<PAGE> 1
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
SEPTEMBER 30, 1999.
[ ] 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
RNETHEALTH.COM, INC.(FORMERLY 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.)
506 Santa Monica Blvd, Suite 400, 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: 21,026,354 shares as of
November 9, 1999.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
Yes [ ] No [X]
<PAGE> 2
RNETHEALTH.COM, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and June 30, 1999.......................................... 1
Condensed Consolidated Statements of Operations (unaudited) for
the three-month periods ended September 30, 1999 and 1998.............. 2
Condensed Consolidated Statements of Cash Flows (unaudited) for
the three-month periods ended September 30, 1999 and 1998.............. 3
Notes to Condensed Consolidated Financial Statements (unaudited)....... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 11
Item 6. Exhibits and Reports on Form 8-K ................................. 12
Signature Page............................................................. 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RNETHEALTH.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
(UNAUDITED) JUNE 30, 1999
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 101,956 $ 136,058
Accounts receivable, net of allowance for doubtful
accounts of $32,000 at September 30, 1999
and June 30, 1999 176,743 256,499
Current portion of capitalized programming costs, net 85,000 98,000
Inventory 57,478 55,593
Prepaid expenses 27,784 70,345
------------ ------------
Total current assets 448,961 616,495
Capitalized programming costs, net 265,446 421,648
Furniture and equipment, net 166,442 177,550
Other 52,686 52,686
------------ ------------
$ 933,535 $ 1,268,379
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Short-term notes payable, net of unamortized debt
discount of $0 and $181,318 $ 75,000 $ 481,015
Accounts payable 637,539 442,085
Accrued payroll and benefits 133,904 139,086
Other accrued liabilities 94,820 84,025
Accrued royalty expense 471,502 503,137
Current portion of capital lease obligations 15,535 19,817
------------ ------------
Total current liabilities 1,428,300 1,880,396
------------ ------------
Convertible debt and related accrued interest payable,
net of unamortized debt discount of $45,330 815,496 --
Commitments
Shareholders' deficit:
Common stock, $0.01 par value; 25,000,000 shares
authorized; 17,923,202 and 15,494,507 shares issued
and outstanding at September 30, 1999 and June 30,
1999, respectively 179,232 154,945
Additional paid-in capital 23,553,606 21,813,509
Common stock subscription receivable -- (50,000)
Prepaid consulting (117,222) (230,331)
Accumulated deficit (24,925,877) (22,300,140)
------------ ------------
Total shareholders' deficit (1,310,261) (612,017)
------------ ------------
$ 933,535 $ 1,268,379
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
1
<PAGE> 4
RNETHEALTH.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Domestic sales $ 426,669 $ 406,324
------------ ------------
Operating expenses:
Salaries and consulting expenses 1,391,080 1,111,285
General and administrative expenses 393,019 774,727
Programming expenses 341,242 390,578
Cost of video and publication sales 142,699 153,403
Marketing expenses 23,312 139,031
------------ ------------
Total operating expenses 2,291,352 2,569,024
------------ ------------
Loss from operations (1,864,683) (2,162,700)
Interest expense 761,524 4,116
Interest income (470) (51,387)
------------ ------------
Loss before provision for state income taxes (2,625,737) (2,115,429)
Provision for state income taxes -- 174
------------ ------------
Net loss $ (2,625,737) $ (2,115,603)
============ ============
Loss per share information:
Basic and diluted loss per common share $ (0.15) $ (0.36)
============ ============
Weighted average number of common
shares outstanding 17,054,062 5,814,117
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE> 5
RNETHEALTH.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,625,737) $(2,115,603)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of prepaid consulting 138,809 --
Value of shares issued for interest expense,
compensation and other services 495,084 --
Imputed interest on beneficial conversion feature
of convertible debt 230,000 --
Value of options and warrants granted 963,600 --
Amortization of notes payable discount 135,988 --
Amortization of capitalized programming costs 182,202 138,159
Depreciation and other amortization 21,115 26,482
Interest income from escrow account -- (29,421)
Changes in operating assets and liabilities:
