SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission File No. 0-22913
THE RECOVERY NETWORK, INC.
----------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Colorado 39-1731029
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1411 5th Street, Suite 200, Santa Monica, California, 90401
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (310) 393-3979
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes |X| No |_|
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,979,150 shares as of May 11,
1998.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
THE RECOVERY NETWORK, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1998 (unaudited), and June 30, 1997........... 3
Condensed Consolidated Statements of Operations
(unaudited) for the three and nine month
periods ended March 31, 1998 and 1997 .................. 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the nine month
periods ended March 31, 1998 and 1997 .................. 5
Notes to Condensed Consolidated Financial
Statements (unaudited).................................. 6
Item 2. Plan of Operations ......................................... 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................11
Signature ...................................................................12
2
<PAGE>
Item 1. Financial Statements.
THE RECOVERY NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
------------ ------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash .................................................... $ 2,709,966 $ 10,883
Accounts Receivable ..................................... 113,634 25,631
Inventory ............................................... 69,238 --
Prepaid expenses ........................................ 237,562 15,693
------------ ------------
Total current assets ........................... 3,130,400 52,207
CAPITALIZED PROGRAMMING COSTS, net.......................... 819,343 237,600
FURNITURE AND EQUIPMENT, net ............................... 215,515 112,750
DEFERRED FINANCING COSTS ................................... -- 100,269
DEFERRED OFFERING COSTS .................................... -- 270,040
OTHER, net ................................................. 69,150 26,386
------------ ------------
$ 4,234,408 $ 799,252
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Notes payable ........................................... $ -- $ 1,520,432
Accounts payable and accrued liabilities ................ 580,890 502,642
Accrued professional fees ............................... 27,465 312,249
Accrued royalty expense ................................. 145,823 --
Current portion of capital lease obligation ............. 17,029 17,029
Deferred compensation ................................... -- 51,672
Due to shareholders and directors ....................... -- 65,751
------------ ------------
Total current liabilities ...................... 771,207 2,469,775
CAPITAL LEASE OBLIGATION, net of current portion ........... 17,646 30,301
------------ ------------
Total liabilities ............................. 788,853 2,500,076
------------ ------------
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' EQUITY(DEFICIT):
Common stock, $.01 par value:
Authorized--25,000,000 shares
Issued and outstanding, 4,980,250 shares at March 31,
1998, and 2,521,250 at June 30, 1997 ................ 49,803 25,212
Additional paid-in capital .............................. 14,502,874 4,176,708
Prepaid consulting costs ................................ -- (5,625)
Deficit ................................................. (11,107,122) (5,897,119)
------------ ------------
Shareholders' equity (deficit) .................. 3,445,555 (1,700,824)
------------ ------------
$ 4,234,408 $ 799,252
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
THE RECOVERY NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997.
<TABLE>
<CAPTION>
Three months ended March 31, Nine months ended March 31,
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Advertising ............................. $ 21,977 $ 22,918 $ 77,648 $ 28,718
Government Contracts .................... 29,900 -- 49,900
Video and publication ................... 229,788 -- 281,654 --
----------- ----------- ----------- -----------
Total revenues ............... 281,665 22,918 409,202 28,718
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Salaries and consulting ................. 773,781 521,013 1,460,824 812,861
Marketing ............................... 467,758 168,713 1,125,607 230,916
General and administrative .............. 460,141 343,201 980,008 588,428
Programming ............................. 123,532 250,300 464,256 282,724
Programming transmission ................ 315,343 -- 534,430 --
Loss on investment in joint venture ..... 167,400 156,454 317,400 228,985
Cost of video and publication sales ..... 75,219 -- 91,202 --
----------- ----------- ----------- -----------
Operating expenses ............ 2,383,174 1,439,681 4,973,727 2,143,914
----------- ----------- ----------- -----------
Loss from operations .................... (2,101,509) (1,416,763) (4,564,525) (2,115,196)
INTEREST EXPENSE .......................... (5,584) (152,528) (770,841) (171,077)
INTEREST INCOME ........................... 48,191 -- 125,363 --
----------- ----------- ----------- -----------
Loss before provision for income taxes (2,058,902) (1,569,291) (5,210,003) (2,286,273)
PROVISION FOR STATE INCOME TAXES ........... -- -- -- --
