shares of no par value preferred stock authorized. No preferred shares have been issued. On
July 20, 2010, the Company’s shareholders approved a change in the par value of the Company’s Preferred Stock to $0.001 per share.
Common Stock
The Company is authorized to issue up to 50,000,000 shares of common stock at $0.10 par value per share (“Common
Stock”) and as of June 30, 2010 and as of the date of this filing has 16,290,209 shares of Common Stock issued and outstanding. On July 20, 2010, the Company’s shareholders approved a change in the par value of the Company’s
Common Stock to $0.001 per share.
On July 27, 2009, as part of the acquisition of the Company’s
subsidiary, the Company:
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(i)
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effected a forward stock split on a basis of 3:1 which increased the issued and outstanding shares of Common Stock from 1,017,573 to 3,052,719, and
this change was reflected retroactive in accordance with rules and regulations of SAB Topic 4C,
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(ii)
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accepted from a shareholder the surrender of and canceled 1,935,000 shares of Common Stock which were returned to the Company’s authorized but
unissued shares,
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(iii)
|
issued 403,802 shares to the same shareholder who surrendered the above-mentioned shares, and
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(iv)
|
issued 13,693,689 shares of its Common Stock to the shareholders of America’s Minority Health Network in exchange for 100% of the shares of
America’s Minority Health Network.
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16
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 3 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock (Continued)
On September 25, 2009, the Company authorized the issuance of
350,000 shares of restricted Common Stock valued at $105,000 in exchange for consulting services and authorized the issuance of an aggregate of 510,000 shares of its Common Stock valued at $153,000 pursuant to a Form S-8 registration statement
(“Form S-8”). The restricted shares have not yet been issued, and the Company has not yet filed the Form S-8. Related to these shares, the Company has included $258,000 in accrued expenses on the accompanying financial statements and
anticipates the filing of the Form S-8 and the issuance of the restricted common stock in the third quarter of 2010.
On September 28, 2009, the Company issued 450,000 shares of stock valued at $112,500 in exchange for consulting
services.
On October 20, 2009, the Company issued 125,000 shares of its restricted Common Stock to
Alliance Advisors, LLC pursuant to an Investor Relations Consulting Agreement.
On June 11, 2010, AMHN
acquired 100% of the issued and outstanding shares of Spectrum in exchange for the issuance of an aggregate of 500,000 shares of AMHN Common Stock. See NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION for further details of the transaction.
2009 Long Term Incentive Compensation Plan
The Company’s Board of Directors and shareholders approved the LTIP on September 25, 2009 and July 20, 2010
respectively. The LTIP contains one million five hundred thousand shares that may be issued to provide financial incentives to employees, members of the Board, and advisers and consultants of the Company. In conjunction with approval of the Plan by
the Company’s shareholders, the Board of Directors approved the granting of non-qualified stock options (the “Options”) to officers and employees of the Company for an aggregate of 900,000 underlying shares. The exercise price of the
Options is fixed at $0.30 per share with the underlying shares vesting at the rate of one-third on the date of the grant and one-third on each of the first and second anniversary dates of the grant. The Options expire five (5) years from the
date that the Options are fully vested.
17
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 3 – STOCKHOLDERS’ EQUITY (DEFICIT)
Warrant(s) to Purchase Common Stock
A summary of the Company’s Warrant(s) to Purchase Common Stock (the “Warrant(s)”) and related information
as of June 30, 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Under
Warrant(s)
|
|
Range of
Warrant(s) Price
Per Share
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
-0-
|
|
$-0-
|
|
$-0-
|
|
Granted
(1)
|
|
76,075
|
|
0.01
|
|
0.01
|
|
Exercised
|
|
-0-
|
|
-0-
|
|
-0-
|
|
Cancelled
|
|
-0-
|
|
-0-
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
76,075
|
|
0.01
|
|
0.01
|
|
Granted
(1)
|
|
-0-
|
|
-0-
|
|
-0-
|
|
Exercised
|
|
-0-
|
|
-0-
|
|
-0-
|
|
Cancelled
|
|
-0-
|
|
-0-
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
76,075
|
|
$0.01
|
|
$0.01
|
|
|
|
|
|
|
|
|
|
(1)
Granted and accrued for but not issued.
|
The valuation methodology used to determine the fair value of the Warrant(s) issued was the Black-Scholes-Merton
option-pricing model. The Black-Scholes-Merton model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average expected life of the Warrant(s).