Accounts receivable 79,756 187,812
Inventory (1,885) (4,858)
Prepaid expenses 42,561 (38,967)
Other assets -- (94,389)
Capitalized programming costs (13,000) (63,474)
Accounts payable, accrued payroll and benefits, and
other accrued liabilities 33,329 185,096
Accrued royalty expense (31,635) (45,781)
Due to joint venture -- (74,500)
----------- -----------
Net cash used in operating activities (349,813) (1,929,444)
----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment (10,007) (76,576)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings from shareholders 230,000 --
Payments on capital lease obligation (4,282) (5,432)
Proceeds from exercise of stock options and collection
of subscription receivable 100,000 --
----------- -----------
Net cash provided by (used in) financing activities 325,718 (5,432)
----------- -----------
Net decrease in cash (34,102) (2,011,452)
Cash, beginning of period 136,058 2,219,145
----------- -----------
Cash, end of period $ 101,956 $ 207,693
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 6
RNETHEALTH.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
RnetHealth.com, Inc. (the "Company") 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. These condensed consolidated
financial statements should be read in conjunction with the Company's audited
financial statements, and notes thereto, which are included in the Company's
Registration Statement on Form SB-2/A-1 (File No. 333-90481 dated November 12,
1999), and the Company's Annual Report on Form 10-KSB for the year ended June
30, 1999.
NOTE 2 - ISSUANCE OF COMMON STOCK
In July, 1999, the Company issued 931,687 shares of stock to employees and
consultants for services rendered in the Company's fiscal year ended June 30,
1999. The value of such shares was recorded previously as shares subscribed;
therefore, the issuance of these shares had no impact on operations or equity.
In addition, the Company received $50,000 from the June 1999 private placement
and the related shares were issued out of escrow.
From July to September 1999, the Company issued 232,563 shares of stock to
employees and consultants for employment and other consulting services,
recognizing expenses of $136,454. In that same period, the Company issued
1,064,445 shares to various related-party lenders who provided short-term
financing for the Company. The value of such shares (totaling $358,630) has been
recorded as additional interest expense in the accompanying consolidated
statement of operations for 1999 since the related short-term notes are
immediately convertible at the option of the note holder.
In September 1999, an option holder exercised his option to acquire 200,000
shares of common stock at $0.25 per share, resulting in proceeds of $50,000 to
the Company.
On September 28, 1999, the Company entered into a Restructuring Agreement with
various investors. Pursuant to the Restructuring Agreement, the Company agreed
to the following: (i) issue 500,000 shares to various investors in lieu of any
further reset rights under June 1998 private placement agreement;(ii) issue
400,000 shares as an initial reset of the purchase price of common stock under
the June 1999 subscription agreement, with all further resets based on a
purchase price of $0.50; (iii) fix the conversion price on the $100,000
convertible note(see Note 4) at $0.50 (amended to $0.25 per share in November
1999 - see exhibit 10.1); and (iv) reprice 500,000 warrants issued in May 1999
from $0.01 to $0.25 per share and allow the Company a call option on the
warrants once the stock price exceeds $0.75, as defined. This Restructuring
Agreement is effective on October 25, 1999; therefore, none of these shares have
been issued as of September 30, 1999. None of the above transactions would
result in the recording of any amounts to the consolidated statement of
operations for the quarter ended December 31, 1999.
4
<PAGE> 7
RNETHEALTH.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 3 - STOCK OPTIONS AND WARRANT ACTIVITY
In connection with employee services and consulting arrangements, the Company
has granted options and warrants to acquire a total of 2,275,000 shares of
common stock to various employees, consultants and Board of Director members for
the three month period ended September 30, 1999. These options have exercise
prices between $0.15 and $0.3438 per share and immediately vested. The estimated
fair value of the non-employee options and warrants granted (under SFAS No. 123)
or the intrinsic value of employee options and warrants granted below market
value (under APB Opinion 25), at the time of grant, totaled approximately
$963,600 and has been included in equity.
