U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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. 0-26389
CYBEAR, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3936988
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Blue Lake Drive, Suite 200
Boca Raton, Florida 33431
------------------------------- -------------------
(Address of principal (Zip Code)
executive offices
(561) 999-3500
----------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The number of shares outstanding of the Registrant's Common Stock was 17,772,537
(as of March 13, 2000).
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $43,907,247 (as of March 13, 2000).
DOCUMENTS INCORPORATED BY REFERENCE
None
As used in this Report, the terms "we," "us," "our," the "Company" and "Cybear"
mean Cybear, Inc. and its subsidiaries (unless the context indicates a different
meaning).
FORWARD-LOOKING STATEMENTS
Cybear cautions readers that some of the information in this report
contains forward-looking statements within the meaning of the federal securities
laws. For this purpose, any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements.
Forward-looking statements typically are identified by use of terms like "may,"
"will," "expect," "anticipate," "estimate", "believe", "intend", "could",
"would" and similar words, although some forward-looking statements are
expressed differently. You should be aware that Cybear's actual results could
differ materially from those contained in the forward-looking statements due to
a number of factors, including our limited operating history and substantial
operating losses, feasibility of developing commercially profitable Internet
healthcare services, availability of capital resources, ability to effectively
compete, economic conditions, unanticipated difficulties in product development,
ability to continue product development, ability to gain market acceptance and
market share, ability to manage growth, Internet security risks and uncertainty
relating to the evolution of the Internet as a medium for commerce, dependence
on the capacity, reliability and security of our network infrastructure,
dependence on third party content providers, dependence on our key personnel,
ability to protect our intellectual property and the impact of future government
regulation on our business. You should also consider carefully the risks
described in this Report or detailed from time to time in our filings with the
Securities and Exchange Commission (the "SEC").
PART I
ITEM 1. BUSINESS
OVERVIEW
Cybear Inc., a Delaware corporation, was incorporated on February 5,
1997. Cybear is an information technology company using the Internet to improve
the efficiency of administrative and communications tasks of managing patient
care while addressing the healthcare industry's critical need for secure and
reliable transmission of information. An Internet Service Provider ("ISP") and
Application Services provider ("ASP") for the healthcare industry, Cybear uses
or intends to use its own secure private network to provide access to the
Internet, email and productivity applications available on a transaction or
subscription basis to physicians, physician organizations, pharmacies and
hospitals. Some of its online applications include or will include business
tools for hospital messaging, lab orders and results, streamlined purchasing,
prescription writing, claims processing, eligibility verification, formulary
compliance, credentialing, web site creation and physician-patient
communications via the Internet.
In March 1999, Cybear introduced its first product, its Physician
Practice Portal ("dr.cybear"), which addresses the communications and
operational needs of physicians and other healthcare providers. The Physician
Practice Portal is an Internet portal site that provides a combination of
healthcare content, practice management tools, the entry point to a
communications network and ongoing access to further products and services.
Dr.cybear is marketed to physicians, physician organizations, hospitals, managed
care organizations and integrated delivery networks throughout the United
States. In the three months ended June 30, 1999, Cybear emerged from the
development stage for financial reporting purposes.
In June 1999, the Company completed a public offering of 3,450,000
shares of its common stock, raising approximately $50.8 million in net proceeds.
In September 1999, the Company acquired Telegraph Consulting Corporation
("Telegraph"), the programming, networking and interactive design division of
Telegraph New Technology, Inc. The purchase price of approximately $4.1 million
included $1.2 million in cash, the issuance of 320,000 shares of Cybear
unregistered common stock valued at approximately $2.8 million and the
assumption of approximately $136,000 of Telegraph's debt. The
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acquisition was recorded using the purchase method of accounting. As of December
31, 1999, Cybear was approximately 73% owned by Andrx Corporation ("Andrx").
In September 1999, we entered into an arrangement with Andrx pursuant
to which prescription vaccines and injectables and other items distributed by
Andrx can be ordered through Cybear's Physician Practice Portal.
In December 1999, Cybear received from Andrx a tracking stock
recapitalization plan offer which would give Andrx shareholders the ability to
distinguish their investments in Andrx and Cybear. In March 2000, Andrx and
Cybear announced that they executed a definitive agreement with respect to the
previously announced tracking stock recapitalization plan. This plan, which was
recommended to the Cybear Board of Directors by its Special Committee and
approved by the boards of both Cybear and Andrx will create a new class of Andrx
common stock to separately track the performance of Cybear ("Cybear Group
Common"). The plan will be submitted to Andrx and Cybear shareholders for
approval later this year.
Cybear has incurred net operating losses and negative cash flows from
operating activities since its inception. As of December 31, 1999, Cybear had an
accumulated deficit of approximately $14.8 million. In addition, Cybear intends
to continue to invest heavily in product development, network operations,
customer support, sales and marketing and administrative areas. As a result,
Cybear expects to continue to incur substantial operating losses for the
foreseeable future, and may never achieve or sustain profitability.
In March 2000, Cybear signed a one-year agreement, subject to
additional one-year periods renewals by mutual agreement, with Novartis
Pharmaceuticals Corporation ("Novartis") pursuant to which Cybear will provide
secure on-line connectivity and communications solution through its dr.cybear
product to an initial group of 5,000 Novartis-selected physicians for monthly
subscription fees commencing one month after such physicians are registered.
Novartis has committed to register 5,000 physicians by the end of the year 2000.
In March 2000, we entered into two separate agreements with AHT
Corporation whereby (i) we were granted a license to use certain computer
software applications which we believe will enable users of dr.cybear and other
Cybear websites to access and use a prescription writing and transmission
service and a laboratory ordering process; and (ii) we have agreed to develop,
with the assistance of AHT, an electronic prescription writing device. Both
agreements provide, among other things, for a sharing of revenues between AHT
and Cybear in the event revenues are generated from the sales of products and/or
services related to the two agreements. Contemporaneously with the execution of
these agreements, we purchased from AHT a 10% Senior Secured Convertible Note
due March 31, 2001 in the amount of $4.0 million, which is convertible, at our
option, into shares of AHT Common Stock. In addition and in connection with the
entering into of the two agreements, we received a warrant to purchase 300,000
shares of AHT Common Stock.
Over the next year, we intend to supplement our core dr.cybear product
by continuing to improve its functionality and by introducing our Pharmacist
Portal Product ("rx.cybear"). The Company's Pharmacist Portal Product will
provide physicians the ability to write prescriptions and prescription refills
in the context of patient medical histories and payer clinical rules. As a
result, we expect our product to provide physicians and pharmacies with the
necessary tools to help reduce potentially harmful drug interactions, lessen the
number of telephone calls from payers and pharmacies, improve patient
satisfaction and ultimately improve patient care. Pharmacies may also benefit
through reduced administrative costs due to the correction and clarification of
prescriptions before being submitted for dispensing.
We also intend to implement additional functionality to our dr.cybear
product such as the communication of laboratory results. This service will
enable physicians to order and view the results of diagnostic tests from
participating clinical laboratories. We also intend to provide through our
dr.cybear product medical messaging services that may include discharge
summaries and nursing notes from hospitals, prescription and laboratory
information, transcription information, as well as other pertinent patient
medical records to allow physicians "real time" access to such information. We
also intend to offer healthcare providers the ability to verify patient
eligibility and coverage and process medical claims through our dr.cybear
product.
CORPORATE INFORMATION
Our executive offices are located at 5000 Blue Lake Drive, Suite 200,
Boca Raton, Florida 33431. Our telephone number is (561) 999-3500 and our web
site address is www.cybear.com. Information contained on our web site is not
part of this Report.
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HEALTHCARE COMMUNICATIONS AND INFORMATION TECHNOLOGY ISSUES
Participants in the healthcare industry are highly dependent upon
information. Information is generated by multiple sources, must be acted on at
various times by a variety of participants and forms the basis of quality care
and adequate reimbursement for services. With both the continued penetration of
managed care and reductions in government reimbursement, the need for accurate,
rapid and interactive information continues to increase. At the same time,
demand for real-time accurate clinical and administrative information among
healthcare network providers has increased.
Management believes that, notwithstanding the recognized need for
improved business-to-business communication, the healthcare industry has, to
date, underinvested in information technology. Instead, the exchange of complex
information currently depends on the inefficiencies inherent in mail, telephone
and fax communications. It is not unusual for patients to experience delays in
obtaining authorizations, in gaining access to specialists or in having
diagnostic or therapeutic procedures performed because of inefficient manual
methods of sharing information. Physicians find it increasingly difficult to
monitor the thousands of different medications covered by insurers, so
pharmacists interrupt patient care with requests to change or substitute
medications. It is common practice for physicians and their office staff to
telephonically verify a patient's eligibility and other items necessary to
render care. Manual methods of coding for healthcare reimbursement claims are
prone to human error. These inefficiencies are a daily part of healthcare and
reduce the profitability of healthcare providers and provider organizations.
The desired linkage of existing computer systems used by participants
in the healthcare industry has been hindered by a variety of factors, including
the sheer number of industry participants, the complexity of healthcare
transactions, the high cost of technology, limitations of existing information
systems, the incompatibility of the many existing operating platforms and the
continuing prevalence of computer systems that were not Y2K compliant.
We believe that the Internet is a transformational communications
technology that will be best suited to handle complex communications between
healthcare providers and payers. The Internet's open architecture, universal
accessibility and acceptance makes it a powerful communications medium
overcoming many of the limitations of legacy healthcare information access and
technology systems. Additionally, the Internet has gained wide acceptance in the
healthcare community as an information access and gathering tool, with
approximately 75% of U.S. physicians accessing the Internet regularly.
Consequently, the deployment of various applications, content and tools will
more readily be accepted by physicians and their office staffs.
THE CYBEAR SOLUTION
We developed dr.cybear to meet healthcare providers' need to improve
the accuracy and efficiency of communications with other providers, third party
payers and provider networks. In order to meet the demands of managed care, we
believe a system needs to quickly collect and deliver patient information at the
point of care, track physician activities and patterns, identify trends and
issues that affect the critical components of managed care such as quality,
cost, outcomes, variability and patient satisfaction and facilitate prospective
utilization review. We also believe that there will be a strong demand for
real-time clinical and practice management solutions that are easy to use,
secure and cost effective.
Our integrated suite of Internet-based products and services is
designed to improve the efficiency of day-to-day administrative and
communication tasks of the various participants in the healthcare industry,
including physicians, hospitals, networks and payers that must interact to
successfully manage patient care. These products may include applications,
information and data transfer capabilities designed by us to meet their
particular needs, and, through our ISP, allow for the creation of secure
intranets or custom private networks for members of these networks to
communicate and share private information. Access to our products is restricted
to registered users. Registered users must enter passwords to obtain access, and
the passwords are programmed to provide general access to product content and
applications
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and tiered-restricted access to member specific network communications. Our
Internet-based technology platform allows for efficient installation,
maintenance and customization using the user's existing computer system. Like
other Internet service providers, we use existing phone lines and the
telecommunications infrastructure. Registered users may also access dr.cybear
through other ISPs, even though Internet access through our ISP is already
included in their service.
CYBEAR'S COMPETITIVE ADVANTAGES
We believe our healthcare experience, our sales force, our
Internet-based technology platform, our in-house software development
capabilities and our business relationship with Andrx provide us with
significant competitive advantages that should permit Cybear to become an
Internet communications and applications provider for the healthcare community.
Our main strengths are:
/bullet/ We Have Healthcare Experience - Our chief executive officer is a
physician with experience practicing medicine, managing provider
networks and providing practice management services. Other members of
our senior management and Board of Directors have experience in
healthcare practice management and pharmaceutical industries. Our
development, marketing and support staff has in-depth knowledge of the
operations and specific needs of physicians and other key participants
in the healthcare industry. As a result, we believe we are able to
develop and deliver products that are useful and acceptable to our
users allowing us to build meaningful and lasting user relationships.
/bullet/ We Have Our Own Sales Force - We have an in-house sales and marketing
staff that has long-standing ties to key segments of the healthcare
industry, including physician practices, physician organizations and
pharmaceutical companies. We believe that these relationships will
allow us to rapidly expand our user base.
/bullet/ We Have an Internet-Based Technology Platform - We provide direct
Internet access to our registered users through our own ISP, unlike our
competitors who depend on others for Internet access. Being an ISP
allows us to provide a secure medium for transmission of sensitive
patient and transactional information in an easy to use, low cost, fast
and reliable manner. Our ISP platform also allows us to provide more
value to our users by providing general purpose Internet access at no
additional cost, web-hosting and the ability to develop private
intranets, which we believe will result in users being less likely to
switch to a competitor's product or service.
/bullet/ We Have Extensive In-House Software Development Capabilities - We have
an in-house software development team made up of over 30 programmers,
allowing us to provide easy to use, low cost tools for day-to-day
operational and management needs of medical practices and networks.
This allows us to create flexible Java and Cold Fusion language-based
applications to address the particular needs of different segments of
the healthcare industry. Our in-house development capability, together
with our server-based applications technology that allows us to send
updates to subscribers online, will allow us to make continuous
improvements to our products.
/bullet/ We Have a Business Relationship with Andrx - Andrx, our parent
corporation, provides us with telemarketing and product distribution
expertise. We have an arrangement with Andrx pursuant to which
prescription vaccines and injectables distributed by Andrx can be
ordered through our Physician Practice Portal.
