Form 10-K for AMHN, INC.
15-Apr-2011
Annual Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Notice Regarding Forward Looking Statements
We desire to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This Report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, products, future results and events and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, statement related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements. In particular, the words "believe," "expect," "intend," "anticipate," "estimate," "may," "will," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below) and apply only as of the date of this Report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors that may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
Overview
The Company currently promotes, distributes and sells certain products developed and sold by Spectrum relative to its digital media network. Through the License Agreement, the Company specifically targets multispecialty group practices and independent physician associations ("IPAs") to sell them subscriptions for software, hardware and content developed for and distributed by Spectrum. In addition, the Company endeavors to sell advertising spots on the Spectrum network broadcast in those subscribing offices. The Company may earn up to thirty percent (30%) of revenues generated for new subscriptions and advertisements.
Basis of Presentation of Financial Information
On July 6, 2009, the July 2009 Acquisition Agreement between the Company and America's Minority Health Network was entered into through which the former shareholders of America's Minority Health Network became shareholders of the Company on July 27, 2009. Prior to the Agreement, we had abandoned our previous business, and upon closing the July 2009 Acquisition Agreement, the business of America's Minority Health Network became our sole focus. Because America's Minority Health Network became the Company's successor business and because the operations and assets of America's Minority Health Network represented our entire business and operations from the closing date of the Agreement through the closing of the Spectrum Acquisition Agreement, our management's discussion and analysis and audited and unaudited financial statements are based on the consolidated financial results of the Company and its wholly owned subsidiaries, America's Minority Health Network and Spectrum, for the relevant periods.
Recently Issued Accounting Pronouncements
See Note B to our audited consolidated financial statements included in this Report for recently issued accounting standards, including the expected dates of adoption and expected impact to our consolidated financial statements upon adoption.
Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. Historical financial information presented for the year ended December 31, 2010 and the period from April 2009 through December 31, 2009 is that of the Company on a consolidated basis with its subsidiaries, America's Minority Health Network (reported as discontinued as of July 31, 2010) and Spectrum (acquired June 11, 2010). Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors contained elsewhere in this document. See Caution Regarding Forward-Looking Statements.
Material Changes in Financial Condition and Results of Operations
Results of Operations - Comparison of Years Ended December 31, 2010 and 2009
Revenues
AMHN had revenues of $48,217 during the year ended December 31, 2010 compared to $0 revenues during the period from inception through December 31, 2009. The increase in revenue was the result of advertising contracts entered into during 2010, and 2009 net income reclassified to discontinued operations.
Operating Costs
AMHN had operating costs of $71,932 for the year ended December 31, 2010 compared to operating costs of $0 during the period from inception through December 31, 2009. The operating costs are the costs associated with service and maintenance of the programming provided via broadband delivery, and the increase is a reflection of the increase in the number of subscribing offices, as well as result of certain 2009 costs reclassified to discontinued operations.
General and Administration, Professional, and Consulting Expenses
AMHN's general and administrative expenses consist of accounting and administrative costs,
professional fees and other general corporate expenses. General and administrative expenses for the year ended December 31, 2010 were $376,873 compared to $628,005 for the period from inception through December 31, 2009. The decrease was largely the result of consulting fees incurred by AMHN associated with the acquisition of America's Minority Health Network, Inc. Such expenses were not repeated in 2010 with the acquisition of Spectrum.
Other Expenses
AMHN's depreciation and amortization expense for the year ended December 31, 2010 was $61,383 compared to $0 for the period from inception through December 31, 2009. The increase in depreciation and amortization is the result of the acquisition of Spectrum Health Network, Inc.
AMHN's interest expense for the year ended December 31, 2010 was $64,086 compared to $0 for the period from inception through December 31, 2009. The increase in interest expense was the result of a note due to Seatac Digital Resources, Inc.
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.
The loss from discontinued operations for the year ended December 31, 2010 was approximately $445,000. The loss from discontinued operations for the period from inception through December 31, 2009 was approximately $1,027,000. The decrease of approximately $582,000 in the loss from discontinued operations between the two periods is the result of the following: (i) an increase in revenue of $50,000; (ii) an increase in operating costs of $38,000: (iii) a reduction in general and administrative of $590,000; (iv) a reduction of sales and marketing of $50,000; and (v) an increase of $70,000 in depreciation and amortization expense.
The gain on disposal of discontinued operations in 2010 of $259,693 is comprised of: (i) $967,888 from the disposal of assets of the discontinued operations;
(ii) $1,167,917 from the disposal of liabilities of the discontinued operations; and (iii) $59,664 representing the forgiveness of debt in exchange for 100% of the issued and outstanding shares of common stock of America's Minority Health Network.
Liquidity and Capital Resources
The Company began its current operations in 2009 and has not as yet attained a level of operations which allows it to meet its current overhead. We do not know if or when we will attain profitable operations and there is no assurance that a profitable operating level can ever be achieved. We will be dependent upon obtaining additional financing in order to adequately fund working capital, infrastructure, production expenses and significant marketing related expenditures related to Spectrum and the conversion of its accounts to subscriptions. These factors raise substantial doubt about our ability to continue as a going concern and the accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.
As of December 31, 2010, the Company's cash assets were $1,497, an increase of $1,332 from December 31, 2009. Current liabilities increased $214,152 from $1,160,817 at December 31, 2009 to $1,374,969 at December 31, 2010, while working capital deficit increased $276,939 from $(1,090,945) at December 31, 2009 to $(1,367,884) at December 31, 2010.
The Company will 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. Currently, we do not have sufficient resources to continue our business plan.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
Contractual Obligations
Pursuant to the terms of the Transaction, the Company entered into a Registration Rights Agreement with Terrace Lane, LLC covering the 403,802 shares that it was issued post-Closing which granted piggy-back registration rights as set forth therein. A copy of the Registration Rights Agreement was filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on July 29, 2009 and is incorporated herein by reference.
On February 15, 2011, the Company entered into a Consulting Agreement with Back Office Consultants, Inc. ("Back Office") pursuant to which Back Office agreed to provide accounting and corporate compliance services to the Company for a monthly fee of $7,000. The one-year agreement has an effective date as of January 1, 2011. (See Exhibit 10.25, Consulting Agreement, which exhibit is incorporated herein by reference.)