In addition, approximately 261,000 options expired during the quarter.
NOTE 4 - DEBT
Debt consists of the following at September 30, 1999:
<TABLE>
<S> <C>
Convertible Debt:
All Convertible Debt and related accrued interest was Converted to
common stock in October 1999 -- (See Note 8)
Unsecured notes payable to shareholders, interest at 10%, principal
and interest due October 1999, net of unamortized debt discount of
$45,330. $442,003
Promissory notes payable to shareholders and related parties,
interest at 10%, principal and interest due January 2000. 230,000
Convertible notes payable to shareholders, interest at 12%,
principal and interest due March 2000 100,000
Accrued Interest on convertible debt 43,493
--------
Short-Term Notes Payable: 815,496
Unsecured note payable to Group W Network Services, interest at
10%, principal and interest due December 1999 75,000
--------
$890,496
========
</TABLE>
The debt discount amortization totaled $135,988 during the quarter ended
September 30, 1999.
In connection with the $230,000 of promissory notes, the note holders received
1,064,445 shares of stock (valued at $358,630) that have been recorded as
additional interest expense for the quarter ended September 30, 1999. Also, the
promissory note holders were given a conversion option equivalent to 50% of the
share price on the date of conversion. This beneficial conversion was recorded
as additional interest expense of $230,000 during the quarter ended September
30, 1999 as the notes were immediately convertible.
5
<PAGE> 8
NOTE 5 - LOSS PER SHARE
Net loss per common share is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents during the periods
presented. Options and warrants to purchase 8,818,059 shares of common stock (at
prices ranging from $0.01 to $9.075) and 4,477,170 shares of common stock (at
prices ranging from $1.30 to $9.075) were outstanding as of September 30, 1999
and 1998, respectively, and were excluded from the computation of loss per
common share assuming dilution as they would have been anti-dilutive.
NOTE 6 - GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has
significant recurring losses from operations, limited operating revenues, a
working capital deficit of $979,339 and a shareholders' deficit of $1,310,261.
These factors (among others) raise substantial doubt about the Company's ability
to continue as a going concern. The ability of the Company to operate as a going
concern is dependent upon its ability (1) to obtain sufficient additional debt
and/or equity capital, (2) to distribute its programming and services through
Internet, cable and other multimedia channels, (3) to achieve a critical mass of
viewers and/or visitors to attract advertisers and healthcare providers, and (4)
to acquire and develop appropriate programming and/or content for distribution.
The Company plans to raise additional working capital through private and 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.
The financial statements do not include any adjustments related to the
recoverability and classification of assets carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
6
<PAGE> 9
RNETHEALTH.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
SEPTEMBER 30, 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company has a consulting agreement with a unrelated company. In connection
with the agreement, the Company is obligated to reserve for issuance 200,000
shares, which will be paid to the consultant over a twenty-four month period at
8,333 shares per month. If the agreement is terminated prior to the conclusion
of the twenty-four month period, the consultant has no right to receive any
additional shares that have not yet been granted. Through September 30, 1999,
32,332 shares have been granted under this agreement
The Company entered into another agreement in July 1999 with an unrelated
consultant. In connection with the agreement, the Company is obligated to pay
$120,000 in stock and $15,000 in cash, or $75,000 in cash for Phase 1 services
and an additional $937,500 in stock or $625,000 in cash for Phase 2. Additional
phases requiring stock payments of $1,237,500 or cash payments of $900,000 will
only be completed at the option of the Company. To date, no shares have been
issued under this agreement because services have not yet been completed.