5
CYBEAR'S STRATEGY
Our strategy to become an Internet-based platform linking physicians
with other healthcare providers, third party payers and participants in the
healthcare industry is based upon several elements, including:
/bullet/ Building a Physician User Base - We are marketing dr.cybear to
physicians, their staff and physician organizations that have
ever-increasing and complex communications needs. In addition to
individual physicians, large physician organizations will either
subscribe to encourage their members to use dr.cybear. We expect
administrative staff, particularly office managers, schedulers and
billers will be regular users of many of the administrative tools of
dr.cybear.
/bullet/ Using Physician User Base to Obtain Additional Industry Users - By
developing a physician-centered user base, we believe that we will
attract non-physician users such as pharmacies, hospitals and
Independent Practice Associations ("IPA's") who will use our future
products to communicate and transact business with our dr.cybear
physician users. To this end, we are actively pursuing strategic
relationships with key healthcare, technology and content partners to
enable us to offer higher quality products and solutions to other
segments of the healthcare industry.
/bullet/ Using Connectivity to Retain Users - We believe that our ISP-related
ability to link physician organizations through custom, secure private
networks will improve communications and administrative efficiency. We
believe that once individual users are connected to and use a private
network, particularly members of large provider networks, they will
continue subscribing to our products and services instead of switching
to one of our competitor's services because if they switched, they
would not be able to communicate with members who are dr.cybear users.
/bullet/ Capitalizing on Multiple Revenue Sources - We intend to generate
revenues from multiple sources, including e-commerce, transaction fees
and subscription fees.
PRODUCTS
OUR TECHNOLOGY PLATFORM
Our Internet-based technology platform for our products includes an ISP
that serves only our users, and as a result improves security and reliability of
their Internet access, the use of Java and Cold Fusion language-based
programming to design our user applications, and a network operations center
with full system backups to provide reliability to our user base, all with the
capacity to meet our users' growing needs.
COMMON FEATURES OF OUR PRODUCTS
Each of our products will share the following common features tailored
to meet the needs of the targeted user:
COMPONENT FEATURES
- ------------------------------------------------ ---------------------------------------------------------------------
Internet Service Provider /bullet/ Automatic configuration of the user's computer
/bullet/ Dial-in from any location in the U.S. through a network of
local numbers
/bullet/ Customizable front-end image that may include the name and
service mark of the user or the user's network
/bullet/ On-demand customer support
/bullet/ Access to our products as well as full general purpose
Internet access for use by our users
- ------------------------------------------------ ---------------------------------------------------------------------
6
- ------------------------------------------------ ---------------------------------------------------------------------
Communications Services /bullet/ E-mail, private network capabilities and web hosting
services
/bullet/ Tiered multiple user groups for password secure restricted
access network communications with others in the relevant
healthcare delivery system, with the ability to control
access to information as desired
/bullet/ User group menus comprising larger groups or organizations
defined by a common interest or situation
- ------------------------------------------------ ---------------------------------------------------------------------
Content and Applications /bullet/ A portal entry point notifying users of new information
and product updates relevant to the particular user group
/bullet/ A template for users to design their own web site, search
engine/directory to find information on the Internet, and
online newsletter publisher, each customizable to the needs
of the user, and web site access and the ability to track the
number of visitors to a web site
/bullet/ Software applications tools to streamline day-to-day
healthcare administrative and operational tasks
/bullet/ Lifestyle information geared for the e-commerce needs of
healthcare professionals
- ------------------------------------------------ ---------------------------------------------------------------------
DR.CYBEAR
Dr.cybear includes a broad range of practice management tools to assist
physicians and their office staff, increase physician productivity and enhance
potential reimbursement. Dr.cybear is designed to manage communications between
physicians and the various other segments of the healthcare industry that
interact with them. Cybear launched dr.cybear in March 1999.
The following highlights the dr.cybear practice, office and physician
tools:
PRACTICE TOOLS
APPLICATION CONTENT BENEFIT
- ---------------------------------------- --------------------------------------- -------------------------------------
Managed Care Applications /bullet/ Contract Manager Helps manage differing insurance
/bullet/ Eligibility and Authorization contracts, checks a patient's
/bullet/ Capitation Evaluation insurance status, obtains referral
authorization and evaluates managed
care payments.
- ---------------------------------------- --------------------------------------- -------------------------------------
Care Management /bullet/ Patient Satisfaction Survey Patient services including
/bullet/ Patient Education satisfaction evaluation,
/bullet/ Patient Support educational handouts, online
/bullet/ Practice Benchmarks patients support links and
evaluation of practice by comparing
to standard norms.
- ---------------------------------------- --------------------------------------- -------------------------------------
Coding Management /bullet/ Coding Newsletter Updates and trains staff on coding
/bullet/ Medicare Training changes, simplifies billing with
/bullet/ ICD-9 Online online procedure and disease
listings.
- ---------------------------------------- --------------------------------------- -------------------------------------
Practice Compliance /bullet/ Compliance Newsletter Keeps practice abreast of
/bullet/ Legislative Update compliance issues and legislative
/bullet/ Legal Resources initiatives, alerts regarding fraud
/bullet/ Fraud and Abuse Alerts and abuse issues and assists in
evaluating health care attorney
qualifications.
- ---------------------------------------- --------------------------------------- -------------------------------------
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OFFICE TOOLS
APPLICATION CONTENT BENEFIT
- ---------------------------------------- --------------------------------------- -------------------------------------
Supply Replacement /bullet/ Injectables and Vaccines Online ordering of injectables,
/bullet/ Medical Supplies vaccines, medical, and office
/bullet/ Office Supplies supplies frees staff time and
ensures availability.
- ---------------------------------------- --------------------------------------- -------------------------------------
Staff Services /bullet/ Human Resources Helps track required human resource
/bullet/ Policy and Procedures documentation, contains staff
/bullet/ Office Training policies and procedures, online
/bullet/ Occupational Safety and training courses, and Occupational
Health Administration Safety and Health Administration
Regulatory compliance compliance evaluation and protocols.
/bullet/ Disaster Protocols
- ---------------------------------------- --------------------------------------- -------------------------------------
Infrastructure Support /bullet/ Office Forms Database Extensive repository of office
forms for all needs, both business
and clinical.
- ---------------------------------------- --------------------------------------- -------------------------------------
PHYSICIAN TOOLS
APPLICATION CONTENT BENEFIT
- ---------------------------------------- -------------------------------------- --------------------------------------
Continuing Education /bullet/ Continuing Medical Education Keeps physicians updated on their
/bullet/ Medical Library education, and allows patient,
/bullet/ Conference calendar disease and clinical research.
/bullet/ Clinical Studies
- ---------------------------------------- -------------------------------------- --------------------------------------
Prescription Management /bullet/ Managed Care Tracks the medications covered by
/bullet/ Food and Drug different insurance carriers, and
Administration Approvals minimizes changes and substitutions
/bullet/ Drug Formulary Prescription of patient medications.
Profiling
- ---------------------------------------- -------------------------------------- --------------------------------------
Certification Assistance /bullet/ Credentialing Database Updates physician's profile
/bullet/ Utilization Benchmarking regarding education, hospital
privileges, licensure, etc. Allows
comparison of patient management and
treatment to standard clinical
protocols and treatment regimes.
- ---------------------------------------- -------------------------------------- --------------------------------------
FUTURE PRODUCT
Cybear is developing additional functionality to its dr.cybear product
as well as an additional Internet-based product, rx.cybear, targeted to the
needs of pharmacies. The additional functionality to the dr.cybear product and
the rx.cybear product are based on our Internet-based technology platform, and
will add tools specially designed to meet the needs of the expected users.
Cybear anticipates that the additional functionality to the dr.cybear product
and the rx.cybear product will attract new users that will benefit from the
connectivity features to communicate among themselves and with physicians.
/bullet/ Additional functionality to our dr.cybear product will include:
/bullet/ Communication of laboratory results. This service will enable
physicians to order and view the results of diagnostic tests
from participating clinical laboratories.
8
/bullet/ Medical messaging services which may include discharge
summaries and nursing notes from hospitals, prescription and
laboratory information, transcription information, as well as
other pertinent patient medical records to allow physicians
"real time" access to such information.
/bullet/ Enhanced patient eligibility and coverage verification.
/bullet/ Medical claims processing.
/bullet/ Rx.cybear will be targeted to the community pharmacies, a segment of
the healthcare delivery sector that is experiencing increased pressures
to reduce and control operational costs. Rx.cybear will also function
and provide benefits to the pharmacy chain market. Cybear believes
rx.cybear will have a direct bottom line cost to managing the
prescription benefit as well as the patient coordination between the
physician practice, the pharmacy and the patient. In addition to the
standard portal product, rx.cybear will offer applications that have
been developed by Cybear including:
/bullet/ Calculators that assist with managing the profitability of the
store, labor budgets, delivery costs, contract profitability,
profit and loss, and price increases.
/bullet/ Electronic integration of the Patient / Physician / Pharmacy
for Rx refills & renewals.
/bullet/ Ability to modify and change drug therapies during the refill
process.
/bullet/ E-commerce through the pharmacist's web page.
/bullet/ Access to numerous journals, regulatory information, formulary
listings and clinical study summaries.
MARKETING AND SALES
We sell our product primarily through two mechanisms: our in-house
sales force and our distribution partnerships. We have an in-house sales force
of individuals with healthcare backgrounds and relationships oriented to
building the physician user base. The sales force activity is complemented by
senior management in approaching other segments of the healthcare community,
including the pharmaceutical, medical device and supplies and ancillary service
providers. We believe both through direct sales and through distribution
partnerships, we will have more rapid product penetration and revenue
generation. We plan to continue recruiting additional sales and marketing staff.
To complement our sales strategy, we have a multifaceted marketing
approach that includes advertising, direct mailing, telemarketing, trade show
visibility and direct selling activity. Our marketing efforts take a business
partnership approach, with a focus on developing three main revenue bases:
e-commerce, transaction revenues and subscription revenues. We believe that
providing useful, easy to use and well supported products and services will
allow us to build our user base, and that building our user base will allow us
to generate e-commerce and transaction revenues.
CUSTOMER SERVICE AND SUPPORT
Cybear believes that effective customer service is essential to
attracting and retaining users and is acutely sensitive to the demands for
person-to-person responsiveness of the healthcare community. Cybear provides
ongoing telephone support in both technical computer hardware and healthcare
applications matters. This support is provided through its customer service and
help desk which are accessible by a toll-free call and are available from 8:00
a.m. to 8:00 p.m. eastern standard time Monday through Friday with after hours
support available via pager. Personnel are trained to both resolve technical
problems and to answer inquiries on product usage. Cybear also has trained
customer satisfaction associates to ensure proper use and customer satisfaction.
NETWORK OPERATIONS CENTER
Cybear's network operations center, or NOC, was designed to fully
integrate redundancy and scalability. We have installed redundant power
supplies, each with its own power cable, into every major switch or router in
our system so as to ensure that a disruption in the power supply or disconnected
power cable does not incapacitate the network. We can increase our capacity,
speed and fault tolerance
9
without affecting or stopping existing services simply by connecting additional
equipment into our network. Upgrades are done to our equipment and software as
computer virus and other security advisories become available. We use the latest
in firewalls running dual design in the event one should fail. Cybear's external
connectivity is designed to be as redundant and self- repairing as its internal
network. We have connectivity, split across several routes and high speed
segments known as T3 lines, to several major telecommunication infrastructure
providers, including Bell South, Uunet, Sprint and Cable & Wireless, to provide
connections with the Internet. If any one or more of the providers or routers
becomes unavailable, the infrastructure itself will re-route traffic as
necessary to continue functioning without interruption.
Every network segment is split among redundant switches, and each
switch also is attached to the backbone through redundant connections, resulting
in an efficient self-healing network that can sense and repair itself as the
need arises. Our host routers and network segments, both internal and external,
are monitored 365 days a year through several systems, on and offsite, in order
to maintain site integrity. The NOC is located in Boca Raton, Florida.
COMPETITION
Cybear's competitors include online services or web sites targeted to
healthcare, general purpose ISPs, publishers and distributors of offline media,
healthcare information companies and large data processing and information
companies. Many of these competitors have substantial installed customer bases
in the healthcare industry and the ability to fund significant product
development and acquisition efforts. Cybear believes that the principal
competitive factors in its market include knowledge of user needs and client
service, system quality and product features, price and the effectiveness of
marketing and sales efforts. There can be no assurance that Cybear will be
competitive with respect to any individual factor or combination thereof.
To be competitive, Cybear must incorporate leading technologies,
enhance its existing services and content, develop new technologies that address
the increasingly sophisticated and various needs of healthcare professionals and
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. There can be no assurance that Cybear will
be successful in using new technologies effectively or adapting dr.cybear and
other products to user requirements or emerging industry standards. Any pricing
pressures, reduced margins or loss of market share resulting from Cybear's
failure to compete effectively would materially adversely affect Cybear's
business, financial condition and operating results.
Many of Cybear's current and potential competitors have greater
financial, technical and marketing resources to devote to the development,
promotion and sale of their services; longer operating histories; greater name
recognition; and larger user bases than Cybear and, therefore, may have a
greater ability to attract users. Many of these competitors may be able to
respond more quickly than Cybear to new or emerging technologies in the Internet
and the personal communications market and changes in Internet user requirements
and to devote greater resources than Cybear to the development, promotion and
sale of their services. In addition, Cybear does not have contractual rights to
prevent its business partners from entering into competing businesses or
directly competing with it.