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury
bonds whose maturity period is appropriate for the term of the Warrant(s) and is calculated by using the average daily historical stock prices through the day preceding the grant date. Estimated volatility is a measure of the amount by which the
Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility is an average of the historical volatility of peer entities whose stock prices were publicly available. The
Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of
sufficient historical data of its stock price.
18
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 3 – STOCKHOLDERS’ EQUITY (DEFICIT)
Warrant(s) to Purchase Common Stock (Continued)
The weighted average fair value of the Warrant(s) granted and the
assumptions used in the Black-Scholes-Merton model used to value the 76,075 Warrant(s) listed in the table above are set forth in the table below.
|
|
|
|
|
Weighted average fair value of Warrant(s) granted
|
|
$0.30
|
|
Risk-free interest rate
|
|
0.98%
|
|
Volatility
|
|
129.39%
|
|
Expected life
|
|
2
|
|
Dividend yield
|
|
0.00%
|
$22,138 is included in accrued expenses reflecting the value of the 76,075 Warrant(s).
NOTE 4– LOANS PAYABLE – RELATED PARTY
The Company’s subsidiary had an unsecured loan payable outstanding with Seatac Digital Resources, Inc.
(“Seatac”), the Company’s systems integrator and shareholder. Seatac provided necessary working capital of $700 for the Company in their initial period to assist them in the payment of certain payables. There was no interest on this
unsecured loan which was repaid in March 2010.
On June 1, 2009, Seatac loaned the Company’s
subsidiary $100,000 under a demand promissory note that accrues interest at the rate of five percent (5) per annum. Interest has been accrued and is included in accrued expenses on the accompanying financial statements.
On June 30, 2009, Seatac provided a commitment letter to the Company to loan up to an additional $500,000 in the
form of short term loans to cover operating expenses of the Company’s subsidiary (the “June Loan Commitment”). Seatac subsequently provided $500,000 in loans under the June Loan Commitment and the Company’s subsidiary issued
demand promissory notes as follows: July 21, 2009 for $100,000; September 2, 2009 for $100,000; October 7, 2009 for $100,000; November 4, 2009 for $100,000; November 20, 2009 for $50,000; and December 30, 2009 for
$50,000 (the “2009 Demand Notes”).
On November 1, 2009, Seatac provided a commitment letter to
loan up to an additional $500,000 in the form of short term loans to cover operating expenses of the Company’s subsidiary (the “November Loan Commitment”). Through March 31, 2010, Seatac provided $200,000 in loans and the
Company’s subsidiary issued demand promissory notes as follows: January 22, 2010 for $50,000; February 1, 2010 for $50,000; March 1, 2010 for $50,000; and March 31, 2010 for $50,000 (the “2010 Demand Notes”).
Interest accrued at five percent (5%) per annum on the 2009 Demand Notes and the 2010 Demand Notes.
Interest of $8,856 is included in the accompanying financial statements.
On March 10, 2010, Seatac
provided a third commitment letter to loan up to an additional $500,000 in the form of short term loans to cover operating expenses of the Company’s subsidiary (the “March Loan Commitment”). Seatac provided no funds under the third
commitment letter and subsequently withdrew it.
The demand promissory notes from both the June and November
Loan Commitments accrue interest at five percent (5%) per annum.
