<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, 2000.
[ ] 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, 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: 40,050,915
shares as of NOVEMBER 8, 2000.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
Yes [ ] No [X]
<PAGE> 2
RNETHEALTH, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
(unaudited) and June 30, 2000.......................................................................3
Condensed Consolidated Statements of Operations
(unaudited) for the three-month periods
ended September 30, 2000 and 1999...................................................................4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three-month periods ended September 30,
2000 and 1999.......................................................................................5
Notes to Condensed Consolidated Financial Statements (unaudited)....................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations.....................................................................10
PART II - OTHER INFORMATION
Item 1. Legal proceedings..............................................................................13
Item 6. Exhibits and Reports on Form 8-K ..............................................................13
Signature Page..........................................................................................14
</TABLE>
2
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RNETHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER
30, 2000
(UNAUDITED) JUNE 30, 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 240,399 $ 144,520
Accounts receivable, net of allowance for doubtful
accounts of $36,167 and $31,755 at September 30, 2000
and June 30, 2000, respectively 144,283 262,109
Current portion of capitalized programming costs, net 47,000 47,000
Inventory 56,178 58,577
Prepaid expenses 211,138 7,602
------------ ------------
Total current assets 698,998 519,808
Capitalized production costs, net 179,658 188,371
Furniture and equipment, net 158,838 150,042
Web site development costs, net 170,591 187,100
Investment in joint venture 121,060 --
Other 25,857 31,042
------------ ------------
Total assets $ 1,355,002 $ 1,076,363
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Short-term notes payable $ 37,500 $ 37,500
Accounts payable 1,040,475 859,545
Accrued payroll and benefits 102,343 167,494
Accrued royalty expense 356,956 434,826
Other accrued liabilities 37,215 45,860
Current portion of capital lease obligation 2,654 2,524
------------ ------------
Total current liabilities 1,577,143 1,547,749
Capital lease obligation, net of current portion 14,614 15,390
------------ ------------
Total liabilities 1,591,757 1,563,139
------------ ------------
Commitments
Shareholders' equity (deficit):
Common stock, $.01 par value; 60,000,000 shares authorized;
39,172,258 and 32,331,682 shares issued and outstanding at
September 30, 2000 and June 30, 2000, respectively 391,723 323,317
Additional paid-in capital 32,275,265 29,708,901
Prepaid consulting (454,121) (160,783)
Common stock subscription receivable (25,000) (310)
Accumulated deficit (32,424,622) (30,357,901)
------------ ------------
Total shareholders' equity (deficit) (236,755) (486,776)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 1,355,002 $ 1,076,363
============ ============
See accompanying notes to condensed consolidated financial statements
</TABLE>
3
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RNETHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER
2000 30, 1999
------------ ------------
<S> <C> <C>
Sales revenue $ 502,767 $ 426,669
------------ ------------
Operating expenses:
Salaries and consulting 1,330,216 1,391,080
General and administrative 581,666 393,019
Production 281,210 341,242
Marketing 198,654 23,312
Cost of publications and films 175,195 142,699
------------ ------------
Total operating expenses 2,566,941 2,291,352
------------ ------------
Loss from operations (2,064,174) (1,864,683)
Other (income) expense:
Interest 1,619 761,524
Other (2,360) (470)
------------ ------------
Loss before provision for income taxes (2,063,433) (2,625,737)
Provision for income taxes 3,288 --
------------ ------------
Net loss $ (2,066,721) $ (2,625,737)
============ ============
Loss per share information:
Basic and diluted loss per share $ (0.06) $ (0.15)
============ ============
Weighted average number of common and common
equivalent shares outstanding 35,889,854 17,054,062
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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RNETHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,066,721) $ (2,625,737)
Adjustments to reconcile net loss to net cash