GOVERNMENT REGULATION AND HEALTHCARE REFORM
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. Cybear's products are designed to function within the
structure of the healthcare financing and reimbursement system currently being
used in the United States. During the past several years, the healthcare
industry has been subject to an increase in governmental regulation of, among
other things, reimbursement rates.
Proposals to reform the U.S. healthcare system have been and will
continue to be considered by the U.S. Congress. These programs may contain
proposals to increase governmental involvement in healthcare and otherwise
change the operating environment for Cybear's potential customers. Healthcare
10
organizations may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including those for Cybear's
products. On the other hand, changes in the regulatory environment have in the
past increased and may continue to increase the needs of healthcare
organizations for cost-effective information management and thereby enhance the
marketability of Cybear's products and services. Cybear cannot predict with any
certainty what impact, if any, such proposals or healthcare reforms might have
on Cybear's results of operations, financial condition and business.
Cybear's products and services are not directly subject to governmental
regulations, although the proposed user base is subject to extensive and
frequently changing federal and state laws and regulations. However, with regard
to healthcare issues on the Internet, the recently enacted Health Insurance
Portability and Accountability Act of 1996, mandates the use of standard
transactions, standard identifiers, security and other provisions by the year
2002. It will be necessary for Cybear's platform and for the applications that
it provides to be in compliance with the proposed regulations. Congress is also
likely to consider legislation that would establish uniform, comprehensive
federal rules about an individual's right to access his own or someone else's
medical information. This legislation would likely define what is to be
considered "protected health information" and outline steps to ensure the
confidentiality of this information. The proposed Health Information
Modernization and Security Act would provide for establishing standards and
requirements for the electronic transmission of health information.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as online content, user privacy,
pricing and characteristics and quality of products and services. For example,
although it was held unconstitutional, the Communications Decency Act of 1996
prohibited the transmission over the Internet of certain types of information
and content. In addition, several telecommunications carriers are seeking to
have telecommunications over the Internet regulated by the FCC in the same
manner as other telecommunications services. Because the growing popularity and
use of the Internet has burdened the existing telecommunications infrastructure
in many areas, local exchange carriers have petitioned the FCC to regulate ISPs
in a manner similar to long distance telephone carriers and to impose access
fees on the ISPs.
Internet user privacy has become an issue in the United States. Current
United States privacy law consists of a few disparate statutes directed at
specific industries that collect personal data, none of which specifically
covers the collection of personal information online. Cybear cannot guarantee
that the United States will not adopt legislation purporting to protect such
privacy. Any such legislation could affect the way in which Cybear is allowed to
conduct its business, especially those aspects that involve the collection or
use of personal information, and could have a material adverse effect on
Cybear's business, financial condition and operating results. Moreover, it may
take years to determine the extent to which existing laws governing issues such
as property ownership, libel, negligence and personal privacy are applicable to
the Internet.
With regard to copyright infringement liability, Congress recently
enacted the Online Copyright Infringement Liability Limitation Act as part of
the Digital Millennium Copyright Act which limits the copyright liability of
ISPs for certain transmissions through their systems. Through this law, an ISP
can avoid liability for copyright infringement with respect to the ISP's
transmitting, routing, linking, and storing materials through its service if the
materials are transmitted or stored by or at the direction of a person other
than the ISP through an automatic process without selection of the materials by
the ISP, the ISP does not select the recipients of the materials except as an
automatic response to the request of another person, the materials are not
accessible by unanticipated recipients, and the materials are transmitted
without modification of content.
The ISP must not have actual knowledge or information making it
apparent that materials on its system infringe, and must have procedures in
place to deal with allegations of infringement, including a designated person to
receive notifications of claimed infringement, a commitment to remove allegedly
11
infringing material from the service upon receipt of credible notifications and
notification of the subscriber whose material is removed from the service.
While this law provides some protection, it will not apply in all
aspects where Cybear could face liability for copyright infringement as a result
of materials available on its ISP because Cybear may create or modify certain of
these materials, and therefore be outside of the safe harbor provided by this
law.
The tax treatment of the Internet and e-commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by certain foreign governments that could impose taxes on the sale of
goods and services and certain other Internet activities. A recently-passed law
places a temporary moratorium on certain types of taxation on Internet commerce.
Cybear cannot predict the effect of current attempts at taxing or regulating
commerce over the Internet. Any legislation that substantially impairs the
growth of e-commerce could have a material adverse effect on Cybear's business,
financial condition and operating results.
INTELLECTUAL PROPERTY
Cybear seeks to protect its proprietary information through
nondisclosure agreements with its employees. Cybear's policy is to have
employees enter into nondisclosure agreements containing provisions prohibiting
the disclosure of confidential information to anyone outside Cybear, requiring
disclosure to Cybear of any new ideas, developments, discoveries or inventions
conceived during employment, and requiring assignment to Cybear of proprietary
rights to such matters that are related to Cybear's business.
Cybear also relies on a combination of trade secrets, copyright and
trademark laws, contractual provisions and technical measures to protect its
rights in various methodologies, systems and products and knowledge bases.
Cybear believes that because of the rapid pace of technological change in the
EDI industry, trade secret and copyright protection are less significant than
factors such as the knowledge, ability, experience and integrity of Cybear's
employees, frequent product enhancements and the timeliness and quality of
support services.
We have a federal service mark registration for "Cybear". We have also
registered the domain names "dr.cybear.com" and "Cybear.com." Any infringement
or misappropriation of Cybear's intellectual property rights would disadvantage
Cybear in its efforts to retain and attract new customers in a highly
competitive market and could cause Cybear to lose revenues or incur substantial
litigation expense.
Although Cybear believes that its products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against Cybear in the future. If asserted, such a
claim could cause Cybear to lose revenues or incur substantial litigation
expense.
EMPLOYEES
As of March 8, 2000, Cybear had 100 full-time employees. None of such
employees is a member of a labor union and Cybear considers its relationship
with its employees to be good.
ITEM 2. PROPERTIES
Cybear currently leases 21,648 square feet of space in Boca Raton,
Florida housing its corporate headquarters and network systems. The lease
provides for annual rent of $270,600, excluding taxes, insurance, utilities and
common area maintenance charges. In September 1999, the Company amended its
lease to expand the leased premises by 16,420 square feet starting April 1,
2000. This will increase the annual base rent to $490,316 excluding taxes,
insurance, utilities and common area maintenance charges starting on April 1,
2000. In addition, the lease term was extended to March 31, 2007. Cybear
12
has adequate insurance for the premises. Management believes that this office
space will be adequate for Cybear's needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Cybear may be involved in litigation relating to
claims arising out of its operations in the normal course of business. Cybear is
not currently a party to any legal proceeding or aware of any other claim, the
adverse outcome of which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Cybear's business, operating
results and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1999.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has been listed for trading on the Nasdaq National
Market under the symbol "CYBA" since June 18, 1999. From January 28, 1999 to
June 17, 1999, our common stock was traded on the OTC Bulletin Board under the
symbol "CYBR". The following table sets forth, for the calendar quarters
indicated, the range of high and low bid prices per share of common stock as
reported by the OTC Bulletin Board for the period from January 28, 1999 to June
17, 1999 and the range of high and low sales prices per share of common stock as
reported by the Nasdaq National Market for the period from June 18, 1999 to
December 31, 1999. Quotations from the OTC Bulletin Board were over-the-market
quotations and, accordingly, reflected inter-dealer prices, without retail
mark-up, mark-down or commission and may have not represented actual
transactions. Because only 269,400 shares were freely tradable at that time,
there was a limited public market for our common stock and the prices might not
have reflected the true value of our common stock:
1999 HIGH LOW
- ----------- ------- ------
First Quarter (Commencing January 28, 1999) $ 53.00 $ 3.25
Second Quarter 41.00 13.88
Third Quarter 23.25 5.88
Fourth Quarter 10.00 5.47
HOLDERS
As of March 7, 2000, there were approximately 51 registered holders of
record of Cybear's common stock. Cybear believes the number of beneficial owners
of its common stock is approximately 3,139.
DIVIDENDS
Cybear has not paid dividends on its common stock and does not intend
to pay dividends for the foreseeable future. Cybear intends to retain any
earnings, to finance the development and expansion of its business.
ITEM 6. SELECTED FINANCIAL DATA
This section presents selected historical financial data of Cybear. You
should read this selected financial data together with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Report as well as Cybear's Consolidated Financial Statements and related
notes contained in Item 8 of this Report. The selected data in this section is
not intended to replace the Consolidated Financial Statements.
Cybear derived the statement of operations data and balanced sheet data
from the audited consolidated financial statements contained in Item 8 of this
Report. Those financial statements were audited by Arthur Andersen LLP,
independent certified public accountants.
14
STATEMENT OF OPERATIONS DATA*:
YEARS ENDED FOR THE PERIOD FROM
DECEMBER 31, FEBRUARY 5, 1997
----------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
------------ ------------ ------------
Revenues $ 269,707 $ -- $ 95,927
Operating expenses:
Network operations and operations
support 2,867,047 643,309 --
Product development 3,058,207 1,716,454 894,027
Sales and marketing 4,908,939 482,418 --
General and administrative 2,543,952 1,189,122 666,873
Depreciation and amortization 1,555,613 139,268 65,376
------------ ------------ ------------
Total operating expenses 14,933,758 4,170,571 1,626,276
------------ ------------ ------------
Loss from operations (14,664,051) (4,170,571) (1,530,349)
Other income (expense):
Interest expense on due to Andrx
Corporation (216,182) (210,441) (28,220)
Interest income 1,282,379 -- --
------------ ------------ ------------
Loss before income taxes (13,597,854) (4,381,012) (1,558,569)
Income tax benefit 2,824,069 1,900,000 --
------------ ------------ ------------
Net loss $(10,773,785) $ (2,481,012) $ (1,558,569)
============ ============ ============
Basic and diluted net loss per share $ (0.70) $ (0.19) $ (0.12)
============ ============ ============
Basic and diluted weighted average shares
of common stock outstanding 15,470,009 13,030,999 12,768,303
============ ============ ============
BALANCE SHEET DATA:
DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash, cash equivalents and investments available-for-sale $37,993,628 $ 3,983 $ 1,000
Working capital (deficit) 39,389,776 (3,235,200) (1,378,412)
Total assets 53,068,029 3,331,951 395,456
Total liabilities 3,090,680 3,799,568 1,410,119
Total shareholders' equity (deficit) 49,977,349 (467,617) (1,014,663)
*Certain prior year amounts have been reclassified to conform to the current
year presentation.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
Cybear Inc., a Delaware corporation, was incorporated on February 5,
1997. Cybear is an information technology company using the Internet to improve
the efficiency of administrative and communications tasks of managing patient
care. Cybear provides access to the Internet and the Cybear product line through
its own ISP system, delivering productivity applications to health care
providers and health information to consumers.
In March 1999, Cybear introduced its first product, its Physician
Practice Portal, which addresses the communications and operational needs of
physicians. Cybear's future products will provide Internet-based productivity
software applications and communication networks for other constituents of the
healthcare community. In the three months ended June 30, 1999, Cybear emerged
from the development stage for financial reporting purposes.
In June 1999, the Company completed a public offering of 3,450,000
shares of its common stock, raising approximately $50.8 million in net proceeds.
In September 1999, the Company acquired Telegraph Consulting Corporation
("Telegraph"), the programming, networking and interactive design division of
Telegraph New Technology, Inc. The purchase price of approximately $4.1 million
included $1.2 million in cash, the issuance of 320,000 shares of Cybear
unregistered common stock valued at approximately $2.8 million and the
assumption of approximately $136,000 of Telegraph's debt. The acquisition was
recorded using the purchase method of accounting. As of December 31, 1999,
Cybear was approximately 73% owned by Andrx.
In December 1999, Cybear received from Andrx a tracking stock
recapitalization plan offer which would give Andrx shareholders the ability to
distinguish their investments in Andrx and Cybear. In March 2000, Andrx and
Cybear entered into a definitive agreement with respect to the previously
announced tracking stock recapitalization plan. This plan, which was recommended
to the Cybear Board of Directors by its Special Committee and approved by the
Boards of both Cybear and Andrx, will create a new class of Andrx common stock
to separately track the performance of Cybear ("Cybear Group Common"). The plan
will be submitted to Andrx and Cybear shareholders for approval later this year.
Pursuant to an Agreement and Plan of Merger and Reorganization (the
"Agreement"), Andrx will acquire all of the publicly traded shares of common
stock of Cybear in a tax-free "roll-up" merger. Public shareholders currently
own approximately 5.4 million shares (assuming the exercise by Edward E.