19
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 4– LOANS PAYABLE – RELATED PARTY (Continued)
On April 1, 2010, the Company issued a 4% Secured Promissory Note
(the “April 2010 Note”) in the principal base amount of $800,000 (the “Principal Base Amount”) to Seatac pursuant to the terms of that certain Note Purchase Agreement (the “Note Purchase Agreement”) of even date
therewith. As consideration for the April 2010 Note, Seatac surrendered certain promissory notes previously issued by the Company to Seatac (collectively known as the “Prior Notes”), specifically set forth as follows:
|
|
•
|
|
the Promissory Note dated June 1, 2009 for $100,000,
|
|
|
•
|
|
the Promissory Note dated July 21, 2009 for $100,000,
|
|
|
•
|
|
the Promissory Note dated September 2, 2009 for $100,000,
|
|
|
•
|
|
the Promissory Note dated October 7, 2009 for $100,000,
|
|
|
•
|
|
the Promissory Note dated November 4, 2009 for $100,000,
|
|
|
•
|
|
the Promissory Note dated November 20, 2009 for $50,000,
|
|
|
•
|
|
the Promissory Note dated December 31, 2009 for $50,000,
|
|
|
•
|
|
the Promissory Note dated January 22, 2010 for $50,000,
|
|
|
•
|
|
the Promissory Note dated February 1, 2010 for $50,000,
|
|
|
•
|
|
the Promissory Note dated March 1, 2010 for $50,000, and
|
|
|
•
|
|
the Promissory Note dated March 31, 2010 for $50,000.
|
The Principal Base Amount of the April 2010 Note, plus any and all additional advances made to the Company thereafter
(the “Aggregated Principal Amount”), together with accrued interest at the annual rate of four percent (4%), was due in one lump sum payment on June 30, 2010 (the “Maturity Date”). In May and June 2010, Seatac advanced the
Company an aggregate of $100,000 of additional funds under the April 2010 Note. The April 2010 Note provides that the April 2010 Note will automatically renew on the Maturity Date for additional ninety (90) day periods (the “Extended
Maturity Date”) unless ten (10) days prior to the Extended Maturity Date the Holder provides written notice to the Company of its intent not to renew. If the Company commits any Event of Default (as defined in the Note Purchase Agreement),
then the unpaid principal amount of, and accrued interest on, the April 2010 Note may be accelerated by Seatac and become due and payable, whereupon the interest rate shall be increased to a rate of ten percent (10%) per annum, subject to the
limitations of applicable law.
The Note Purchase Agreement contains a number of negative covenants with which
the Company must comply so long as the Note remains outstanding. Such negative covenants include, but are not limited to, restrictions on the Company’s ability to (i) declare or pay any dividends or to purchase, redeem or otherwise acquire
or retire any shares of the Company’s capital stock; (ii) effect any reclassification, combination or reverse stock split of the Company’s Common Stock; (iii) create, incur or assume any lien or other encumbrance (with limited
exceptions as set forth in the Note Purchase Agreement); (iv) create, incur or assume (directly or indirectly) any indebtedness (with limited exceptions as set forth in the Note Purchase Agreement); (v) enter into a Change in Control
Transaction (as defined in the Note Purchase Agreement); (vi) amend the Company’s Articles of Incorporation or Bylaws; and (vii) enter into any transactions with affiliates.
As security for the Company’s obligations under the Note Purchase Agreement and the April 2010 Note, the Company
pledged all of the capital stock of its subsidiary, America’s Minority Health Network, pursuant to the terms of a Stock Pledge and Escrow Agreement of even date therewith. Repayment of the April 2010 Note is guaranteed by the Company’s
subsidiary and is also secured by a blanket lien encumbering the assets of the Company and its Subsidiary.
Seatac is a major shareholder of the Company.
