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DISCONTINUED OPERATIONS
 6 Months Ended
Jun. 30, 2011
Notes to Financial Statements  
DISCONTINUED OPERATIONS

NOTE G – DISCONTINUED OPERATIONS

 

America's Minority Health Network, Inc.

 

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 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. 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 could 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 were 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 was 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 or the satisfaction of a trade payable to Seatac in the amount of $480,465.

 

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 is as follows:

 

   

Three Months Ended

June 30, 2010

    

Six Months Ended

June 30, 2010

  
             
Operating revenues   $ 28,934     $ 44,263  
Operating expenses:                
    Operating costs     36,192       68,817  
    General and administration     44,151       94,606  
    Sales and marketing     60,018       143,214  
    Depreciation and amortization     64,885       122,785  
        Total operating expense     205,246       429,422  
Other expense                
    Interest expense     -0-       (8,531 )
        Total other income and (expense)     -0-       (8,531 )
Loss from discontinued operations   $ (176,312 )   $ (393,690 )

 

 

Spectrum Health Network, Inc.

 

On December 16, 2010, the Company and Seatac entered into a Note Purchase Agreement and issued the Spectrum Note in the principal amount of $487,532 and subsequent advances by Seatac bringing the total principal amount due to $543,531. As security for the Company’s obligations under the Note Purchase Agreement and Spectrum Note, the Company pledged all of the capital stock of Spectrum pursuant to the terms of a Stock Pledge and Escrow Agreement dated December 16, 2010.  Repayment of the Spectrum Note was guaranteed by Spectrum and secured by a blanket lien encumbering the assets of Spectrum.

 

In February 2011, Seatac notified the Company that it intended to make demand for payment under the Spectrum Note; however, the Company was unable to pay the balance. In an effort to satisfy the Spectrum Note in full, Seatac and the Company: (i) acknowledged that the Company and Spectrum were unable to pay the aggregated principal and interest of $547,155 due to Seatac under the Spectrum Note which was secured by a first priority security interest in all of the assets of the Company and Spectrum; (ii) sent joint instruction to the escrow agent, pursuant to which the escrow agent transferred the stock certificate representing all of the outstanding shares of Spectrum being held in escrow to Seatac; (iii) entered into a trademark assignment to transfer all rights, title and interest in the mark "Spectrum Health Network, Inc." and the goodwill associated with that mark; and (iv) entered into an Exclusive Licensing, Distribution and Advertising Sales Agreement wherein Seatac and Spectrum licensed the Company to sell subscriptions to and advertising spots on the Spectrum digital-media network.

 

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 period from June 11, 2010 through June 30, 2010 is as follows:

 

Operating revenues   $ 5,734  
Operating expenses:        
    Operating costs     6,943  
    General and administration     7,638  
    Depreciation and amortization     8,733  
        Total operating expense     23,314  
Loss from discontinued operations   $ (17,580 )

 

Summarized financial information for discontinued operations for the period January 1, 2011 through February 14, 2011 is as follows:

 

Operating revenues   $ 12,573  
Operating expenses:        
    Operating costs     16,356  
    General and administration     32,989  
    Depreciation     9,819  
        Total operating expense     59,164  
Loss from discontinued operations   $ (46,591 )

 

 

Spectrum Health Network, Inc.

 

The components of the gain on disposal of discontinued operations during the period January 1, 2011 through February 14, 2011 is as follows:

 

Assets:      
  Cash   $ 5,817  
  Accounts receivable     12,573  
  Fixed assets, net     186,569  
  Intangible assets, net     288,443  
     Total assets transferred   $ 493,402  
         
Liabilities:        
  Accounts payable   $ 634,965  
  Other liabilities     16,950  
  Secured promissory note and accrued interest     547,155  
     Total liabilities of discontinued operations   $ 1,199,070  
         
Net gain on disposal of discontinued operations   $ 705,668