Goldman, M.D., Cybear's chief executive officer, of a warrant to acquire 525,000
shares of Cybear's common stock currently owned by Andrx), or 30.5%, of the
common shares of Cybear, and those shareholders will receive one share of Cybear
Group Common for every Cybear share they currently own. In the recapitalization,
the number of Cybear shares held by Andrx will be reduced from 12.4 million
shares to 10.3 million shares so as to provide the equivalent of a 20% increase
in shares held by the non-Andrx shareholders of Cybear. As a result, the
non-Andrx shareholders of Cybear will own approximately 34.5% of the Cybear
Group Common following the closing of the transaction. Pursuant to the
Agreement, each Andrx common share will be converted into (i) one share of Andrx
Group Common and (ii) approximately .1622 shares of Cybear Group Common, after
giving effect to Andrx' pending two-for-one stock split (in the form of a stock
dividend) announced on March 1, 2000. Upon completion of the recapitalization,
(i) Cybear will be a wholly owned subsidiary of Andrx with 100% of its value
publicly traded in the form of Cybear Group Common; (ii) current Cybear
shareholders will own approximately 34.5% of the Cybear Group Common; and (iii)
current Andrx shareholders will own 100% of the Andrx Group Common and
approximately 65.5% of the Cybear Group Common.
Andrx and Cybear will be filing a preliminary joint proxy statement and
a registration statement with respect to the proposed transaction with the SEC,
which is subject to review by the SEC. In addition to shareholder approval, the
transaction will be subject to various Federal and state regulatory approvals
and, accordingly, no assurance can be given that this transaction will be
consummated.
In connection with the tracking stock recapitalization plan, the
Company estimates it will incur merger costs of up to approximately $1.5 million
if the tracking stock recapitalization plan is consummated. These costs will be
charged to expense as incurred. No assurance can be given that this transaction
will be consummated.
16
Cybear has incurred net operating losses and negative cash flows from
operating activities since its inception. As of December 31, 1999, Cybear had an
accumulated deficit of approximately $14.8 million. In addition, Cybear intends
to continue to invest heavily in product development, network operations,
customer support, sales and marketing and administrative areas. As a result,
Cybear expects to continue to incur substantial operating losses for the
foreseeable future, and may never achieve or sustain profitability.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 ("1999") AS COMPARED TO YEAR ENDED DECEMBER 31,
1998 ("1998").
Cybear had $269,707 in revenues for 1999 and had no revenues for 1998.
Revenue for 1999 includes subscriptions to the Company's Physician Practice
Portal product, as well as revenues from web site development and maintenance
and e-commerce revenues (see Note 2 to the accompanying consolidated financial
statements). Cybear does not expect that revenues derived from Web site
development and maintenance to be material in the year ending December 31, 2000.
Network operations and operations support costs were $2.9 million in
1999 compared to $643,309 in 1998. Network operations and operations support
costs consist primarily of personnel and related costs associated with operating
the network operations center and providing customer support, telecommunications
costs and maintenance expense on computer hardware and software. The increase in
network operations and operations support costs for 1999 related to the
establishment of the network operations center and the development of the
operations support infrastructure.
Product development costs were $3.1 million in 1999 compared to $1.7
million in 1998. Product development costs include payroll, benefits and other
expenses of employees involved in the creation, design and development of
Cybear's products, outside consultant fees and content fees. The increase in the
product development costs for 1999 reflects the progress and expansion of
Cybear's development activities.
Sales and marketing expenses were $4.9 million in 1999 compared to
$482,418 in 1998. Sales and marketing expenses consist primarily of salaries and
personnel related costs, consulting and advertising fees and costs of developing
and distributing promotional material. The increase in sales and marketing
expenses for 1999 related primarily to the establishment of the selling and
marketing infrastructure, an increase in consulting and advertising fees, the
development and distribution of promotional material and costs incurred for
trade shows.
General and administrative expenses were $2.5 million in 1999 compared
to $1.2 million in 1998. General and administrative expenses consist primarily
of salaries and personnel related expenses for executives and administrative
functions, housing expenses and professional fees. The increase in general and
administrative expenses for 1999 related to the expansion of the administrative
infrastructure.
Depreciation and amortization expense was $1.6 million in 1999 compared
to $139,268 in 1998. Depreciation and amortization expense consists primarily of
the depreciation and amortization of property and equipment, amortization of
goodwill and amortization of capitalized product development costs. The increase
in depreciation and amortization for 1999 resulted primarily from Cybear's
purchases of computer hardware and software used in its network operations
center and the development of its products, leasehold improvements to the rented
space housing its corporate headquarters and network operations center. In
addition, Cybear began amortizing capitalized product development costs as it
released its first products in 1999 and began amortizing the goodwill arising
from the acquisition of Telegraph.
17
Interest expense was $216,182 in 1999 compared to $210,441 in 1998.
Interest expense represented interest on Due to Andrx under the credit agreement
between the two companies to fund Cybear's operations. Upon completion of the
public offering in June 1999, Andrx converted its advances due from Cybear, net
of the reimbursement for income tax attributes, to Cybear's capital in exchange
for 465,387 shares of Cybear common stock at the public offering price of $16.00
per share.
Cybear had interest income of $1.3 million in 1999 and had no interest
income in 1998. The interest income resulted primarily from the investments of
the net proceeds generated from the public offering in money market funds and
interest bearing investment grade securities.
Cybear's taxable results through the completion of the public offering
in June 1999 were included in the consolidated income tax return of Andrx since
Andrx owned at least 80% of the common stock of Cybear. Cybear and Andrx have a
tax allocation agreement pursuant to which Federal income tax liabilities or
benefits are allocated to Cybear as if Cybear had filed a separate income tax
return when Cybear's taxable results are included in the consolidated income tax
return of Andrx. Upon completion of the public offering in June 1999, Andrx's
ownership in Cybear was reduced below 80%. Consequently, Cybear thereafter files
its income tax returns separately.
For the period from June 23, 1999 (date of completion of the public
offering) to December 31, 1999, Cybear generated a net operating loss
carryforward of approximately $10 million which is available to offset future
earnings. As of December 31, 1999, Cybear has net deferred tax assets of
approximately $4.0 million attributable primarily to the net operating loss
carryforward of approximately $10 million generated from June 23, 1999 to
December 31, 1999. Under the provisions of SFAS No. 109, "Accounting for Income
Taxes", Cybear has provided a valuation allowance to reserve against 100% of its
net deferred tax assets due to its history of net losses. For the period from
January 1, 1999 to June 22, 1999 and for 1998, Cybear recorded $2.8 million and
$1.9 million, respectively, in income tax benefits. The income tax benefits
reflect the reimbursement from Andrx for the utilization of Cybear's income tax
attributes pursuant to the tax allocation agreement.
1998 AS COMPARED TO PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31,
1997 ("1997").
Cybear had no revenues for 1998 as it was in the development stage.
Revenues were $95,927 in 1997 and consisted of software development services
rendered to Andrx.
Network operations and operations support costs were $643,309 in 1998.
Cybear had no network operations and operations support costs in 1997. The
increase in network operations and operations support costs for 1998 related to
the establishment of the network operations center and the development of the
operations support infrastructure.
Product development costs were $1.7 million in 1998 compared to
$894,027 in 1997. The increase in the product development costs for 1998
reflected the progress and expansion of Cybear's development activities.
Sales and marketing expenses were $482,418 in 1998. Cybear had no sales
and marketing expenses in 1997. The increase in sales and marketing expenses for
1998 related to the development of the sales and marketing infrastructure.
General and administrative expenses were $1.2 million in 1998 compared
to $666,873 in 1997. The increase in general and administrative expenses for
1998 related to the expansion of the administrative infrastructure.
Depreciation and amortization expense was $139,268 in 1998 compared to
$65,376 in 1997. The increase in depreciation and amortization for 1998 resulted
primarily from the Company's purchases of computer hardware and software used in
the establishment of its network operations center and the development of its
products.
18
Interest expense was $210,441 in 1998 compared to $28,220 in 1997.
Interest expense represented interest on advances from Andrx under the Credit
Agreement between the two companies to fund Cybear's operations. At December 31,
1998, the net advances including interest amounted to approximately $5.4
million.
Cybear recorded a tax benefit of $1.9 million in 1998 reflecting the
reimbursement from Andrx for the utilization of Cybear's income tax attributes
pursuant to the tax allocation agreement. In 1997, the Company did not record
any income tax provision or benefit as Andrx could not utilize Cybear's tax
attributes. As of December 31, 1998, Cybear had net deferred tax assets of
approximately $342,000 attributable primarily to a net operating loss
carryforward in the amount of approximately $800,000 which was available to
offset future earnings. Under the provisions of SFAS No. 109, Cybear had
provided a valuation allowance to reserve against 100% of its net deferred tax
assets given its history of net losses.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, Cybear had $38.0 million in cash, cash
equivalents and investments available-for-sale and $39.4 million of working
capital.
Net cash used in operating activities was $9.7 million in 1999 compared
to $1.4 million in 1998 and $1.4 million in 1997. The increase in net cash used
in operating activities in 1999, as compared to 1998 is primarily due to Cybear
incurring a net loss of $10.8 million in 1999 as compared to a net loss of $2.5
million in 1998, an increase in other assets of $1.3 million in 1999 as compared
to a decrease of $11,730 in 1998 offset by depreciation and amortization expense
of $1.6 million in 1999, as compared to $139,268 in 1998. The increase in other
assets results primarily from recording a long term receivable of $600,000 from
a medical organization and advance payments made to an operator of web sites
(see Note 10 to the accompanying consolidated financial statements).
In 1999, net cash used in operating activities was primarily
attributable to Cybear's loss from operations, the interest receivable from the
Company's investments available-for-sale and an increase in other assets, offset
by the depreciation and amortization expense and an increase in accounts
payable. In 1998 and 1997, the net cash used in operating activities was
primarily attributed to Cybear's loss from operations offset by increases in
accounts payable.
Net cash used in investing activities was $34.2 million in 1999, $2.7
million in 1998 and $400,535 in 1997. In 1999, Cybear made net purchases of
$26.2 million in investments available-for-sale, purchased a $3.0 million
one-year convertible promissory note from HIE, Inc., and used $1.2 million in
net cash for the acquisition of Telegraph. Cybear also purchased $2.2 million in
property and equipment consisting mainly of computer hardware and software used
in its network operations center and the development of its products, leasehold
improvements to the rented space housing its corporate headquarters and network
operations center and furniture for its corporate headquarters. Cybear also
purchased $1.6 million in software licenses and capitalized $140,304 in product
development costs. In 1998, Cybear purchased $2.3 million of property and
equipment consisting mainly of computer hardware and software used in its
network operations center and in its product development activities, and
leasehold improvements to the rented space housing its corporate headquarters
and network operations center. In addition, Cybear capitalized $358,000 in
product development costs. In 1997, Cybear invested $240,535 in capital
expenditures consisting mainly of computer hardware and software used in the
development of its products. In addition, Cybear purchased a software license
for $160,000.
Net cash provided by financing activities was $55.9 million in 1999,
$4.1 million in 1998 and $1.8 million in 1997. In 1999, net cash provided by
financing activities consisted mainly of $50.8 million in net proceeds generated
from the public offering of 3,450,000 shares of common stock of the Company and
$5.1 million of advances from Andrx to fund Cybear's operations, net of the
reimbursement from Andrx for the utilization of Cybear's income tax attributes
pursuant to the tax allocation agreement. In 1998, net cash provided by
financing activities consisted of advances from Andrx to fund Cybear's
operations, net of the reimbursement from Andrx for the utilization of Cybear's
19
income tax attributes pursuant to the tax allocation agreement. In 1997, net
cash provided by financing activities consisted of advances from Andrx to fund
Cybear's operations and proceeds from issuance of Cybear's stock.
From time to time, Cybear may be involved in litigation relating to
claims arising out of its operations in the normal course of business. Cybear is
not currently a party to any legal proceeding or aware of any other claim, the
adverse outcome of which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Cybear's business, operating
results and financial condition.
Cybear anticipates that its cash requirements will continue to increase
as it continues to expend substantial resources to build its infrastructure,
develop its products and establish its sales and marketing, network operations,
customer support and administrative organizations. Cybear currently anticipates
that its available cash resources will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for the next
twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as
amended, establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as amended, requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
SFAS No. 133, as amended, is effective for fiscal years beginning after
June 15, 2000. A company may also implement the provisions of SFAS No. 133, as
amended, as of the beginning of any fiscal quarter after issuance. SFAS No. 133,
as amended, cannot be applied retroactively. SFAS No. 133, as amended, must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election, before January
1, 1998). The Company will adopt the provisions of SFAS No. 133 beginning
January 1, 2001, as required. Adoption of the provisions of this standard is not
expected to have a material effect on the Company's consolidated results of
operations and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest
rates relates primarily to its investments available-for-sale portfolio. The
Company has not entered into derivative financial instruments in its investments
available-for-sale portfolio. The Company's investments available-for-sale
portfolio consists of fixed rate debt instruments of the U.S. Government and its
agencies, and of high-quality corporate issuers. The Company has established
guidelines, which were approved by its board of directors, relative to
diversification and maturities of its investments available-for-sale portfolio
that are designed to limit the amount of credit exposure to any one issuer and
help ensure safety and liquidity. Investments in fixed rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates.