20
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 5 – DISCONTINUED OPERATIONS
On July 1, 2010, pursuant to the terms of the 4% Secured Promissory Note (“April 2010 Note”), Seatac made
demand for the aggregated amount of $925,885, including principal of $900,000 and interest through June 30, 2010. On July 11, 2010, Seatac added a one-time late charge equivalent to six percent (6%) of the unpaid amount, or $55,553,
bringing the amount payable and past due under the April 2010 Note to $981,438. The Company’s obligation to repay the April 2010 Note is (i) secured by a pledge by the Company of all of the capital stock of the Company’s subsidiaries
owned as of or acquired after the date of the April 2010 Note, pursuant to the terms of a Stock Pledge and Escrow Agreement dated April 1, 2010; (ii) guaranteed by the Company’s subsidiary, America’s Minority Health Network
pursuant to a Guaranty Agreement dated April 1, 2010; and (iii) secured by a blanket lien encumbering the assets of the Company and the Company’s subsidiaries pursuant to Security Agreements dated April 1, 2010.
Payment of principal, interest and late charges under the April 2010 Note became past due, and as a result of the
default, on July 30, 2010, Seatac informed the Company that it intended to exercise its remedies pursuant to which it may accept collateral in satisfaction of the Company’s obligations. More particularly, Seatac stated that it intended to
accept the following collateral in full satisfaction of the $981,438 due under the April 2010 Note: (i) all rights, title and interest of AMHN in the 1,000 shares of common stock of America’s Minority Health Network, (ii) all rights,
title and interest of AMHN in the mark “America’s Minority Health Network, Inc.” and the goodwill associated with such mark, and (iii) all books and records of America’s Minority Health Network held by AMHN (collectively,
the “Collateral”).
Given the Company’s unsuccessful attempts to obtain additional financing or
agree to alternative arrangements with Seatac, it agreed and consented to Seatac’s exercise of its remedies under the April 2010 Note and the foreclosure upon the Collateral. As part of the agreement and consent, the Company and its
Subsidiaries acknowledged that the Company and its Subsidiaries are in default in payment of principal, interest, and late fees under the April 2010 Note and related loan documents in the aggregate of $981,438, and that the debt is secured by a
first priority security interest in all of the assets of the Company and its subsidiaries. Accordingly, on July 30, 2010, the Company and Seatac sent joint instruction to the escrow agent, pursuant to which the escrow agent was instructed to
transfer the stock certificate representing all of the outstanding shares of America’s Minority Health Network being held in escrow to Seatac. The Company also entered into a trademark assignment with Seatac whereby the Company transferred all
rights, title and interest in the mark “America’s Minority Health Network, Inc.” and the goodwill associated with such mark. The Company’s settlement with Seatac did not include the surrender of Spectrum nor the satisfaction of a
trade payable to Seatac in the amount of $455,061.
As a result of this transaction, the Company’s
financial statements have been prepared with the results of operations and cash flows of this disposed property shown as discontinued operations. All historical statements have been restated in accordance with GAAP. Summarized financial information
for discontinued operations for the six month period ended June 30, 2010 and year ended December 31, 2009.