used in operating activities:
Value of shares issued for interest expense,
compensation and other services 87,721 495,084
Amortization of notes payable discount - 135,988
Imputed interest on beneficial conversion of notes payable - 230,000
Value of options and warrants granted 591,465 963,600
Amortization of prepaid consulting costs 40,196 138,809
Amortization of capitalized production costs 30,727 182,202
Depreciation and other amortization 31,639 21,115
Provision for doubtful accounts 4,412 -
Changes in operating assets and liabilities:
Accounts receivable 113,414 79,756
Inventory 2,399 (1,885)
Prepaid expenses (203,536) 42,561
Other assets 5,185 -
Capitalized production costs (22,014) (13,000)
Accounts payable, accrued payroll and benefits
and other accrued liabilities 107,134 33,329
Accrued royalty expense (77,870) (31,635)
---------------- -----------------
Net cash used in operating activities (1,355,849) (349,813)
---------------- -----------------
Cash flows from investing activities:
Purchases of furniture and equipment (23,926) (10,007)
Investment in joint venture (121,060) -
---------------- ----------------
Net cash used in investing activities (144,986) (10,007)
---------------- -----------------
Cash flows from financing activities:
Proceeds from borrowings - 230,000
Principal payments on capital lease obligations (646) (4,282)
Proceeds from the issuance of common stock,
exercise of options and warrants and collection of
stock subscriptions receivable 1,597,360 100,000
--------------- ----------------
Net cash provided by financing activities 1,596,714 325,718
--------------- ----------------
Net change in cash 95,879 (34,102)
Cash, beginning of period 144,520 136,058
--------------- ----------------
Cash, end of period $ 240,399 $ 101,956
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
RnetHealth, 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
Annual Report on Form 10-KSB for the year ended June 30, 2000.
NOTE 2 - ISSUANCE OF COMMON STOCK
In June 2000, the Company entered into a Common Stock Purchase Agreement (the
"Agreement") with Torneaux, Ltd. (the "Purchaser"). Pursuant to the Agreement,
the Company may, in its sole discretion and subject to limitations,
periodically sell shares of the Company's common stock to the Purchaser for a
period of 14 months for up to $10,000,000 upon the effective registration of
such shares. Pursuant to the agreement, the minimum monthly sale amount is
$300,000 and the maximum monthly sale amount is $800,000 as long as the
Company's average share price is greater than $0.50, as defined in the
Agreement. Following each purchase, the Purchaser shall receive warrants to
purchase up to 25% of the number of common shares purchased in the
corresponding purchase transaction, exercisable for a three-year period at 115%
of the price per share paid by the Purchaser in the corresponding purchase
transaction. At any time, the number of shares owned by the Purchaser, when
aggregated with the warrants, shall not exceed 9.9% of the total common shares
of the Company. The Agreement can be terminated by the Purchaser upon the
occurrence of certain events as described in the Agreement.
During the quarter ended September 30, 2000, the Company sold 1,010,985 shares
to the Purchaser for $570,000 and issued warrants to purchase an additional
252,746 shares at prices ranging from $0.58 to $0.73 per share. In addition, the
Company put 800,000 shares of Common Stock into an escrow account to secure the
Company's obligation to issue shares under this Agreement. Subsequent to the
quarter ended September 30, 2000, the Company sold 468,657 shares to the
Purchaser for $247,500 and issued warrants to purchase an additional 117,165
shares at prices ranging from $0.51 to $0.53 per share (See Note 10).
In July 2000, the Company issued 29,600 shares to two officers for proceeds of
$7,400 which were received during the Company's fiscal year ended June 30, 2000
and previously recorded as shares subscribed. In this same time period, the
Company issued 21,903 shares to an investor as part of reset rights.
From July to August 2000, the Company issued 739,088 shares of stock in
connection with legal settlements which were accrued in the Company's fiscal
year ended June 30, 2000. 70,000 shares of stock were issued to consultants for
services and legal settlements rendered in the Company's fiscal year ended June
30, 2000. As such, 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 $310 for shares issued in fiscal
year ended June 30, 2000.
In August 2000, the Company placed 500,000 shares of common stock in escrow to
secure the Company's payment of a fee to purchase advertising time from ATN, a
related party.