Due in part to these factors, the Company's future investment income may fall
short of expectations due to changes in interest rates or the Company may suffer
losses in principal if forced to sell securities which have declined in market
value due to changes in interest rates. Although changes in interest rates may
affect the fair value of the investments available-for-sale portfolio and cause
unrealized gains or losses, such gains or losses would not be realized unless
the investments are sold.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CYBEAR, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF
CYBEAR, INC. AND SUBSIDIARIES:
PAGE
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998
and for the period from February 5, 1997 (inception) to December 31, 1997 F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1999 and 1998 and for the period from February 5, 1997
(inception) to December 31, 1997 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and
1998 and for the period from February 5, 1997 (inception) to December 31, 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Cybear, Inc.:
We have audited the accompanying consolidated balance sheets of Cybear,
Inc. (a Delaware corporation and 73% owned subsidiary of Andrx Corporation as of
December 31, 1999) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years ended December 31, 1999 and 1998 and for the period
from February 5, 1997 (inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cybear, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
and for the period from February 5, 1997 (inception) to December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 10, 2000 (except for
the tracking stock recapitalization
plan discussed in Note 14, as to
which the date is March 24, 2000).
F-2
CYBEAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,921,731 $ 3,983
Investments available-for-sale 26,071,897 --
Investment interest receivable 740,037 --
Accounts receivable, net of allowance of $3,000 104,742 --
Convertible note receivable from HIE, Inc. 3,000,000 --
Receivable from Blue Lake Ltd. -- 366,000
Prepaid expenses and other current assets 642,049 194,385
------------ ------------
Total current assets 42,480,456 564,368
Property and equipment, net 3,523,395 2,406,629
Product development costs, net 332,752 358,000
Software licenses 1,603,000 --
Goodwill, net 3,818,844 --
Other assets 1,309,582 2,954
------------ ------------
Total assets $ 53,068,029 $ 3,331,951
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,758,330 $ 1,153,059
Accrued liabilities 332,350 301,782
Due to Andrx Corporation -- 2,344,727
------------ ------------
Total current liabilities 3,090,680 3,799,568
------------ ------------
Commitments and contingencies (Notes 10 and 14)
Shareholders' equity (deficit):
Preferred stock, $.01 par value; 2,000,000 shares authorized,
none issued and outstanding as of December 31, 1999 and 1998 -- --
Common stock, $.001 par value; 25,000,000 shares
authorized, 17,653,662 and 13,269,400 shares issued and
outstanding as of December 31, 1999 and 1998, respectively 17,654 13,269
Additional paid-in capital 64,873,031 3,558,695
Accumulated deficit (14,813,366) (4,039,581)
Accumulated other comprehensive loss (99,970) --
------------ ------------
Total shareholders' equity (deficit) 49,977,349 (467,617)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 53,068,029 $ 3,331,951
============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated balance sheets.
F-3
CYBEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FOR THE PERIOD FROM
DECEMBER 31, FEBRUARY 5, 1997
----------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
------------ ------------ ------------
Revenues $ 269,707 $ -- $ 95,927
Operating expenses:
Network operations
and operations support 2,867,047 643,309 --
Product development 3,058,207 1,716,454 894,027
Sales and marketing 4,908,939 482,418 --
General and administrative 2,543,952 1,189,122 666,873
Depreciation and amortization 1,555,613 139,268 65,376
------------ ------------ ------------
Total operating expenses 14,933,758 4,170,571 1,626,276
------------ ------------ ------------
Loss from operations (14,664,051) (4,170,571) (1,530,349)
Other income (expense):
Interest expense on due to
Andrx Corporation (216,182) (210,441) (28,220)
Interest income 1,282,379 -- --
------------ ------------ ------------
Loss before income taxes (13,597,854) (4,381,012) (1,558,569)
Income tax benefit 2,824,069 1,900,000 --
------------ ------------ ------------
Net loss $(10,773,785) $ (2,481,012) $ (1,558,569)
============ ============ ============
Basic and diluted net loss
per share $ (0.70) $ (0.19) $ (0.12)
============ ============ ============
Basic and diluted weighted
average shares of common
stock outstanding 15,470,009 13,030,999 12,768,303
============ ============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
F-4
CYBEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
------------------- --------------------- PAID-IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS LOSS
-------- --------- ---------- --------- ------------ ------------ --------- ------------
FEBRUARY 5, 1997 (INCEPTION) -- $ -- -- $ -- $ -- $ -- $ --
Issuance of shares of common
stock to Andrx Corporation
as promoter -- -- 12,870,000 12,870 487,130 -- --
Issuance of shares of
convertible preferred stock 130,000 130 -- -- 29,870 -- --
Shares of common stock issued
in connection with
conversion of shares of
convertible preferred
stock (130,000) (130) 130,000 130 -- -- --
Options granted to
non-employees -- -- -- -- 13,906 -- --
Net loss and comprehensive
loss -- -- -- -- -- (1,558,569) -- $ (1,558,569)
-------- --------- ---------- --------- ------------ ------------ --------- ============
BALANCE, DECEMBER 31, 1997 -- -- 13,000,000 13,000 530,906 (1,558,569) --
Shares of common stock issued
in connection with merger
with 1997 Corp. -- -- 269,400 269 (269) -- --
Conversion of due to Andrx
Corporation upon
consummation of
merger with 1997 Corp. -- -- -- -- 3,012,452 -- --
Options granted to
non-employees -- -- -- -- 15,606 -- --
Net loss and comprehensive
loss -- -- -- -- -- (2,481,012) -- $ (2,481,012)
-------- --------- ---------- --------- ------------ ------------ --------- ============
BALANCE, DECEMBER 31, 1998 -- -- 13,269,400 13,269 3,558,695 (4,039,581) --
Shares of common stock issued
in connection with public
offering -- -- 3,450,000 3,450 50,774,716 -- --
Conversion of due to Andrx
Corporation upon completion
of public offering -- -- 465,387 466 7,445,726 -- --
Shares of common stock issued
in connection with the
acquisition of Telegraph
Consulting Corporation -- -- 320,000 320 2,770,680 -- --
Shares of common stock issued
in connection with exercise
of stock options -- -- 148,875 149 168,852 -- --
Options granted to non-employees -- -- -- -- 154,362 -- --
Unrealized loss on investments
available-for-sale -- -- -- -- -- -- (99,970) $ (99,970)
Net loss -- -- -- -- -- (10,773,785) -- (10,773,785)
------------
Comprehensive loss $(10,873,755)
-------- --------- ---------- --------- ------------ ------------ --------- ============
BALANCE, DECEMBER 31, 1999 -- $ -- 17,653,662 $ 17,654 $ 64,873,031 $(14,813,366) $ (99,970)
======== ========= ========== ========= ============ ============ =========
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
F-5
CYBEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM
YEARS ENDED DECEMBER 31, FEBRUARY 5, 1997
----------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
------------ ------------ ------------
Cash flows from operating activities:
Net loss $(10,773,785) $ (2,481,012) $ (1,558,569)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 1,555,613 139,268 65,376
Other non-cash charges 35,508 159,897 --
Changes in operating assets and liabilities:
Investment interest receivable (740,037) -- --
Accounts receivable (45,994) -- --
Receivable from Blue Lake Ltd. 366,000 (366,000) --
Prepaid expenses and other current assets (447,664) (163,678) (30,707)
Other assets (1,306,628) 11,730 (14,684)
Accounts payable 1,577,012 1,088,246 64,813
Accrued liabilities 30,568 225,249 76,533
------------ ------------ ------------
Net cash used in operating activities (9,749,407) (1,386,300) (1,397,238)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of investments available-for-sale, net (26,171,867) -- --
Convertible note receivable from HIE, Inc. (3,000,000) -- --
Purchases of property and equipment (2,154,165) (2,341,123) (240,535)
Product development costs (140,304) (358,000) --
Purchase of software licenses (1,603,000) -- (160,000)
Acquisition of Telegraph Consulting Corporation (1,181,244) -- --
Proceeds from sale of property and equipment 5,450 -- --
------------ ------------ ------------
Net cash used in investing activities (34,245,130) (2,699,123) (400,535)
------------ ------------ ------------
Cash flows from financing activities:
Advances from Andrx Corporation, net of Andrx's utilization
of Cybear's income tax attributes 5,101,465 4,088,406 1,268,773
Repayment of bank loan (136,347) -- --
Net proceeds from public share offering 50,778,166 -- --
Proceeds from exercises of stock options 169,001 -- --
Proceeds from promissory note issued for purchase of
convertible preferred stock -- -- 30,000
Net proceeds from issuance of shares of common stock -- -- 500,000
------------ ------------ ------------
Net cash provided by financing activities 55,912,285 4,088,406 1,798,773
------------ ------------ ------------
Net increase in cash and cash equivalents 11,917,748 2,983 1,000
Cash and cash equivalents, beginning of period 3,983 1,000 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 11,921,731 $ 3,983 $ 1,000
============ ============ ============
Supplemental disclosure of non-cash activities:
Conversion of due to Andrx Corporation into shares of common stock $ 7,446,192 $ -- $ --
============ ============ ============
Conversion of due to Andrx Corporation into additional paid-in capital $ -- $ 3,012,452 $ --
============ ============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
F-6
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) GENERAL
Cybear Inc. ("Cybear" or the "Company"), a Delaware corporation, was
incorporated on February 5, 1997. As of December 31, 1999, Cybear was a 73%
owned subsidiary of Andrx Corporation ("Andrx"). Cybear is an information
technology company using the Internet to improve the efficiency of
administrative and communications tasks of managing patient care. Cybear
provides access to the Internet and the Cybear product line through its own
Internet Service Provider ("ISP") system, delivering productivity applications
to health care providers and health information to consumers.
RECAPITALIZATION
On November 20, 1998, Cybear, Inc. ("Cybear, Inc. (FL)"), a Florida
corporation, merged with 1997 Corp. (the "Merger") pursuant to a Merger
Agreement and Plan of Reorganization, dated July 15, 1998 ("the Merger
Agreement"). 1997 Corp. was a "blank check" company that had a registration
statement on file with the Securities and Exchange Commission ("SEC") to seek a
business combination with an operating entity. Upon consummation of the Merger,
Cybear, Inc. (FL) became a wholly owned subsidiary of 1997 Corp. and 1997 Corp.
changed its name to Cybear, Inc. 1997 Corp. (now called Cybear, Inc.) remains
the continuing registrant for SEC reporting purposes. The Merger was intended to
be a tax-free reorganization for federal income tax purposes and was treated as
a recapitalization of Cybear, Inc. (FL) for accounting and financial reporting
purposes. The result of the Merger was that the holders of Cybear, Inc. (FL)'s
common stock prior to the Merger owned 13,000,000 shares of Cybear, Inc.'s
common stock and the 1997 Corp.'s original shareholders owned 269,400 shares of
Cybear, Inc.'s common stock immediately following the Merger.
REGISTRATION STATEMENT
In June 1999, the Company completed the public offering of 3,450,000
shares of its common stock, raising approximately $50.8 million in net proceeds.
ACQUISITION
On September 17, 1999, the Company acquired Telegraph Consulting
Corporation ("Telegraph"), the programming, networking and interactive design
division of Telegraph New Technology, Inc. The purchase price of approximately
$4.1 million included $1.2 million in cash, the issuance of 320,000 shares of
Cybear unregistered common stock valued at approximately $2.8 million and the
assumption of approximately $136,000 of Telegraph's debt. The acquisition was
recorded using the purchase method of accounting. The excess of the purchase
price over the fair value of the net assets acquired represents goodwill of
approximately $3.9 million. The goodwill is being amortized on a straight-line
basis over its estimated useful life of 10 years. The amortization of the
goodwill totaled $114,729 in 1999. The following summarizes the acquisition:
Cash used for acquisition $ 1,181,244
Common stock issued 2,771,000
Debt assumed 136,347
------------
Purchase price 4,088,591
Working capital acquired (30,489)
Property and equipment acquired (124,529)
------------
Goodwill $ 3,933,573
============
F-7
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The results of Telegraph have been included in the accompanying
consolidated financial statements since the acquisition date. The following
unaudited pro forma information presents the consolidated results of operations
of Cybear and Telegraph as if the acquisition had occurred at the beginning of
each period presented:
YEARS ENDED
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 1,111,782 $ 1,146,000
============ ============
Net loss $(11,216,390) $ (2,875,681)
============ ============
Basic and diluted net loss per share $ (0.71) $ (0.22)
============ ============
Such pro forma information has been prepared for comparative purposes
only and is not necessarily indicative of what the consolidated results of
operations of Cybear and Telegraph would have been had the acquisition occurred
at the beginning of the periods presented, nor is it necessarily indicative of
the consolidated results of Cybear and Telegraph subsequent to the acquisition.
PROPOSED TRACKING STOCK RECAPITALIZATION PLAN
In December 1999, Cybear received from Andrx a tracking stock
recapitalization plan offer which would give Andrx shareholders the ability to
distinguish their investments in Andrx and Cybear. The plan would create a new
class of Andrx common stock to separately track the performance of Cybear
("Cybear Group Common"). Pursuant to an Agreement and Plan of Merger and
Reorganization (the "Agreement"), Andrx would acquire all of the publicly traded
shares of common stock of Cybear in a tax-free "roll-up" merger. Under the
Agreement, the public shareholders of Cybear, who owned approximately 27% of the
common stock of Cybear as of December 31, 1999, would exchange such shares for
Cybear Group Common shares at terms, including the exchange ratio for such
shares, to be negotiated between Cybear and Andrx. The Andrx common stock would
be converted into shares of Andrx Group Common and shares of Cybear Group
Common. Upon completion of the recapitalization, Cybear would be a wholly owned
subsidiary of Andrx with 100% of its value publicly trading in the form of
Cybear Group Common. The Agreement would be subject to various conditions,
including approval by Cybear's Board of Directors and the shareholders of Andrx
and Cybear and, accordingly, no assurance can be given that this proposed merger
will be consummated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Cybear, Inc. and its subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less are considered cash equivalents.