21
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 5 – DISCONTINUED OPERATIONS (Continued)
|
|
|
|
|
|
|
|
|
Balances at
|
|
|
|
June 30,
2010
|
|
December 31,
2009
|
|
Assets of discontinued operations
|
|
|
|
|
|
Cash
|
|
$55,340
|
|
$41,901
|
|
Accounts receivable
|
|
13,856
|
|
10,569
|
|
Other current assets
|
|
1,238
|
|
14,238
|
|
|
|
|
|
|
|
Total current assets
|
|
70,434
|
|
66,708
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
377,474
|
|
382,760
|
|
Intangible assets, net
|
|
478,333
|
|
382,333
|
|
Other assets
|
|
14,800
|
|
14,800
|
|
|
|
|
|
|
|
Total non-current assets
|
|
870,607
|
|
779,893
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$941,041
|
|
$846,601
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
Accounts payable
|
|
$406,413
|
|
$138,860
|
|
Note payable
|
|
900,000
|
|
600,000
|
|
Accrued interest
|
|
25,886
|
|
8,856
|
|
Other current liabilities
|
|
-0-
|
|
105,700
|
|
|
|
|
|
|
|
Total current liabilities
|
|
1,332,299
|
|
853,416
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$1,332,299
|
|
$853,416
|
|
|
|
|
|
|
NOTE 6 – ACCRUED EXPENSES
At June 30, 2010 and December 31, 2009, accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2010
|
|
December 31,
2009
|
|
|
|
Accrued consulting fees
|
|
$258,000
|
|
$175,137
|
|
|
Dividends payable
|
|
41,359
|
|
42,079
|
|
|
Accrued professional fees
|
|
22,138
|
|
0
|
|
|
Leases payable
|
|
13,900
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
$335,397
|
|
$217,216
|
|
|
|
|
|
|
|
|
NOTE 7 – COMMITMENTS AND CONTINGENCIES
On May 1, 2009, the Company’s subsidiary entered into an Installation and Remote Transfer Testing Project
Management and Service Agreement (“Service Agreement”) and a License Agreement (“License Agreement”) with Seatac, for an initial term of five (5) years. The Service Agreement provides that (i) Seatac, directly and
through sub-contractors, will produce, license and supply certain goods and services as described therein, (ii) Seatac will provide certain goods and services to facilitate the installation and operation of a media information display network
within professional offices located in the United States and Canada, and (iii) Seatac will supply the goods and services purchased by the Company’s subsidiary and that the Company’s subsidiary agrees to purchase and accept the
licenses on the terms and conditions set forth in the Service Agreement.
22
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
The License Agreement grants Seatac the right to license the software,
as defined therein. Seatac will provide the licensee with use of its software components, including the server software, and the software media player that will drive one or more displays and connect back to the server. The fees for the license
include (i) an initial one-time fee of $500 for the remote transfer set up, (ii) hardware and installation fees of $3,500 per site, and (iii) a standard remote transfer license fee of $87 per unit per month.
On October 1, 2009, the Company’s Board of Directors approved an Investor Relations Consulting Agreement with
Alliance Advisors, LLC (the “Agreement”). The twelve-month Agreement calls for cash payments of $5,000 per month for months 1-3, $6,000 per month for months 4-6, and $7,000 per month for the remaining six (6) months. In addition to
the cash payments, the Agreement calls for the issuance of 125,000 restricted shares of the Company’s Common Stock during the first thirty days of the Agreement with an additional 125,000 restricted shares of the Company’s Common Stock
after the successful completion of the first six (6) months of service. The Company issued the first 125,000 shares called for in the Agreement on October 20, 2009.
On November 13, 2009, the Company relocated its principal offices to 100 North First Street, Suite 104, Burbank,
California 91502 where it subleases 2,010 square feet of furnished office space. As a condition of the sublease, the Subleasor required that Seatac be listed as a co-Sublessee with the Company’s subsidiary. The one-year and eleven and one-half
month lease, expiring on October 31, 2011, was guaranteed by Seatac and calls for base lease payments of $4,905 per month. The Company paid $22,352 to cover a security deposit of $14,800 and rent from November 26 through December 31,
2009. Rent expense, excluding taxes, by year for term of this sublease is as follows: 2010-$58,859; and 2011-$49,049.
NOTE 8– PROVISION FOR INCOME TAXES
Deferred income taxes are determined using the liability method for the temporary differences between the financial
reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return.
Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. As of June 30,
2010, there is no provision for income taxes, current or deferred.
At June 30, 2010, deferred tax assets
consist of the following:
|
|
|
|
|
|
|
Net operating loses
|
|
$852,000
|
|
|
|
Valuation Allowance
|
|
(852,000)
|
|
|
|
|
|
|
|
|
|
$-0-
|
|
|
|
|
|
|
At June 30, 2010, the Company had a net operating loss carry
forward of approximately $2,506,000, available to offset future taxable income through 2030. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating
losses in future periods.