From August to September 2000, the Company issued 399,000 shares of stock to
consultants and vendors for a total value of $278,380 of which $37,932 relieved
accounts payable, $49,789 was expensed to consulting, and the remaining
$190,659 was capitalized to prepaid consulting and will be amortized to
consulting expense using the straight-line method over the lives of the
respective agreements.
6
<PAGE> 7
NOTE 2 - ISSUANCE OF COMMON STOCK-CONTINUED
During July to September 2000, option and warrant holders exercised their rights
to acquire 1,875,000 shares of common stock, resulting in proceeds of $475,050
to the Company of which $450,050 was received during the quarter and the
remaining $25,000 was received subsequent to September 30, 2000. In that same
period, the Company issued 1,340,000 shares to various investors resulting in
net proceeds of $577,000. In connection with these shares the Company issued
55,000 shares as finders' fees.
NOTE 3 - STOCK OPTIONS AND WARRANTS
In connection with various arrangements, the Company granted options and
warrants (including warrants discussed in Note 2) to acquire a total of
2,842,746 shares of common stock to various investors, consultants and Board of
Director members for the three-month period ended September 30, 2000. These
options and warrants have exercise prices between $0.25 and $0.91 per share and
vest immediately through two years. 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 $608,596 and has been included in
equity. In addition, the Company expensed $23,065 for the amortization of
options and warrants granted in prior periods.
In addition to the options mentioned above, approximately 130,733 options
expired during the period.
NOTE 4 - DEBT
Debt consists of an unsecured note payable to Group W network Services, interest
at 10%, principal and interest due upon request, totaling $37,500. Management
believes that this obligation will be satisfied in the near future. The debt is
currently past due. However, management believes that there will not be a
material negative impact as a result of the late satisfaction of this note
payable.
NOTE 5 - LOSS PER SHARE
Net loss per 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 12,760,790 shares of common stock (at prices
ranging from $0.25 to $9.075) and 8,818,059 shares of common stock (at prices
ranging from $.01 to $9.075) were outstanding as of September 30, 2000 and 1999,
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 financial statements have been prepared assuming the
Company will continue as a going concern. The Company has negative working
capital, reduced cash levels, recurring losses from operations and has limited
operating revenues, that 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 equity capital from public and private sources, (2) to attract appropriate
strategic partners to increase revenues, (3) to distribute its programming and
services
7
<PAGE> 8
through multimedia channels, (4) to achieve a critical mass of viewers to
attract advertisers and healthcare providers and (5) to acquire and develop
appropriate content for internet and cable broadcasters. The Company plans to
raise additional working capital through private and public offerings. To
achieve this, the Company has embarked on a definitive plan to (1) enter into
new strategic relationships, (2) obtain equity infusions from option holders,
existing shareholders and other third parties, (3) increase awareness of the
Company in the investing community, and (4) increase revenues from
non-traditional areas (see Note 7). 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.
NOTE 7 - JOINT VENTURE
On August 1, 2000 the Company entered into an agreement to form Tobacco School
LLC with an unrelated third party. The LLC will be owned 51% by the Company. The
Company will contribute 300,000 shares of its common stock to the other LLC
partner in exchange for the partner's transferring of certain assets to the LLC.
In addition, the Company has provided a $200,000 line of credit to the LLC or
to the LLC partner that will be deemed contributed by the Company to the LLC
upon its full funding. Also the LLC will provide a $75,000 annual stipend to the
LLC partner. The LLC partner will also be entitled to quarterly payments of 10%
of LLC's operating income (as defined) and then the Company and the individual
will share the remaining operating income based on their relative ownership
percentages. The LLC partner may choose to receive his share of the operating
income in common stock of the Company instead of cash. During the quarter ended
September 30, 2000 the Company invested $50,010 to the LLC. The Company's share
of earnings at September 30, 2000 is immaterial and thus not considered in these
financial statements.