NOTE 8 - SUBSEQUENT EVENTS
Debt Restructuring
On October 12, 1999, the Company entered into Debt Restructuring Agreements with
certain note holders. Pursuant to these agreements, the note holders agreed to
accept shares of the Company's common stock at the rate of $0.25 per share as
payment for the principal and interest owed. The total debt and accrued interest
balance converted was $760,826 for 3,043,305 shares. In addition, the note
holders were given the right to acquire an additional 3,043,305 shares at $0.25
per share for a period of 45 days. The Company recorded interest expense of
$578,228 related to these rights pursuant to SFAS No. 123. As of November 12,
1999, no shares have been acquired pursuant to these rights.
In addition, the Company received subscription agreements from investors to
acquire an additional $600,000 of common stock at $0.25 per share. The Company
has collected approximately $367,000 from these investors and will be issuing
1,466,400 common shares in exchange.
In addition, the noteholders of the $100,000 notes converted their notes and
accrued interest of 6,481 to 425,924 shares of common stock in October 1999.
Stock Options and Warrants
In October 1999, the Company issued warrants to a board member totaling
1,015,000 shares at an exercise price of $0.30 per share, resulting in
compensation expense of $223,300.
Authorized Shares
The number of common shares issued by the Company is approaching the amount
authorized. As such, the Company is contemplating remedial action.
NOTE 9 - SEGMENT REPORTING
The Company is currently operating under one business segment and developing two
other segments. Thus, no additional segment reporting is required.
7
<PAGE> 10
RNETHEALTH.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999:
Net sales of $426,669 for the three-month period ended September 30, 1999 were
5% higher than the net sales of $406,324 for the three-month period ended
September 30, 1998, due to normal sales growth.
Operating expenses of $2,291,352 for the three-month period ended September 30,
1999 were 11% lower than the operating expenses of $2,569,022 for the
three-month period ended September 30, 1998. The decrease is primarily
attributed to significant reduction in workforce and significant corporate cost
cutting, resulting in a decrease of cash operating expenses of approximately
$2,242,000. The decrease is offset by additional non-cash charges for the
three-month period ended September 30, 1999 related to the issuance of stock,
stock options and warrants and amortization of prepaid consulting and debt
discounts totaling approximately $1,964,000.
Interest expense of $761,524 for the three-month period ended September 30, 1999
was $757,408 higher than the interest expense of $4,116 for the three-month
period ended September 30, 1998. The increase is primarily attributed to
non-cash interest charges incurred in connection with the issuance of
convertible notes during the three-month period ended September 30, 1999
(approximately $588,000) and the non-cash amortization of debt discount on
existing notes (approximately $136,000).
As a result of the above factors, the net loss for the three-month period ended
September 30, 1999 was $2,625,737 or $0.15 per share as compared to a net loss
of $2,115,427 or $0.36 per share for the three-month period ended September 30,
1998.
8
<PAGE> 11
FINANCIAL POSITION:
Total assets decreased from $1,268,379 at June 30, 1999 to $933,535 at September
30, 1999. The decrease is primarily attributed to amortization of capitalized
programming costs of approximately $182,000 and a net reduction in accounts
receivable of approximately $80,000.
Total liabilities increased from $1,880,396 at June 30, 1999 to $2,243,796 at
September 30, 1999. The increase in primarily attributed to an increase in
convertible debt and accrued interest payable of approximately $410,000
(representing amortization of debt discounts and new borrowings).
Shareholders' deficit increased from $(612,017) at June 30, 1999 to $(1,310,261)
at September 30, 1999. The increase is primarily attributed to the net loss of
$2,625,737 in the three-month period ended September 30, 1999, offset by the
value of new issuances of stock, warrants, and options to investors, employees
and consultants.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary capital requirements in the next twelve months will be to
fund the costs of developing its internet operations and to fund its affiliate
marketing efforts, Satellite transponder costs, costs for uplink, master
control and transmission services, and other working capital expenses.