----------- ----------- ----------- -----------
Net loss .............................. $(2,058,902) $(1,569,291) $(5,210,003) $(2,286,273)
=========== =========== =========== ===========
LOSS PER SHARE INFORMATION:
Basic and diluted loss per share ........... $ (.41) $ (.72) $ (1.27) $ (1.23)
=========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding ............ 4,980,250 2,186,250 4,116,757 1,859,914
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
THE RECOVERY NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Nine months ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss .......................................................... $ (5,210,003) $ (2,286,273)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of notes payable discount ......................... 479,568 121,042
Amortization of deferred offering and financing costs ......... 130,529 26,305
Amortization of and allowances for capitalized programming costs 116,270 --
Depreciation and other amortization ............................ 53,589 10,749
Common stock issued for services and interest expense .......... -- 27,000
Provision for doubtful accounts ................................ 7,000 --
Loss on investment in joint venture ............................ 317,400 228,985
Changes in assets and liabilities:
Accounts receivable ............................................ (44,562) (4,928)
Inventory ...................................................... 11,711 --
Prepaid expenses ............................................... (211,706) (10,822)
Security deposit & other assets ................................ (2,507) (7,710)
Capitalized programming costs .................................. (313,574) --
Accounts payable and accrued liabilities ....................... (73,276) 178,275
Accrued royalty expense ........................................ (19,238) --
Accrued professional fees ...................................... (284,784) --
Deferred compensation .......................................... (51,672) 49,833
Due to shareholders and directors .............................. (65,751) (95,314)
------------ ------------
Net cash used in operating activities .................... (5,161,006) (1,762,858)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for purchase of FMS .................................. (34,383) --
Purchases of furniture and equipment ........................... (134,903) (26,332)
Investment in joint venture .................................... (317,400) (300,000)
------------ ------------
Net cash used in investing activities .................... (486,686) (326,332)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ....................................... 574,990 1,221,976
Payments on borrowings ......................................... (2,605,250) (60,000)
Payments on capital lease obligations .......................... (12,655) (818)
Proceeds from the issuance of common
stock, warrants and stock subscriptions ..................... 10,715,355 1,755,027
Repurchase of common stock ..................................... -- (4,973)
Deferred offering and financing costs incurred ................. (343,558) (225,582)
------------ ------------
Net cash provided by financing activities ................ 8,328,882 2,685,630
------------ ------------
NET INCREASE IN CASH ................................................. 2,681,190 596,440
CASH, beginning of period ...................................... 10,883 137,492
CASH FROM ACQUISITION OF FMS ................................... 17,893 --
------------ ------------
CASH, end of period ............................................ $ 2,709,966 $ 733,932
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
THE RECOVERY NETWORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial statements and the instructions to Form 10-QSB
related to interim period financial statements. Accordingly, these condensed
consolidated financial statements do not include certain information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary in order
to present the financial statements fairly. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year. The Company's condensed consolidated financial statements should
be read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's Registration Statement on Form SB-2 (File No.
333-27787) that became effective on September 29, 1997.
NOTE B -- ACQUISITION OF FMS
On December 10, 1997, The Recovery Network, Inc., (the "Company")
acquired 100 percent of the issued and outstanding common stock of FMS
Productions, Inc. ("FMS") for total consideration of $225,490. Consideration
included 44,000 shares of the Company's common stock valued at $209,000 or
($4.75 per share) and cash payment totaling $34,383, less $17,893 of cash
received from FMS. In conjunction with the acquisition, which has been accounted
for under the purchase method, assumed liabilities were as follows:
Fair value of assets acquired, excluding cash ................ $ 542,074
Net cash payment ............................................. (16,490)
Value of Company's common stock issued ....................... (209,000)
---------
Liabilities assumed .......................................... $ 316,584
=========
The unaudited condensed consolidated statement of operations for the
nine-month period ended March 31, 1998 includes the operating results of FMS
from December 10, 1997 (the acquisition date) to March 31, 1998. All
intercompany transactions have been eliminated.