On August 16, 2000 the Company entered into an agreement to form Health
Challenge, LLC with another unrelated third party. Membership in the LLC will be
evidenced by two classes (A and B). The Company will own a 10% Class A
Membership and a 51% Class B membership. The Class A Membership will be entitled
to distributions equal to 100% of the LLC's net after taxes cash flow. The
Company has capitalize the LLC with a $300,000 line of credit for its Class B
Membership interest. Additionally, the other Member may choose to receive
distributions in common stock of the Company instead of cash. The Company has
the option to acquire the other party's Class A Membership interest on the
second, third, or fourth anniversary of the formation of the LLC at a multiple
not to exceed 3.3 times net after tax cash flow. The Company further agreed to
grant the other member options to acquire 1,100,000 shares of the Company at
$0.50 per share in exchange for providing on-going services to the LLC. The
Company and the other member have also entered into other three-year joint
marketing agreements, one of which requires the Company to grant the other
member the option to purchase 250,000 shares at $0.50 per share and the other
requires the Company to grant options to purchase 350,000 shares at $0.50 per
share. These agreements specify how profits are to allocated between the parties
and give the other member the choice to receive its payments in Company's common
stock or options. The agreement also provides for a put/call provision of the
Class A membership interest to the Company at a multiple value of $3.0 to 3.3
times the after tax annual cash flow amounts. During the quarter ended September
30, 2000 the Company invested $71,050 to the LLC. The Company's share of
earnings at September 30, 2000 is immaterial and thus not considered in these
financial statements.
NOTE 8 - RELATED PARTIES
On July 31, 2000 the Company entered into an agreement to purchase advertising
time from ATN, a related party. The fee for this time of $124,922 will be paid
in cash or common stock of the Company (at the discretion of ATN and is recorded
in prepaid advertising in the quarter ended September 30, 2000). 500,000 shares
of the Company's common stock have the placed in escrow to secure the Company's
payment of the fee.
NOTE 9 - COMMITMENTS
On August 17, 2000 the Company entered into an agreement with an investor
relations firm. The firm will provide services and be compensated as follows,
(1) an initial payment of $12,000 and 83,000 unregistered shares of the
Company's common stock (valued at $46,281 and issued in August 2000 - See Note
2); (2) monthly payments of $5,000; and (3) an additional 249,000 unregistered
shares of the Company's common stock to be delivered in three equal
installments on December 1, 2000, March 1, 2001 and June 1, 2002. The number of
shares shall be adjusted so that the value of the shares in any one quarter
shall not be valued at less than $40,000 or more than $70,000. The agreement
may be terminated quarterly anytime after the initial 75-day period as
described in the agreement.
NOTE 10- SUBSEQUENT EVENTS
In October 2000, the Company issued 878,657 shares of common stock to various
investors in exchange for $350,000.
Stock Options and Warrants
In October 2000, the Company issued 117,165 warrants to an investor related to
stock purchases at exercise prices ranging from $0.5097 to $0.5312 (See Note 2).
In November 2000, the Company issued options to a board of advisor member
totaling 50,000 shares at an exercise price of $0.40, resulting in compensation
expense of $13,344.
8
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NOTE 11- SEGMENT DISCLOSURES
Financial information about industry segments as of and for the three months
ended September 30, 2000 and 1999, is as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------------- ---------------
<S> <C> <C>
Operating income (loss):
Publications and films $ 50,920 $ 50,003
Cable television and internet (554,427) (470,237)
Corporate (1,560,667) (1,444,449)
------------- ------------
Net operating loss $(2,064,174) (1,864,683)
============= ============
Identifiable assets:
Publications and films $ 628,251
Cable television and internet 726,751
-------------
Total $ 1,355,002
-------------
</TABLE>
Operating loss is revenues minus operating expenses.
Identifiable assets by segment are assets used in or otherwise identifiable with
the Company's operations in each segment.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999:
Net sales of $502,767 for the three-month period ended September 30, 2000 were
18% higher than the net sales of $426,669 for the three-month period ended
September 30, 1999, due to normal sales growth.
Operating expenses of $2,566,941 for the three-month period ended September 30,
2000 were 12% higher than the operating expenses of $2,291,352 for the
three-month period ended September 30, 1999, due primarily to increases in
marketing and general and administrative expenses, offset by a decrease in
programming expenses.