The Company's capital requirements have been and will continue to be
significant, and its cash requirements continue to exceed its cash flow from
operations. At September 30, 1999, the Company had a working capital deficit of
$979,339. Due to (among other things) the lack of meaningful revenue and costs
associated with program development and affiliated marketing efforts, the
Company has been substantially dependent upon various debt and equity private
placements and its initial public offering to fund its operations.
The Company's cash flow used in operating activities decreased from $1,929,444
for the three-month period ended September 30, 1998 to $349,813 for the
three-month period ended September 30, 1999. This decrease is primarily due to
the Company's significant cutbacks in personnel, overhead and other corporate
expenses and the Company's ability to pay many expenses in stock rather than
cash. Total non-cash charges for the three-month period ended September 30, 1999
were $2,166,798 as compared to only $164,641 for the three-month period ended
September 30, 1998.
During the three-month period ended September 30, 1999, the Company has obtained
liquidity from the following sources: Borrowings from shareholders for $230,000
and proceeds received from stock subscriptions and stock option exercises
totaling $100,000.
In October 1999, pursuant to the Debt Restructuring Agreements, the Company may
receive proceeds of up to $1,360,000 and has been relieved of the obligation to
repay $760,000 of debt and accrued interest.
The Company currently anticipates that the proceeds received from the new
borrowing debt restructuring exercise of stock options and warrants, together
with projected revenues from operations, will be sufficient to fund the
Company's operations and capital requirements until approximately June 30,
2000. 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. The Company has no current arrangements with respect
to any additional financing, and it is not anticipated that existing
shareholders will provide any substantial 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. An inability to obtain additional
financing when needed would have 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. In addition, the Company's equity
is currently below the $2 million minimum required for the listing of the
Company's shares on the NASDAQ Small Cap exchange and has been delisted. Unless
the Company can demonstrate the ability to raise the Company's equity to an
amount in excess of $2 million, and present a plan that will satisfy NASDAQ's
other standards regarding profitability and stock price stability maintaining
minimum bid price over $1.00, the Company's shares may not be registered on the
NASDAQ Small Cap.
A continued delisting from NASDAQ Small Cap hurts the marketability of the
Company's stock, and by extension, the market price of the Company's stock,
which would further hinder the Company's ability to raise additional capital.
The Company's independent public accountants have included a explanatory
paragraph in their report on the Company's June 30, 1999 Financial Statements,
stating that certain factors raise substantial doubt about the Company's
ability to continue as a going concern.
9
<PAGE> 12
YEAR 2000 COMPLIANCE
The Company is in the process of modifying or replacing software components that
it uses so that such software will properly recognize dates beyond December 31,
1999 ("Year 2000 Compliance"). The cost for such modifications and replacements
is not expected to be material. There can be no guarantee that the systems of
such other companies will be timely converted, or that their conversion will be
compatible with information included in the Company's systems, without a
material adverse effect on the Company's business, financial condition or
results of operations.
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.
10
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On March 23, 1999, Michele LeBlanc filed a lawsuit against the Company in United
States District Court for the Central District of California, Western Division.
The complaint list 10 separate counts including wrongful termination and
violation of Federal securities laws. Generally, the plaintiff seeks unspecified
compensatory damages, attorneys' fees and costs.
The Company believes Ms. LeBlanc's claims are completely without merit and
intend to seek summary judgment as to all claims contained in Ms. LeBlanc's
complaint
11
<PAGE> 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Exhibits relating to Amendment No. 2 to Restructuring Agreement
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On August 23, 1999 the Company filed a 8-K which made reference to
regulation S-B, rule 304(a)(1), regarding the change in Registrant's
Certifying Accountants. The Company appointed independent auditor Corbin
& Wertz and accepted the resignation of Arthur Andersen LLP (Andersen).
On August 31, 1999 the Company filed a 8-K/A which incorporated
Anderson's response to the August 23, 1999 8-K.
12
<PAGE> 15
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.
RNETHEALTH.COM, INC.