The pro forma results of operations for the nine-month periods ended
March 31, 1998 and 1997 (reflecting all adjustments which, in the opinion of
management, are necessary for a fair presentation) as if the FMS acquisition and
the Company's October 3, 1997 initial public offering (the "IPO") were
consummated on July 1, 1997 and 1996, respectively, are as follows:
6
<PAGE>
<TABLE>
<CAPTION>
Nine-months ended March 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Company revenues before consolidation with FMS $ 128,000 $ 29,000
Pro forma adjustment-
FMS revenues (six-month ended October 31, 1997 and 1996) 944,000 905,000
----------- -----------
Pro forma revenue 1,072,000 934,000
----------- -----------
NET LOSS:
Company historical net loss before consolidation with FMS (5,146,000) (2,286,000)
Pro forma adjustments:
FMS net income (loss) (22,000) 21,000
Amortization of FMS's television rights (30,000) (45,000)
Increase in FMS's officer salaries based on new
employment agreements (20,000) (30,000)
Reduction in interest expense due to retirement of
note payable to FMS shareholder 2,000 3,000
Reduction in interest expense due to retirement of Company
notes payable with the net proceeds received form the IPO 765,000 153,000
----------- -----------
Pro forma net loss $(4,451,000) $(2,184,000)
=========== ===========
LOSS PER SHARE INFORMATION:
Historical weighted average number of
common shares outstanding 4,116,757 1,859,914
Increase in weighted average share to
acquire FMS if consummated on July 1, 1997 and 1996 26,175 44,000
Additional shares to be sold to retire Company debt 521,050 390,000
----------- -----------
Pro forma weighted average number
of common shares 4,663,982 2,293,914
=========== ===========
Pro forma loss per common share $ (0.95) $ (0.95)
=========== ===========
</TABLE>
NOTE C -- LOSS PER SHARE
Effective December 31, 1997, the Company adopted the Statement of
Financial Accounting Standards No. 128 "Earnings Per Share." The adoption of
this standard had no effect on the loss per share calculations for the periods
presented.
Net loss per share and loss per share assuming dilution are based on
the weighted average number of common shares outstanding and dilutive common
stock equivalents during the periods presented. Options and warrants to purchase
3,378,282 shares of common stock (at prices ranging from $0.77 to $5.50) were
outstanding as of March 31, 1998 and excluded from the computation of loss per
share assuming dilution for periods subsequent to June 30, 1997 as they would be
anti-dilutive.
7
<PAGE>
NOTE D -- SUPPLEMENTAL CASH FLOWS DISCLOSURE
The Company prepares its statements of cash flows using the indirect
method as defined under SFAS No. 95, "Statement of Cash Flows." Required
non-cash transaction disclosures are as follows:
For the nine-months ended March 31, 1998, deferred offering costs of
$573,578 were recorded against proceeds from the IPO. Deferred offering costs of
$40,000, paid to the underwriters, were credited toward a two year consulting
agreement and recorded in other assets. Company common stock of 44,000 shares
was issued in connection with the acquisition of FMS.
As of March 31, 1997, the Company issued shares of common stock in
connection with the conversion of $270,000 of notes payable, the settlement of
deferred compensation of $74,000 and amounts due to consultants and shareholders
for both past and future services of $137,500.