INVESTMENTS AVAILABLE-FOR-SALE
The Company utilizes the provisions of Financial Accounting Standards
Board ("FASB") Statement on Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that marketable equity securities and all debt securities be classified
into three categories: (i) held to maturity securities, (ii) trading securities,
or (iii) available-for-sale securities. The Company classifies its investment as
available-for-sale and, accordingly, the investments are carried at market value
and any unrealized gain or loss is reported as a separate component of
shareholders' equity. The cost related to investments available-for-sale is
determined utilizing the specific identification method.
PROPERTY AND EQUIPMENT, NET
Property and equipment is recorded at cost less accumulated
depreciation or amortization. Depreciation or amortization is provided using the
straight-line method over the following estimated useful lives:
Computer hardware and software 3 years
Furniture and fixtures 5 years
Leasehold improvements Lesser of useful life or term of lease
Major renewals and betterments are capitalized, while maintenance and
repairs are expensed as incurred.
PRODUCT DEVELOPMENT COSTS, NET
The Company capitalizes costs incurred for the production of computer
software used in the sale of its services subsequent to the establishment of
technological feasibility. Capitalized costs include direct labor and
payroll-related costs for software produced by the Company and fees charged by
third parties to produce software for the Company. Once technological
feasibility has been established, such costs are capitalized until the software
has completed beta testing and is generally available. Product development costs
are amortized, on a product-by-product basis, using the straight-line method
over a maximum of five years or the expected life of the product, whichever is
less. Quarterly, the Company reviews and expenses the unamortized cost of any
major feature of products identified as being impaired or being redesigned. The
Company also reviews recoverability of the total unamortized cost of all
products in relation to estimated revenues and, when necessary, makes an
appropriate adjustment to net realizable value.
F-9
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
SOFTWARE LICENSES
In December 1999, Cybear entered into a perpetual non-transferable and
non-exclusive license agreement with HIE, Inc. ("HIE") to use certain of their
software applications as a means to offer an Application Service Provider
through Cybear's network operations center. Cybear has agreed to pay HIE $1.6
million for such software application licenses. As of December 31, 1999, Cybear
had paid $600,000 of such amount and the remaining $1 million is included in
accounts payable on the accompanying consolidated balance sheet. Once these
software applications are placed in service, they will be transferred to
property and equipment and will be amortized using the straight-line method over
an estimated useful life of three years.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company utilizes the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. To determine a loss, if any, to be recognized, the book
value of the asset would be compared to the market value or expected
undiscounted future cash flow value.
REVENUE RECOGNITION
Revenues for the year ended December 31, 1999 include subscriptions to
the Company's Physician Practice Portal product, web site development and
maintenance services and e-commerce. Revenues for the period from February 5,
1997 (inception) to December 31, 1997 represent software development services
rendered to Andrx. Subscription, web site development and maintenance and
software development revenues are earned when the Company's services are
provided. E-commerce revenues are earned when the products are shipped. Cybear
has entered into certain agreements with medical organizations (see Note 10) to
provide the Company's subscription services to the organizations' members in
exchange for various consulting services. Certain of these agreements result in
a net cash outflow. Subscription services earned under agreements resulting in
net cash outflows are recorded as a reduction of the amounts expensed for the
consulting services received.
Revenues recorded in the years ended December 31, 1999 and 1998 and
in the period from February 5, 1997 (inception) to December 31, 1997 consist of
the following:
FOR THE PERIOD FROM
YEARS ENDED FEBRUARY 5, 1997
DECEMBER 31, (INCEPTION) TO
-------------------- DECEMBER 31,
1999 1998 1997
-------- -------- --------
Subscription $ 86,898 $ -- $ --
Web site development and maintenance 102,167 -- --
E-commerce 80,642 -- --
Software development services to Andrx -- -- 95,927
-------- -------- --------
$269,707 $ -- $ 95,927
======== ======== ========
Subscription revenues for the year ended December 31, 1999 include
$56,908 from a medical organization. Starting in the fourth quarter of 1999,
subscription services to this organization are being provided for non-cash
consideration and, accordingly, revenue is not being recorded.
F-10
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
Subscription revenues for the year ended December 31, 1999 include
$19,311 from Andrx (see Note 11). In the year ended December 31, 1999, Cybear
provided subscriptions to its Physician Practice Portal product to certain
customers of Andrx at the standard monthly rate of $24.95 per subscriber. Andrx
paid for such subscription services on behalf of its customers. Starting in the
fourth quarter of 1999, these subscription services are being provided for
non-cash consideration and, accordingly, revenue is not being recorded.
E-commerce revenues for the year ended December 31, 1999 represent
revenues earned from an arrangement between Cybear and Andrx to sell products to
physicians on orders placed through Cybear's Physician Practice Portal product
(see Note 11).
STOCK-BASED COMPENSATION
Under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", companies can either measure the compensation cost of equity
instruments issued to employees under employee compensation plans using a fair
value based method, or can continue to recognize compensation cost using the
intrinsic value method under the provisions of Accounting Principles Board
Opinion ("APB") No. 25. However, if the provisions of APB No. 25 are applied,
pro forma disclosures of net income or loss and earnings or loss per share must
be presented in the financial statements as if the fair value method had been
applied. For the years ended December 31, 1999 and 1998, and for the period from
February 5, 1997 (inception) to December 31, 1997, the Company recognized
compensation costs for options granted to non-employees under the provisions of
APB No. 25, and the Company has provided the expanded disclosure required by
SFAS No. 123 (see Note 13).
INCOME TAXES
The Company accounts for income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes". The provisions of SFAS No. 109 require, among
other things, recognition of future tax benefits measured at enacted rates
attributable to the deductible temporary differences between the financial
reporting and income tax bases of assets and liabilities and to tax net
operating loss carryforwards to the extent that the realization of said benefits
is "more likely than not".
NET LOSS PER SHARE
The Company calculates its basic and diluted net loss per share
pursuant to SFAS No. 128, "Earnings Per Share". For the years ended December 31,
1999 and 1998, and for the period from February 5, 1997 (inception) to December
31, 1997, basic and diluted net loss per share is based on the weighted average
number of shares of common stock outstanding. Since the effect of common stock
equivalents was antidilutive, all such equivalents were excluded in the
computation of diluted net loss per share. Common equivalent shares consist of
the incremental common shares issuable upon exercise of stock options and
warrants using the treasury stock method. There were 1,647,408 and 985,083
options and warrants outstanding at December 31, 1999 and 1998, respectively,
that could potentially dilute earnings per share in the future.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1999 and 1998, the carrying amounts of cash and cash
equivalents, investments available-for-sale, investment interest receivable,
accounts receivable, the convertible note receivable from HIE, Inc., the
receivable from Blue Lake Ltd., accounts payable and accrued liabilities
approximate fair value due to their short term maturity and/or market rates of
interest.
F-11
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Cybear to credit risk
consist primarily of the Company's investments available-for-sale and the
convertible note receivable from HIE, Inc.
Cybear invests in U.S. Treasury and government agency securities, and
debt instruments of corporations with investment grade credit ratings. Cybear
has established guidelines relative to diversification and maturities that are
designed to help ensure safety and liquidity.
Cybear has limited the amount of its credit risk exposure related to
the convertible note receivable from HIE, Inc. (the "Note"). At its option,
Cybear may convert the Note into shares of common stock of HIE at a conversion
price of $3.19 per share. As of December 31, 1999, the closing sale price of
HIE's common stock was $3.38. If Cybear does not convert the Note and HIE fails
to pay the outstanding principal balance of the Note, Cybear will receive a
royalty free license to sub-license to its customers the software applications
purchased from HIE (see Note 4).
COMPREHENSIVE LOSS
The Company adopted the provision of SFAS No. 130, "Reporting
Comprehensive Income", in the year ended December 31, 1998, as required. SFAS
No. 130 establishes standards for reporting and presentation of comprehensive
income or loss and its components in financial statements. The Company has
included the required disclosure of this statement in the accompanying
consolidated statements of shareholders' equity (deficit) for the years ended
December 31, 1999 and 1998, and for the period from February 5, 1997 (inception)
to December 31, 1997.
BUSINESS SEGMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company has
adopted the provisions of SFAS No. 131 in the year ended December 31, 1998, as
required. Currently, the Company does not believe it has any separately
reportable business segments or other disclosure information required by the
Statement.
DERIVATIVES
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as
amended, establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as amended, requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
F-12
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
SFAS No. 133, as amended, is effective for fiscal years beginning after
June 15, 2000. A company may also implement the provisions of SFAS No. 133, as
amended, as of the beginning of any fiscal quarter after issuance. SFAS No. 133,
as amended, cannot be applied retroactively. SFAS No. 133, as amended, must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election, before January
1, 1998). The Company will adopt the provisions of SFAS No. 133 beginning
January 1, 2001, as required. Adoption of the provisions of this standard is not
expected to have a material effect on the Company's consolidated results of
operations and financial condition.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(3) INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale consist of the following as of December
31, 1999:
GROSS
AMORTIZED UNREALIZED MARKET
COST LOSSES VALUE
------------ ------------ ------------
U.S. government agencies $ 16,008,769 $ (91,489) $ 15,917,280
Corporate bonds 10,163,098 (8,481) 10,154,617
------------ ------------ ------------
$ 26,171,867 $ (99,970) $ 26,071,897
============ ============ ============
(4) CONVERTIBLE NOTE RECEIVABLE FROM HIE, INC.
In December 1999, Cybear entered into a software license agreement with
HIE (see Note 2). In connection with the agreement, upon receipt of $3,000,000
from Cybear, HIE issued to Cybear a one-year convertible promissory note in the
amount of $3,000,000 bearing interest at the rate of 7.8%. At its option, on the
maturity date, Cybear may convert the Note into shares of common stock of HIE at
a conversion price of $3.19 per share. The Company has recorded the Note at
cost. As of December 31, 1999, the closing sale price of HIE's common stock was
$3.38. In addition, HIE granted Cybear a warrant (the "Warrant") to purchase
47,022 shares of its common stock. The Warrant has an exercise price of $3.19
per share and expires five years from the grant date. Using the Black-Scholes
pricing model, the Company has recorded to other assets the Warrant at its fair
market value of $100,000. The resulting deferred income of $100,000 was recorded
to accounts payable and is being amortized to interest income over the term of
the Note.
(5) RECEIVABLE FROM BLUE LAKE LTD.
In September 1998, Cybear entered into a lease agreement with Blue Lake
Ltd. ("Blue Lake") to house its corporate headquarters and network systems. As
part of the lease agreement, Blue Lake agreed to pay Cybear a portion ("Landlord
Contribution") of the total costs incurred by the Company to improve the rented
space prior to its occupancy. As of December 31, 1998, Cybear had recorded a
receivable of $366,000 from Blue Lake for such Landlord Contribution. The
Company collected the receivable in 1999.
F-13
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(6) PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
Computer hardware and software $ 3,243,477 $ 1,806,831
Furniture and fixtures 703,933 241,911
Leasehold improvements 831,469 532,916
----------- -----------
4,778,879 2,581,658
Less: accumulated depreciation and amortization (1,255,484) (175,029)
----------- -----------
Property and equipment, net $ 3,523,395 $ 2,406,629
=========== ===========
(7) PRODUCT DEVELOPMENT COSTS, NET
Capitalized product development costs consist of the following:
1999 1998
--------- ---------
Balance, beginning of year $ 358,000 $ --
Costs capitalized 140,304 358,000
Costs amortized (165,552) --
--------- ---------
Balance, end of year $ 332,752 $ 358,000
========= =========
The accumulated amortization of capitalized product development costs
totaled $97,896 at December 31, 1999. There was no accumulated amortization of
capitalized product development costs at December 31, 1998. The Company did not
record any amortization of its capitalized product development costs in the year
ended December 31, 1998 as it had not yet released any products.
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1999 1998
-------- --------
Payroll and employee benefits $233,455 $116,782
Litigation settlement charge -- 125,000
Other 98,895 60,000
-------- --------
$332,350 $301,782
======== ========
(9) INCOME TAXES
Cybear's taxable results through the completion of the public offering
in June 1999 (see Note 1) were included in the consolidated income tax return of
Andrx since Andrx owned at least 80% of the common stock of Cybear. Cybear and
Andrx have a tax allocation agreement pursuant to which Federal income tax
liabilities or benefits are allocated to Cybear as if Cybear had filed a
separate income tax return when Cybear's taxable results are included in the
consolidated income tax return of Andrx. Upon completion of the public offering
in June 1999, Andrx's ownership in Cybear was reduced below 80%. Consequently,
Cybear thereafter files its income tax returns separately.
F-14
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
For the period from June 23, 1999 (date of completion of the public
offering) to December 31, 1999, Cybear generated a net operating loss
carryforward of approximately $10 million which is available to offset future
earnings. As of December 31, 1999, Cybear has net deferred tax assets of
approximately $4.0 million attributable primarily to the net operating loss
carryforward of approximately $10 million generated from June 23, 1999 to
December 31, 1999. Under the provisions of SFAS No. 109, "Accounting for Income
Taxes", Cybear has provided a valuation allowance to reserve against 100% of its
net deferred tax assets due to its history of net losses. For the period from
January 1, 1999 to June 22, 1999 and for the year ended December 31, 1998,
Cybear recorded $2,824,069 and $1,900,000, respectively, in income tax benefits.