Dated: November 19, 1999 By: /s/ William Moses
----------------------------------
William Moses
President
13
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2 TO RESTRUCTURING AGREEMENT
This Amendment No. 2 to the Restructuring Agreement is dated as of the __
day of November, 1999 between The Restructuring Network, Inc. (the "Company")
and the parties identified on the signature page hereto (the "Investor" or
"Investors"):
The Company and the Investors have entered into a Restructuring Agreement
dated on or about September 28, 1999 as amended by Amendment No. 1 to
Restructuring Agreement dated on or about September 28, 1999 relating to
subscription agreements entered into by some of the Investors with the Company
for investment by such Investors in the securities of the Company, dated June
29, 1998, as amended by Amendment No. 1 dated as of October 27, 1998 and as
further amended by Agreement dated May 27, 1999 and pursuant to other
subscription agreements dated March 18, 1999 where certain of the Investors
invested in an aggregate $100,000 of principal amount Convertible Notes of the
Company ("Subscription Agreements").
A. Annexed hereto as Schedule D is a schedule of the principal amount
and accrued interest due under the $100,000 principal amount of Convertible
Notes issued on March 18, 1999 by the Company to the Investors identified on
Schedule D hereto ("March Notes").
B. Annexed hereto as Schedule E is a schedule of the Investors who
invested in common stock of the Company pursuant to Subscription Agreements
dated at or about June 10, 1999, the amount invested by each Investor, the
number of common shares previously received by each Investor, and the amount
of additional common shares receivable by each Investor pursuant to this
Amendment No. 2 to Restructuring Agreement.
C. Capitalized terms employed in this Amendment No. 2 to Restructuring
Agreement shall have the same meanings as attributed to them in the
Restructuring Agreement, as amended and the Subscription Agreements and other
documents referred to therein and herein.
D. Except as modified herein, the Subscription Agreements, Restructuring
Agreement, as amended, and other documents referred to therein and herein, and
all their terms and conditions remain in full force and effect.
NOW THEREFORE, for the mutual promises contained herein and other good and
valuable mutual consideration, receipt of which is acknowledged, the parties
agree as follows:
1. The Investors identified on Schedule D hereto agree to convert the
principal and accrued interest of the March Notes set forth on Schedule D
hereto into the amount of common shares of the Company set forth in Schedule
D hereto ("Note Conversion Shares").
2. The Company agrees to issue and deliver to the Investors the amount
of common shares designated on Schedule E hereto ("Final Reset Shares") as a
final Reset of the Purchase Price
1
<PAGE> 2
of the Common Shares purchased pursuant to the June 10, 1999 Subscription
Agreements. The Company will deliver that amount of common shares identified on
Schedule E as "Unlegended Shares Deliverable" without any restrictive legend.
The Company represents that the Unlegended Shares Deliverable are included in a
currently effective registration statement and may be transferred by the
Investors as free-trading common shares. The balance of the Final Reset Shares
("Balance Shares") set forth on Schedule E hereto will be delivered by the
Company to the Investors with the following restrictive legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE RECOVERY NETWORK, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
The Company agrees to remove the above legend from the Balance Shares, Note
Conversion Shares. Shares Previously Delivered, and 1998 Reset Shares (as
defined in the Restructuring Agreement) on the Effective Date of the
registration statement described in Paragraph 7 hereof. The Company agrees and
acknowledges that the one year and two year holding periods set forth in Rule
144 of the Securities Act of 1933 had commenced on (i) June 29, 1998 in
connection with the June 29, 1998 investment and 1998 Reset Shares; (ii) June
10, 1999 in relation to the Company's common shares receivable by virtue of the
June 10, 1999 investment; and (iii) on March 18, 1999 in connection with the
common shares receivable by virtue of the March Notes. The Company agrees that
the Company will remove the restrictive legend from all such common shares
pursuant to sales in reliance on Rule 144 of the Securities Act at any time so
permitted whether before or after the Effective Date, and will cooperate with
the Investors in such regard.