Interest expense of $1,619 for the three-month period ended September 30, 2000
was $759,905 lower than the interest expense of $761,524 for the three-month
period ended September 30, 1999. The interest in the prior year was primarily
attributed to non-cash interest charges incurred in connection with the issuance
of convertible notes. Such notes have since been converted to equity and as such
no further interest charges are being incurred.
As a result of the above factors, the net loss for the three-month period ended
September 30, 2000 was $2,066,721 or $0.05 per share as compared to a net loss
of $2,625,737 or $0.15 per share for the three-month period ended September 30,
1999.
FINANCIAL POSITION:
Total assets increased from $1,076,363 at June 30, 2000 to $1,355,002 at
September 30, 2000. The increase is primarily attributed to the increase in cash
primarily due to proceeds from the issuance of common stock of approximately
$1,600,000 which was offset by the cash used in operating activities of
approximately $1,360,000. Also, cash of $121,060 was used to invest in two joint
ventures.
Total liabilities increased from $1,563,139 at June 30, 2000 to $1,591,757 at
September 30, 2000, attributable primarily to increases in accounts payable
offset by decreases in accrued payroll and benefits and accrued royalty expense.
Shareholders' deficit decreased from $(486,776) at June 30, 2000 to $(236,755)
at September 30, 2000. The decrease is primarily attributed to the proceeds
received related to the issuance of common stock and exercise of warrants and
options of approximately $1,600,000 and non-cash increases in shareholders'
equity of approximately $680,000 related to stock options and issuances to
employees and consultants, offset in part by operating losses of approximately
$2,067,000.
10
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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 up-link, 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, 2000, the Company had a cash balance of $240,399 and had negative
working capital of $878,145. 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 increased from $349,813 for
the three-month period ended September 30, 1999 to $1,355,849 for the
three-month period ended September 30, 2000. This increase is primarily due to
the Company's reduction in using stock and warrants rather than cash to pay many
expenses offset by cutbacks in personnel, overhead and other corporate expenses.
During the three-month period ended September 30, 2000, the Company has obtained
liquidity from the proceeds received from common stock issuances and exercise
of warrants and options totaling $1,597,360. After quarter-end the Company
obtained an additional $350,000 from common stock issuances.
In addition, the Company has entered into two new joint ventures that it
anticipates will be sources of future liquidity (See Note 7 to the interim
financial statements). The Company currently anticipates that the proceeds
expected to be received from the new stock activity and the exercise of stock
options and warrants, together with projected revenues from operations, will be
sufficient to fund the Company's operations and capital requirements beyond June
30, 2001. There can be no assurance, however, that such funds will be sufficient
to fund the Company's operations and capital requirements until June 30, 2001 or
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 other than the Tourneaux arrangement described in the Note
2 to the interim financial statements with respect to any additional financing.
However, the Company is actively negotiating certain strategic alliances and
private placements. 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 $4 million minimum
required for re-listing of the Company's shares on the NASDAQ Small Cap
exchange. Unless the Company can demonstrate the ability to raise the Company's
equity to an amount in excess of $4 million, and present a plan that will
satisfy NASDAQ's other standards regarding profitability and stock price
stability maintaining minimum bid price over $2.00, the Company's shares may not
be registered on the NASDAQ Small Cap exchange. A continued delisting from
NASDAQ Small Cap Exchange hurts the marketability of the Company's Common Stock,
and by extension the market price of the Company's Common Stock, which would
further hinder the Company's ability to raise additional Capital.
As a result of the foregoing factors the Company's independent public
accountants have included an explanatory paragraph in their report on the
Company's June 30, 2000 financial statements, stating that certain factors raise
substantial doubt about the Company's ability to continue as a going concern.
11
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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.
12
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PART II
ITEM 1. LEGAL PROCEEDINGS
Refer to the Company's Form 10-KSB filed for the year ended June 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on form 8-K
None.
13
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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, INC.
Dated: November 14, 2000 By: /s/ Antonio Salem
------------------------------
Antonio Salem
Acting Chief Financial Officer
14