23
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 8– PROVISION FOR INCOME TAXES (Continued)
A reconciliation of the Company’s effective tax rate as a
percentage of income before taxes and federal statutory rate for the period ended June 30, 2010 is summarized as follows:
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
Federal statutory rate
|
|
(34.0)%
|
|
|
State income taxes, net of federal benefits
|
|
3.3
|
|
|
Valuation allowance
|
|
30.7
|
|
|
|
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
NOTE 9 – SUBSEQUENT EVENTS
Approval of Redomicile, Change in Par Value and Option Plan
On July 20, 2010, the Company’s shareholders approved the redomicile from Utah to Nevada, a change of the par
value of the Company’s Common and Preferred Stock to $0.001 per share, and the LTIP. In conjunction with approval of the Plan by the Company’s shareholders, the Board of Directors had previously approved the granting of non-qualified stock
options (the “Options”) to officers and employees of the Company for an aggregate of 900,000 underlying shares. The exercise price of the Options is fixed at $0.30 per share with the underlying shares vesting at the rate of one-third on
the date of the grant and one-third on each of the first and second anniversary dates of the grant. The Options expire five (5) years from the date that the Options are fully vested.
Default on Seatac Loan
Pursuant to the terms of the April 2010 Note, on July 1, 2010, Seatac made demand for the aggregated amount of
$925,885, including principal of $900,000 and interest through June 30, 2010. On July 11, 2010, Seatac added a one-time late charge equivalent to six percent (6%) of the unpaid amount, or $55,553, bringing the amount payable and past
due under the April 2010 Note to $981,438. The Company’s obligation to repay the April 2010 Note was (i) secured by a pledge by the Company of all of the capital stock of the Company’s subsidiaries owned as of or acquired after the
date of the April 2010 Note, pursuant to the terms of a Stock Pledge and Escrow Agreement dated April 1, 2010; (ii) guaranteed by the Company’s subsidiary, America’s Minority Health Network pursuant to a Guaranty Agreement dated
April 1, 2010; and (iii) secured by a blanket lien encumbering the assets of the Company and the Company’s subsidiaries pursuant to Security Agreements dated April 1, 2010.
Given our unsuccessful attempts to obtain additional financing or agree to alternative arrangements with Seatac, we
agreed and consented to Seatac’s exercise of its remedies under the April 2010 Note and the foreclosure upon the Collateral. As part of the agreement and consent, the Company and its Subsidiaries acknowledged that the Company and its
Subsidiaries are in default in payment of principal, interest, and late fees under the April 2010 Note and related loan documents in the aggregate of $981,438, and that the debt is secured by a first priority security interest in all of the assets
of the Company and its subsidiaries. Accordingly, on July 30, 2010, the Company and Seatac sent joint instruction to the escrow agent pursuant to which the escrow agent was instructed to transfer the stock certificate representing all of the
outstanding shares of America’s Minority Health Network being held in escrow to Seatac. The Company also entered into a trademark assignment with Seatac whereby the Company transferred all rights, title and interest in the mark
“America’s Minority Health Network, Inc.” and the goodwill associated with such mark. The Company’s settlement with Seatac did not include the surrender of Spectrum nor the satisfaction of a trade payable to Seatac in the amount
of $455,061.
24
AMHN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
NOTE 9 – SUBSEQUENT EVENTS (Continued)
Default on Seatac Loan (Continued)
In conjunction with the settlement, Robert Cambridge and Charles
Richardson resigned their positions as officers and directors of America’s Minority Health Network.
Change in
Officers and Directors
On July 30, 2010, Larry Newman resigned as President and a director of
Spectrum. His resignation was not the result of a disagreement with the Company or any matter relating to the Company’s operations, policies or practices. Robert Cambridge was elected to serve as Interim President until a replacement could be
identified and qualified.
On August 2, 2010, Andrew Golden, Charles Richardson, and Kimberly Sarubbi
resigned as directors of the Company. Their resignations were not the result of a disagreement with the Company or any matter relating to the Company’s operations, policies or practices. After the resignations, Robert Cambridge continued to
serve as the Company’s sole officer and director.
25