NOTE E -SIGNIFICANT BUSINESS RISK
Lack of Operating History
The Company has recurring losses from operations and has minimal
operating revenues. The ability of the Company to generate positive operating
results is dependent upon its ability (i) to obtain sufficient additional
capital, (ii) to distribute programming and services through multiple media
channels, (iii) to achieve a critical mass of viewers necessary to attract
advertisers and (iv) to acquire or develop appropriate programming for
broadcast. The Company intends to raise additional working capital through
private and/or public offerings. The successful outcome of future activities
cannot be determined at this time and there are no assurances that, if achieved,
the Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
Government Regulations
The cable television industry is subject to extensive and frequently
changing federal, state and local laws and substantial regulation under these
laws by governmental agencies, including the Federal Communications Commission
(the "FCC"). Regulations governing the rates that can be charged to subscribers
by cable systems not in markets subject to effective competition from other
multichannel video program distributors could adversely affect the ability of
cable systems with limited channel capacity to finance rebuilding or upgrading
efforts to increase channel capacity or otherwise restrict their ability to add
new programming such that offered by the Company. In addition, federal
"must-carry" rules requiring cable operators to devote up to one-third of their
channels to carriage of local commercial TV broadcast stations and additional
channels for noncommercial educational TV stations; commercial leased access
rules designating up to 10 to 15 percent of system channels for lease by
unaffiliated programmers; and local regulatory requirements mandating further
channel set-asides for public, governmental and educational use could reduce
channel availability which might otherwise be available for the Company's
programming on many cable systems. Statutory provisions and FCC rules governing
relationships among cable systems and competing forms of multichannel video
program distribution, as well as the relations between the Company and its cable
system affiliates could adversely affect the marketability of the Company's
programming and the flexibility of the Company in its business dealings with
outlets for its programming. Although program providers that do not hold FCC
licenses or operate distribution outlets, such as the Company's offerings of The
Recovery Network and Recovery Radio, are outside the FCC's direct jurisdiction,
the cable systems and radio stations that carry the Company's programs are
regulated by the FCC and, therefore, are subject to its rules and policies, such
as those relating to sponsorship identification, broadcast of indecent language,
provision of equal opportunities for political candidates and related measures
pertaining to program content and format. Failure of the Company's programs to
comply with one or more of these rules could subject the cable systems or radio
stations to FCC fine or other sanction and thus could adversely affect the
Company's relationship with such entities and could result in the
discontinuation of carriage of the Company's programming by such entities.
8
<PAGE>
Dependence upon Access Television Network ("ATN," a related company)
ATN's subscribers currently represent substantially all of the
households that receive the Company's programming. The company is dependent upon
ATN to deliver its programming to ATN's subscribers and to provide the necessary
services to enable the Company to deliver its programming through cable systems
with which the Company directly enters into affiliation agreements. It is
possible that ATN or its affiliates could experience delivery interruptions and
equipment failures, which could last for a significant period of time. The
Company's prospects will be affected by ATN's ability to maintain its existing
subscriber base and to enter into additional affiliation agreements to ATN's
subscriber base. Moreover, the Company's agreement with ATN expires August 31,
1998 unless renewed by both parties.
ITEM 2. PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements and notes thereto appearing
elsewhere herein.
GENERAL
In April 1997, the Company nationally launched The Recovery Network,
a cable television network. Pursuant to a nesting contract (the "Nesting
Contract") with ATN, ATN provides satellite uplink, master control and other
related services on its satellite transponder to The Recovery Network for two
hours of telecast time every day to subscribers of cable systems with which ATN
has affiliation agreements, and to systems with which the Company has direct
affiliation agreements. Currently, The Recovery Network is telecast one hour in
the morning to approximately 11 million subscribers and one hour in the evening
to approximately 6 million subscribers. In addition to the distribution under
the Nesting Contract, the Company is seeking two hours of broadcast time per day
in other local cable systems in a large number of markets. The Company believes
it has identified all local cable systems in the United States with at least
50,000 subscribers and is engaged in a general marketing campaign ("affiliate
marketing") directed at those 259 systems. The Company is also targeting a more
focused affiliate marketing effort on 11 major cities whose communities contain
103 of those 259 systems.
On February 26, 1998, the Company executed a contract to extend its
current agreement with ATN. The extension provides for an extension of services
on a month-to-month basis through and until August 31, 1998, at a monthly fee of
$65,000 and a one-time payment of $150,000 to reflect unanticipated costs
incurred by ATN in the course of performance under the nesting contract. The
Company is currently negotiating, and anticipates concluding a contract, for a
satellite transponder to broadcast its programming, after the extension with ATN
expires.
To date, the Company has incurred significant net losses, including
net losses of $1,223,829, $3,817,652, $2,286,273, and $5,210,003 for the years
ended June 30, 1996 and 1997 and the nine-months ended March 31, 1997 and 1998,
respectively. The Company anticipates that it will generate revenues from
advertising sales on The Recovery Network and Recovery Talk Radio, merchandising
recovery-related products and services on The Recovery Network, Recovery Talk
Radio, and by seeking sponsorships for its programming and from license fees
from cable systems for its programming. The Company does not expect that it will
generate any meaningful revenues from fees until such time, if ever, that The
Recovery Network enters into affiliation agreements providing the Company with a
significant subscriber base. There can be no assurance that the Company will be
able to enter into affiliation agreements with local cable systems with a
sufficient number of subscribers, achieve significant viewer loyalty or attract
advertisers for The Recovery Network, generate meaningful revenues or achieve
profitable operations. The Company also anticipates that Recovery Interactive
will generate revenue from monthly subscriber fees from managed care companies,
insurance companies and employers for delivering mental and behavioral health
benefits to covered individuals, advertising and merchandising.