The income tax benefits reflect the reimbursement from Andrx for the utilization
of Cybear's income tax attributes pursuant to the tax allocation agreement. For
the period from February 5, 1997 (inception) to December 31, 1997, Cybear did
not record any income tax provision or benefit as Andrx could not utilize
Cybear's income tax attributes.
The components of the income tax benefits are summarized as follows:
FOR THE PERIOD FROM
FEBRUARY 5, 1997
DECEMBER 31, (INCEPTION) TO
------------------------ DECEMBER 31,
1999 1998 1997
---------- ---------- ------------
Current $2,824,069 $1,900,000 $ --
Deferred -- -- --
---------- ---------- ------------
Total $2,824,069 $1,900,000 $ --
========== ========== ============
Deferred income taxes represent the tax effect of the difference
between the financial reporting and tax bases of assets and liabilities. The
major components of deferred tax assets and liabilities are as follows:
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
Net operating loss carryforward $ 3,928,709 $ 324,989
Book over (under) tax depreciation 44,507 (7,525)
Software development costs (128,442) --
Other, net 111,883 24,704
----------- -----------
3,956,657 342,168
Valuation allowance (3,956,657) (342,168)
----------- -----------
Net $ -- $ --
=========== ===========
The following table indicates the activity in the valuation allowance:
1999 1998
----------- -----------
Beginning balance January 1 $ (342,168) $ (523,723)
Generated (6,438,558) (1,718,445)
Utilized by Andrx 2,824,069 1,900,000
----------- -----------
Ending Balance December 31 $(3,956,657) $ (342,168)
=========== ===========
As of December 31, 1999, the Company has a net operating loss
carryforward of approximately $10 million which is available to offset future
earnings. Under the provisions of SFAS No. 109, the Company has provided a
valuation allowance to reserve against 100% of its net deferred tax assets given
the Company's history of net losses. Included in Cybear's deferred tax asset for
its net operating loss carryforward is a benefit of approximately $1.0 million
related to the exercise of non-qualified stock options. If and when this benefit
is utilized, it will be recorded as an increase to additional paid-in capital
rather than a reduction of the income tax provision. Net operating loss
carryforwards are subject to review and possible adjustments by the Internal
Revenue Service and may be limited in the event of certain cumulative changes in
the ownership interest of significant shareholders over a three-year period in
excess of 50%.
F-15
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(10) COMMITMENTS
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with certain
officers, the terms of which expire at various dates through September 2003.
Such agreements provide for annual base salary, stock options, severance
packages and in some instances, signing and/or incentive bonuses or deferred
compensation.
Future commitments under employment agreements at December 31, 1999 are
as follows:
2000 $ 710,000
2001 612,000
2002 612,000
2003 390,000
------------
$ 2,324,000
============
PRODUCT LIABILITY
Software products such as those to be offered by the Company frequently
contain undetected errors or failures when first introduced or as new versions
are released. Testing of the Company's products is particularly challenging
because it is difficult to simulate the wide variety of computing environments
in which the Company's potential customers may deploy these products. There can
be no assurance that defects, errors or difficulties will not cause delays in
product introductions, result in increased costs and diversion of development
resources, require design modifications or decrease market acceptance or
customer satisfaction with the Company's products. In addition, there can be no
assurance that, despite testing by the Company and by potential customers,
errors will not be found after commencement of commercial introduction,
resulting in loss of or delay in market acceptance, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
OPERATING LEASES
The Company leases office space, telephone lines and various equipment
under operating leases. The following schedule summarizes future minimum lease
payments required under non-cancelable operating leases with terms greater than
one year, as of December 31, 1999:
2000 $ 1,156,000
2001 1,185,000
2002 748,000
2003 750,000
2004 767,000
Thereafter 1,792,000
------------
$ 6,398,000
============
Rent expense for the years ended December 31, 1999 and 1998 amounted to
$1,137,000 and $145,000, respectively, and $130,000 for the period from February
5, 1997 (inception) to December 31, 1997.
F-16
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
OTHER
Cybear has entered into certain agreements with medical organizations
to provide the Company's subscription services to the organizations' members in
exchange for various consulting services. Certain of these agreements result in
a net cash outflow. Subscription services earned under agreements resulting in
net cash outflows are recorded as a reduction of the amounts expensed for the
consulting services received. In addition, under some of these agreements,
Cybear has issued to one medical organization options to purchase 100,000 shares
of its common stock and to another organization a warrant to purchase 75,000
shares of its common stock. The warrant and 70,000 of these options are
exercisable upon the medical organizations achieving certain paid subscriptions
objectives among their membership. The other 30,000 options are exercisable at
the earlier of achieving certain paid subscriptions objectives or a specified
date. Also, under some of these agreements, Cybear has agreed to pay rebates
based on the organizations achieving certain paid subscriptions objectives or
share revenues generated from the organizations' subscribers or from
advertising. As of December 31, 1999, Cybear has a remaining obligation to pay
$800,000 in 2000 for consulting services under these agreements and has recorded
$600,000 to other assets representing subscription services to be paid by one
medical organization in 2001. These subscription services are currently being
recorded as a reduction of the amounts expensed for consulting services when
earned.
In June 1999, the Company entered into a 25-month agreement with an
operator of web sites and other online and interactive services. Under the terms
of the agreement, beginning on September 1, 1999, Cybear is providing
healthcare-related content for health channels that the operator is including on
its web sites. Additionally, the Company's products are advertised on the
operator's web sites. The Company is paying a fee of $3,625,000 in monthly
installments during the term of the agreement in exchange for an Internet portal
box on the operator's health channels and for advertising services the operator
is providing to the Company. These monthly installments are recorded to other
assets and are being expensed at a monthly rate of $164,773 beginning in
September 1999 over the remaining term of this agreement. For the year ended
December 31, 1999, Cybear made payments of $1,015,000 under this agreement and
has expensed $659,000.
(11) RELATED PARTY TRANSACTIONS
In September 1999, the Company provided subscriptions to its Physician
Practice Portal product to certain customers of Andrx at the standard monthly
rate of $24.95 per subscriber. Andrx paid for such subscription services on
behalf of its customers. Revenues generated from such services were $19,311 for
the year ended December 31, 1999. Starting in the fourth quarter of 1999, these
subscription services are being provided for non-cash consideration and,
accordingly, revenue is not being recorded.
Beginning in September 1999, Cybear entered into an arrangement with
Andrx for the sale of products to physician offices on orders placed through
Cybear's Physician Practice Portal product. Andrx charges Cybear at its cost for
the products sold. Andrx also charges Cybear for services that include the
purchasing, warehousing and distribution of the products to the physician
offices. Management believes that the amounts incurred for these services
approximate fair market value. For the year ended December 31, 1999, Cybear
recorded product sales of $80,642 and cost of sales of $77,435 under such
arrangement. In addition, in the year ended December 31, 1999, Andrx charged
Cybear $8,064 for the services it provided.
F-17
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
The Company and Andrx have a corporate services agreement whereby Andrx
provides the Company with various services of its management. For the years
ended December 31, 1999 and 1998 and for the period from February 5, 1997
(inception) to December 31, 1997, the Company incurred amounts for these
services based upon mutually agreed upon allocation methods. Management believes
that the amounts incurred for these services approximate fair market value.
Costs for such services were $120,000 for each of the years ended December 31,
1999 and 1998, respectively, and $110,000 for the period from February 5, 1997
(inception) to December 31, 1997.
Due to Andrx in the accompanying balance sheet as of December 31, 1998,
represented advances from Andrx to fund the Company's operations and the related
accrued interest. Such advances bore interest at prime plus 1/2%. On November
20, 1998, upon consummation of the merger with 1997 Corp. (see Note 1), the then
outstanding Due to Andrx of $3,012,452 was converted into additional paid-in
capital to the Company. Upon completion of the public offering in June 1999 (see
Note 1), Andrx converted its advances due from Cybear, net of the reimbursement
for income tax attributes, to Cybear's capital in exchange of 465,387 shares of
Cybear common stock at the public offering price of $16.00 per share. For the
years ended December 31, 1999 and 1998, Cybear recorded $216,182 and $210,441,
respectively, in interest expense on the Due to Andrx. For the period from
February 5, 1997 (inception) to December 31, 1997, Cybear recorded $28,220 in
interest expense on the Due to Andrx.
In November, 1998, the Company entered into a sublease with Strategy
Business and Technology Solutions, LLC, a company owned by the chairman of the
Company, for 4,000 square feet of office space in Ridgefield Park, New Jersey to
house its business development and sales activities. The lease provided for
$120,000 and $5,000 in annual base rent and electricity, respectively, and had a
five-year term commencing on November 1, 1998. In November 1999, the Company
terminated the lease and incurred an early termination penalty of $95,000. In
addition, for the years ended December 31, 1999 and 1998, the Company recorded
$111,332 and $20,834, respectively, in rent expense relative to this lease.
From February 5, 1997 (inception) to December 31, 1997, the Company
provided Andrx with software development services. The Company charged Andrx
based on mutually agreed upon allocation methods. Software development services
charged to Andrx were $95,927 for the period from February 5, 1997 (inception)
to December 31, 1997. The Company did not provide Andrx with software
development services for the years ended December 31, 1999 and 1998.
(12) SHAREHOLDERS' EQUITY
In February 1997, the Company issued 130,000 shares of convertible
preferred stock for a promissory note of $30,000. In the period from February 5,
1997 (inception) to December 31, 1997, the promissory note was paid in full and
the 130,000 shares of preferred stock were converted into 130,000 shares of
common stock.
In November 1998, the Company merged with 1997 Corp., a "blank check"
company that had a registration statement on file with the SEC to seek a
business combination with an operating entity (see Note 1). As a result of the
merger, the 1997 Corp.'s original shareholders were issued 269,400 shares of
Cybear, Inc.'s common stock. In addition, upon consummation of the merger with
1997 Corp., the then outstanding Due to Andrx of $3,012,452 was converted into
additional paid-in capital of the Company.
In June 1999, the Company completed the public offering of 3,450,000
shares of its common stock, raising approximately $50.8 million in net proceeds.
Upon completion of the public offering, Andrx converted its advances due from
Cybear, net of the reimbursement for income tax attributes, into Cybear's
capital in exchange for 465,387 shares of Cybear common stock at the public
offering price of $16.00 per share.
F-18
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
In September 1999, the Company acquired Telegraph Consulting
Corporation (see Note 1). The purchase price included the issuance of 320,000
shares of Cybear unregistered common stock valued at approximately $2.8 million.
(13) STOCK INCENTIVE PLAN
The Company has reserved 1,800,000 shares of its common stock for
issuance under its 1997 Stock Option Plan (the "Plan"). Under the Plan,
incentive and nonqualified stock options are available to directors, officers,
employees or consultants to the Company. The terms of each option agreement are
determined by the Company's Board of Directors or its compensation committee
(the "Committee"). The terms for, and exercise price at which any stock option
may be awarded is to be determined by the Committee. Options granted under the
Plan must be exercised within ten years of the date of grant, unless a shorter
period is designated at the time of grant. In July 1999, the Company's Board of
Directors approved an amendment to the Company's Plan increasing the number of
shares issuable under the Plan by 1,200,000 to 3,000,000 subject to approval by
the stockholders of Cybear.
The Company accounts for options granted to employees under the Plan in
accordance with the provisions of APB No. 25. Each stock option has an exercise
price equal to the market price on the date of grant and, accordingly, no
compensation expense has been recorded for any stock option grants to employees.
On rare occasions, the Company may issue an insignificant amount of equity
instruments to non-employees. Stock options issued to non-employees for the
years ended December 31, 1999 and 1998 and for the period from February 5, 1997
(inception) to December 31, 1997 were accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable, as required by SFAS No. 123. In instances
where the fair value or the goods or services received is not reliably
measurable, the measure is based upon the fair value of the equity instruments
issued, and such value is amortized over the period for which services are
provided. The fair value of equity instruments issued to non-employees are
valued using the Black Scholes option pricing model.
A summary of the Plan's activity is as follows:
OUTSTANDING EXERCISABLE
---------------------------------------------- ----------------------
NUMBER OF
SHARES EXERCISE PRICE PER SHARE WEIGHTED AVG.
UNDER -------------------------------- EXERCISE
OPTION LOW HIGH WTD. AVG. SHARES PRICE
--------- -------- --------- --------- -------- --------
February 5, 1997 (inception) --
Granted 350,000 $ 1.00 $ 1.00 $ 1.00
---------
December 31, 1997 350,000 1.00 1.00 1.00 -- $ --
Granted 705,083 2.00 3.00 2.81
Forfeited (70,000) 1.00 1.00 1.00
---------
December 31, 1998 985,083 1.00 3.00 2.30 70,000 1.00
Granted 919,950 3.00 16.25 12.63
Exercised (148,875) 1.00 3.00 1.14
Forfeited (183,750) 1.00 16.00 4.32
---------
December 31, 1999 1,572,408 $ 1.00 $ 16.25 $ 8.22 430,675 $ 9.29
=========
F-19
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
OPTIONS OUTSTANDING AT EXERCISABLE OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------ --------------------------------
WEIGHTED AVG.
REMAINING LIFE WEIGHTED AVG. WEIGHTED AVG.