3. The Company represents that the aggregate 400,000 shares of common
stock delivered to the Investors in connection with the June 10, 1999
Subscription Agreements and as set forth on Schedule E hereto as "Shares
Previously Delivered" are included in a currently effective registration
statement. The Company agrees to reissue and deliver to the Investors such
Shares Previously Delivered without restrictive legend.
4. The Company also agrees to deliver to the Investors designated on
Schedule E hereto the number of common stock purchase warrants of the Company in
the amounts designated on Schedule E hereto, in the form of the common stock
purchase warrant annexed hereto as Exhibit F (the "November 1999 Warrants").
5. The Company agrees to deliver the 1998 Reset Shares in the amounts
designated on Schedule C to the Restructuring Agreement.
<PAGE> 3
6. The Note Conversion Shares, Balance Shares, the Unlegended Shares
Deliverable, November 1999 Warrants and 1998 Reset Shares must be delivered to
the Investors within five days of the date of this Restructuring Agreement.
Within five days of the date of receipt by the Company from an Investor, the
Company agrees to reissue and deliver to such Investor without any restrictive
legend the Shares Previously Delivered, Note Conversion Shares, Balance Shares,
and 1998 Reset Shares. In the event timely delivery of any of the foregoing is
not made, then each Investor may rescind this Amendment No. 2 to Restructuring
Agreement by giving written notice to the Company.
7. The Company agrees to register with the Securities and Exchange
Commission all common stock of the Company held by the Investors and not
included in a currently effective Registration Statement, including but not
limited to the Note Conversion Shares, the Final Reset Shares, 1998 Reset
Shares and all common stock issuable upon exercise of the November 1999
Warrants which are not already included in an effective Registration Statement.
In respect of these common shares, the Investors and Warrantholders are granted
the same registration rights described in Section 10 of the Subscription
Agreement relating to the June 10, 1999 investment except that the Effective
Date shall be November 30, 1999. The Company further acknowledges its
obligation to maintain the effectiveness of the currently effective
registration statements or file such further registration statements pursuant to
the Subscription Agreements so that the common shares to be resold pursuant to
such registration statements will be included in an effective registration
statement until at least one year after the Expiration Date of the November
1999 Warrants.
8. Provided the Company makes timely delivery to the Investors of all
the securities described herein which are required to be delivered prior to the
Effective Date set forth in Paragraph 7 above, then the Investors will not be
entitled to any further Reset of the Company's securities purchased by them
pursuant to the Subscription Agreements.
9. Provided the Company makes timely delivery to the Investors of all the
securities described herein required to be delivered both before, on and after
the Effective Date set forth in Paragraph 7 above and the Company timely
complies with its other obligations under this Amendment No. 2 to Restructuring
Agreement, including but not limited to the registration requirements set forth
in Paragraph 7 above, then the Investors hereby release the Company, its
officers, directors, agents and employees from any and all claims which each (or
any of them) may have against the Company, its officers, directors, agents and
employees (or any of them) from any default by the Company prior to the date
hereof arising under the Subscription Agreements, as amended.
[THIS SPACE INTENTIONALLY LEFT BLANK]
3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 101,956
<SECURITIES> 0
<RECEIVABLES> 208,743
<ALLOWANCES> (32,000)
<INVENTORY> 57,478
<CURRENT-ASSETS> 448,961
<PP&E> 443,264
<DEPRECIATION> (276,822)
<TOTAL-ASSETS> 933,535
<CURRENT-LIABILITIES> 1,428,300
<BONDS> 890,496
0
0
<COMMON> 179,232
<OTHER-SE> (1,489,493)
<TOTAL-LIABILITY-AND-EQUITY> 933,535
<SALES> 426,669
<TOTAL-REVENUES> 426,669
<CGS> 142,699
<TOTAL-COSTS> 2,291,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 761,524
<INCOME-PRETAX> (2,625,737)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,625,737)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,162,737)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