On August 18, 1997, the Company entered into an contractual
agreement with the United States Government agency, the federal Center for
Substance Abuse Prevention ("CSAP"). The contract, with subsequent
modifications, provides that CSAP will pay the Company the amount of $49,900
over a six-to-nine-month period as compensation for a certain set of
deliverables. The deliverables pursuant to the contract include a detailed
financial plan, the creation and organization of a national cable event, later
modified to special cable programming through the Company, organizational plans
for a National Day of Sobriety, and community-related events to support drug
prevention. The contract was completed on February 28, 1998, when the Company
presented the final deliverables.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in the next twelve months
will be to fund the costs of its affiliate marketing efforts, sales of
advertising time and producing its programming, satellite transponder costs,
costs for uplink, master control and transmission services, and working capital
expenses.
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been exceeding its cash flow from
operations. At March 31, 1998, the Company had a working capital surplus of
$2,359,193. Due to, among other things, the lack of meaningful revenues, costs
associated with program development and affiliate marketing efforts, the Company
has been substantially dependent upon various private placements and its initial
public offering to fund its operations.
During the period from November 1995 through March 1, 1997, the
Company issued in private placements 745,674 shares of common stock at prices
ranging from $.77 per share to $3.48 per share for net proceeds of approximately
$1,433,767. Additionally, the Company raised debt proceeds of $310,000 through a
private placement. Of these debt proceeds raised, $250,000 was converted into
71,033 shares of common stock and $60,000 was repaid as of June 30, 1997. Upon
conversion and repayment of debt, warrants to purchase 157,563 shares of common
stock were issued. Warrants to purchase 142,065 shares of common stock have been
exercised for $330,000. A warrant to purchase 15,498 shares of common stock at
$3.87 per share remains outstanding. Also, during this period, options to
purchase 73,615 shares of common stock were exercised for $171,000. See the
Company's registration statement on Form SB-2 dated September 29, 1997 for
specifics of these financing activities.
In March and April 1997, the Company completed a private financing
(the "private financing") pursuant to which it issued an aggregate of (i)
$2,000,000 principal amount of unsecured non-negotiable promissory notes bearing
interest at the rate of 9% per annum, which were repaid out of the proceeds of
the Company's initial public offering; (ii) 400,000 shares of Common Stock; and
(iii) warrants to purchase an aggregate of 500,000 shares of Common Stock at an
exercise price of $5.50 per share. The offering price was $50,000 per Financing
Unit. After payment of $200,000 in placement agent fees to the Underwriter,
which acted as placement agent for the Company in connection with the Private
Financing, and other offering expenses of approximately $262,000, the Company
received net proceeds of approximately $1,538,000 from the sale of the Financing
Units. The net proceeds of the Private Financing were used by the Company for,
among other things, an affiliate marketing campaign in connection with the
national launch of The Recovery Network, programming expenses for the production
of "Full Circle", "Testimony" and "Bottoms," a capital contribution in the
amount of $200,000 to Recovery Interactive and payments under the Nesting
Contract with ATN in the amount of $102,000. The Company repaid the entire
principal amount of, and accrued interest on, the Financing Notes subsequent to
September 30,1997 with proceeds received from the IPO.
During July and August 1997, the Company issued the Promissory Notes
with an aggregate principal amount of $605,250 to five lenders. The Company paid
to each lender a loan origination fee in an amount equal to 5% of the Promissory
Notes, or approximately $30,300. The Promissory Notes plus $95,000 of interest
thereon were repaid on October 3, 1997. The net proceeds from the issuance of
the Promissory Notes were used for working capital. The Company incurred
financing costs during the nine-month period ended March 31, 1998 of
approximately $765,000 relating to Private Financing and Promissory Notes. The
net proceeds received from the initial public offering were $10,141,757, and the
amount of said proceeds utilized by March 31, 1998 was approximately $7,450,000
used principally to repay debt and pay operating expenses.
The Company anticipates that the net proceeds from its initial
public offering, together with projected revenues from operations, will be
sufficient to fund the Company's operations and capital requirements until July
31, 1998. There can be no assurance, however, that such funds will not be
expended prior thereto due to unanticipated changes in economic conditions or
other unforeseen circumstances. In the event the Company's plans change or its
assumptions change or prove to be inaccurate, the Company could be required to
seek additional financing sooner than currently anticipated. The Company has no
current arrangements with respect to, or potential sources of, any additional
financing, and it is not anticipated that existing shareholders will provide any
portion of the Company's future financing requirements. Consequently, there can
be no assurance that any additional financing will be available to the Company
when needed, on commercially reasonable terms, or at all. Any inability to
obtain additional financing when needed would have a material adverse effect on
the Company, requiring it to curtail and possibly cease its operations. In
addition, any additional equity financing may involve substantial dilution to
the interests of the Company's then existing shareholders.
10
<PAGE>
Disclosure Regarding Private Securities Litigation Reform Act of 1995
- ---------------------------------------------------------------------
This report contains certain forward-looking statements with respect
to the future performance of the Company that involve risks and uncertainties.
Various factors could cause actual results to differ materially from those
projected in such statements. These factors include, but are not limited to, the
Company's lack of meaningful revenues, its significant and continuing losses,
its significant capital requirements, the uncertainty of its ability to
implement its plan of operation and other factors discussed herein and in the
Company's other filings with the Securities and Exchange Commission.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 29, 1997, the Securities and Exchange Commission
declared effective the Company's Registration Statement on Form SB-2 (File No.
333-27787). On January 8, 1998, the Company split its Units into common shares
and warrants. The proceeds from the initial public offering are anticipated to
be fully utilized by July 31, 1998.
From October 3, 1997 (the "Effective Date") through March 31, 1998,
the company incurred expenses in connection with the securities registered of
$1,231,650, $369,495, $573,598 and $2,174,743 for underwriting discounts and
commissions, expenses paid to the Underwriter, other expenses and total
expenses, respectively. All of such payments were direct or indirect payments to
persons other than (i) directors or officers of the Company or the associates of
such persons, (ii) persons owning 10 percent or more of the Common Stock or
(iii) affiliates of the Company.
After deducting the total expenses of the offering, the Company
received net proceeds of $10,141,757.
From the Effective Date through March 31, 1998, the Company used the
net offering proceeds as follows: (i) $34,383 was used to pay off certain
liabilities assumed pursuant to the acquisition of another business, (ii)
$2,747,079 was used for the repayment of indebtedness and accrued interest
thereon, (iii) $ 3,830,996 was used for working capital, (iv) $317,400 was
contributed to Recovery Interactive, Inc., and (v) $ 527,333 was used to develop
programming. Other than for the payment of salaries to officers of the Company,
all of such payments were direct or indirect payments to persons other than (i)
directors or officers of the Company or the associates of such persons, (ii)
persons owning 10 percent or more of the Common Stock or (iii) affiliates of the
Company.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on form 8-K
The Company filed a report on Form 8-K on December 15, 1997
(date of earliest event reported), and an amendment thereto
on March 2, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE RECOVERY NETWORK, INC.
Dated: May 15, 1998 By: /s/ William D. Moses
------------------------------
William D. Moses
President and Chief Executive
Officer
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001017822
<NAME> THE RECOVERY NETWORK, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,709,966
<SECURITIES> 0
<RECEIVABLES> 139,164
<ALLOWANCES> 25,530
<INVENTORY> 69,238
<CURRENT-ASSETS> 3,130,400
<PP&E> 374,264
<DEPRECIATION> 262,346
<TOTAL-ASSETS> 4,234,408
<CURRENT-LIABILITIES> 771,207
<BONDS> 0
0
0
<COMMON> 49,803
<OTHER-SE> 3,395,752
<TOTAL-LIABILITY-AND-EQUITY> 4,234,408
<SALES> 281,654
<TOTAL-REVENUES> 409,202
<CGS> 91,202
<TOTAL-COSTS> 4,973,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 770,841
<INCOME-PRETAX> (5,210,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,210,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,210,003)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