RANGE OF EXERCISE PRICES SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- -------------------------------- ------------- ------------------ ------------------ ------------ -----------------
$ 1.00 - $ 2.00 155,125 7.6 $ 1.36 20,500 $ 1.51
$ 3.00 - $ 3.00 602,833 8.8 3.00 175,175 3.00
$ 6.50 - $13.25 327,700 9.6 9.51 35,000 6.98
$16.00 - $16.25 486,750 9.5 16.01 200,000 16.00
---------- -------
$ 1.00 - $16.25 1,572,408 9.0 $ 8.22 430,675 $ 9.29
========== =======
The range of weighted average fair value per share as of the grant date
was $2.54 to $13.79 and $1.50 to $2.23 for stock options granted during the
years ended December 31, 1999 and 1998, respectively, and $0.70 for stock
options granted during the period from February 5, 1997 (inception) to December
31, 1997. The fair market value of an option was estimated using the
Black-Scholes option pricing model with the following assumptions:
FOR THE PERIOD FROM
YEARS ENDED DECEMBER 31, FEBRUARY 5, 1997
------------------------ (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
------------ ---------- -------------------
Risk-free interest rate 5.6% 4.8% 5.3%
Average life of options (years) 5.2 4.5 6.0
Average volatility 110% 85% 75%
Dividend yield - - -
The following table summarizes the pro forma consolidated results of
operations of the Company as though the provision of the fair value based
accounting method of SFAS No. 123 had been used in accounting for stock options:
FOR THE PERIOD FROM
YEARS ENDED DECEMBER 31, FEBRUARY 5, 1997
-------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
------------ ----------- ------------
Basic and diluted net loss As reported $(10,773,785) $(2,481,012) $ (1,558,569)
Pro forma $(15,228,401) $(2,570,414) $ (1,590,717)
Basic and diluted net loss per share As reported $ (0.70) $ (0.19) $ (0.12)
Pro forma $ (0.98) $ (0.20) $ (0.12)
(14) SUBSEQUENT EVENTS
AGREEMENTS
In January 2000, Cybear entered into a thirty-month subscription
agreement with a provider of Internet-based electronic data interchange ("EDI")
transactions and information solutions. Cybear agreed to pre-purchase $300,000
of annual subscriptions and to pay certain transaction fees to enable its
subscribers access to services provided by this third party. This provider of
EDI transactions agreed to pay Cybear monthly fees for its customers subscribing
to Cybear's Physician Practice Portal product.
F-20
CYBEAR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
In January 2000, Cybear entered into a perpetual non-transferable and
non-exclusive license agreement with a third party to use their software as a
means to gain access to electronic patient records. Cybear has agreed to pay
$2.5 million for such software application license. Cybear also entered into a
five-year agreement with this third party. Under that agreement, Cybear has
agreed to pay certain commissions, including the issuance of up to $7.5 million
of its common stock based on its average closing price for 180 days, if certain
targets of paid subscriptions to Cybear's ISP are achieved by customers using
the third party's software application. In addition, Cybear and the third party
have agreed to share transaction fees derived from the usage of the software
applications by Cybear's customers.
TRACKING STOCK RECAPITALIZATION PLAN
In March 2000, Andrx and Cybear entered into a definitive agreement
with respect to the previously announced tracking stock recapitalization plan.
This plan, which was recommended to the Cybear Board of Directors by its Special
Committee and approved by the Boards of both Cybear and Andrx, will create a new
class of Andrx common stock to separately track the performance of Cybear. The
plan will be submitted to Andrx and Cybear shareholders for approval later this
year.
Pursuant to the Agreement, Andrx will acquire all of the publicly
traded shares of common stock of Cybear in a tax-free "roll-up" merger. Public
shareholders currently own approximately 5.4 million shares (assuming the
exercise by Edward E. Goldman, M.D., Cybear's Chief Executive Officer, of a
warrant to acquire 525,000 shares of common stock of Cybear currently owned by
Andrx), or 30.5%, of the common shares of Cybear, and those shareholders will
receive one share of Cybear Group Common for every Cybear share they currently
own. In the recapitalization, the number of Cybear shares held by Andrx will be
reduced from 12.4 million shares to 10.3 million shares so as to provide the
equivalent of a 20% increase in shares held by the non-Andrx shareholders of
Cybear. As a result, the non-Andrx shareholders of Cybear will own approximately
34.5% of the Cybear Group Common following the closing of the transaction.
Pursuant to the Agreement, each Andrx common share will be converted into (i)
one share of Andrx Group Common and (ii) approximately .1622 shares of Cybear
Group Common, after giving effect to Andrx' pending two-for-one stock split (in
the form of a stock dividend) announced on March 1, 2000. Upon completion of the
recapitalization, (i) Cybear will be a wholly owned subsidiary of Andrx with
100% of its value publicly traded in the form of Cybear Group Common; (ii)
current Cybear shareholders will own approximately 34.5% of the Cybear Group
Common; and (iii) current Andrx shareholders will own 100% of the Andrx Group
Common and approximately 65.5% of the Cybear Group Common.
Andrx and Cybear will be filing a preliminary joint proxy statement and
a registration statement with respect to the proposed transaction with the SEC,
which is subject to review by the SEC. In addition to shareholders approval, the
transaction will be subject to various Federal and state regulatory approvals
and, accordingly, no assurance can be given that this transaction will be
consummated.
In connection with the tracking stock recapitalization plan, the
Company estimates it will incur merger costs of up to approximately $1.5 million
if the tracking stock recapitalization plan is consummated. These costs will be
charged to expense as incurred. No assurance can be given that this transaction
will be consummated.
F-21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of Cybear are set forth below. All directors and
officers hold office for one year or until their successors have been elected
and qualified. Vacancies in the existing board are filled by majority vote of
the remaining directors.
NAME AGE POSITION (S) HELD
- ---- --- -----------------
John H. Klein (1) 54 Chairman and Director
Edward E. Goldman, M.D.(1,3) 55 Chief Executive Officer and Director
Timothy E. Nolan (2) 44 President, Chief Operating Officer and Director
Jack S. Greenman 52 Executive Vice-President and Chief Financial Officer
Eric D. Moskow, M.D. (1) 41 Executive Vice-President-Market Development and Director
Scott Lodin (3) 44 Secretary and Director
Alan P. Cohen (1) 45 Director
Angelo C. Malahias (2) 38 Director
Melvin Sharoky, M.D. (3) 49 Director
Philip P. Gerbino, Ph.D. (2,4) 53 Director
Martin Reid Stoller, Ph.D. (3) 44 Director
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Special Committee of Independent Directors
JOHN H. KLEIN has been the chairman and a director of Cybear since
September 1, 1998. Mr. Klein has been a director of Hackensack University
Medical Center in New Jersey since 1997, and became a director of Sunbeam
Corporation in February 1999. Mr. Klein was the chief executive officer,
chairman of the board and a director of MIM Corporation, a publicly traded
pharmacy management company, from May 1996 to May 1998. From 1989 to 1994, Mr.
Klein served as president, chief executive officer, a director and a member of
the executive committee of the board of directors of Zenith Laboratories, Inc.,
a manufacturer of multi-source generic pharmaceutical drugs, which was acquired
by IVAX Corporation, a major multi-source generic pharmaceutical manufacturer
and marketer. From January 1995 to January 1996, Mr. Klein was a member of the
executive committee of IVAX and was president of IVAX's North American
Multi-Source Pharmaceutical Group.
EDWARD E. GOLDMAN, M.D. has been the chief executive officer and a director
of Cybear since September 1, 1998. From September 1, 1998 until March 12, 2000,
Dr. Goldman also served as president of Cybear. From 1985 until he joined
Cybear, he had served as a founding partner and executive officer of PhyMatrix
Corporation ("PhyMatrix"), a publicly traded physician practice management
company, where he was executive vice president of physician development and
chief medical officer. From 1983 to 1994, he served as chairman of Pal-Med
Health Services, a multi-divisional healthcare company engaged in practice
management, risk contracting and the operation of imaging centers, ambulatory
surgeries and ancillary service facilities.
TIMOTHY E. NOLAN has been Cybear's president and chief operating officer
since March 2000 and a director of Cybear since June 1999. He was employed by
Aetna U.S. Healthcare from 1985 to March 2000, most recently as senior vice
president of Aetna U.S. Healthcare in charge of the field organization.
22
JACK S. GREENMAN, has been the executive vice president and chief financial
officer of Cybear since June 1999. From November 1998 to June 1999, he had
served as executive vice president and chief financial officer of FPA Medical
Management, Inc. ("FPA"), a publicly traded physician practice management
company whose plan of reorganization was confirmed by the U.S. Bankruptcy Court
for the District of Delaware on May 26, 1999. From May 1998 to November 1998 he
served as an executive vice president with FPA. From June 1993 to May 1998 he
served as senior vice president and chief financial officer with Sterling
Healthcare Group, Inc., a publicly traded physician practice company specialized
in the management of hospital emergency departments. Sterling merged with FPA in
October 1996. Mr. Greenman is a member of the American and Florida Institute of
Certified Public Accountants.
ERIC D. MOSKOW, M.D. has been a director of Cybear since June 1999 and the
executive vice president-market development of Cybear since February 2000. Since
September 1996 he has been a director of Innovative Clinical Solutions, Ltd.
("ICSL") and was the executive vice president of strategic planning of ICSL from
September 1996 to February 2000. He founded Physician's Choice Management, LLC
in 1995 and served as its executive vice president from 1995 to 1996. Prior to
establishing Physician's Choice, he served as medical director for Mediplex of
Ridgefield from 1994 to 1996 and as associate medical director for U.S.
Healthcare, a health maintenance organization, in Connecticut from 1988 to 1992.
Dr. Moskow is board-certified in internal medicine and served as president of
the Family Medical Associates of Ridgefield for nine years.
SCOTT LODIN has been secretary and a director of Cybear since February 5,
1997. He joined Andrx in 1994 and is its vice president, general counsel and
secretary. Prior to joining Andrx, Mr. Lodin was special counsel to Hughes,
Hubbard & Reed and a predecessor law firm in Miami, Florida, where he practiced
primarily in the areas of corporate and commercial law for over 13 years.
ALAN P. COHEN was the chairman and a director of Cybear from February 5,
1997 to August 31, 1998, when he resigned as chairman upon John Klein's assuming
such position. He remains a director of Cybear. Mr. Cohen has been the chairman
of the board, chief executive officer and a director of Andrx since he founded
Andrx in August 1992.
ANGELO C. MALAHIAS has been a director of Cybear since April 1999. Mr.
Malahias has been vice president and chief financial officer of Andrx since
January 1996. From January 1995 to January 1996, Mr. Malahias was vice president
and chief financial officer of Circa Pharmaceuticals, Inc., where he also served
as corporate controller from July 1994 to January 1995. From 1983 to July 1994
he was employed by KPMG LLP. Mr. Malahias is a certified public accountant.
MELVIN SHAROKY, M.D. has been a director of Cybear since April 1999. Dr.
Sharoky has been a director of Andrx since November 1995 and joined Andrx as
executive director on March 1, 1999. Dr. Sharoky is also president of Somerset
Pharmaceuticals Inc., 50% owned by Watson Pharmaceuticals, Inc., a significant
shareholder of Andrx. Dr. Sharoky was a director of Watson from July 1995 to May
1998. From July 1995 through January 1998, Dr. Sharoky was president of Watson.
From February 1993 through January 1998, Dr. Sharoky served as the president and
chief executive officer of Circa Pharmaceuticals. From November 1995 to May
1998, Dr. Sharoky served on Andrx' board of directors as the designee of Watson.
PHILIP P. GERBINO, Ph.D. has been a director of Cybear since June 1999. Dr.
Gerbino is the Linwood F. Tice professor of pharmacy and has been president of
the University of the Sciences in Philadelphia and its predecessor, the
Philadelphia College of Pharmacy, since 1995. Prior to being named president of
the College, he served as dean of the school of pharmacy and vice president for
academic affairs for one year. He is a national leader in the pharmacy
profession having served as president of the American Pharmaceutical Association
in 1990 and president of the AphA Academy of Pharmacy Practice from 1986-87.
23
MARTIN REID STOLLER, PH.D. has been a director of Cybear since June 1999.
Since 1987, Dr. Stoller has been a Clinical Full Professor of Organization
Behavior at the Kellogg School of Management of Northwestern University. Dr.
Stoller also served as president and chief executive officer of Plextel
Telecommunications from August 1994 through January 1997. Plextel
Telecommunications was an artificial intelligence and pattern recognition
software development company. Dr. Stoller led Plextel's growth from 3 to 100
employees in less than three years. Plextel was sold to Cendant Corporation in a
$53 million transaction and is now known as Spark Technologies, Inc.
From August 1998 through her resignation in February 2000, Debra S. Richman
served as the Company's executive vice president-business development.
From June 1999 through her resignation in December 1999, Betsy Atkins served as
a member of the board of directors of Cybear.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and holders of more than
10% of the Company's Registered Common Stock, to file reports of ownership and
changes in ownership with the Commission. Such persons are required to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, with respect to
1999, all filing requirements applicable to its executive officers, directors
and greater than 10% beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation
received during 1999, 1998 and 1997 by the Company's Chief Executive Officer and
by each of the other most highly compensated executive officers of the Company
whose aggregate direct compensation exceeded $100,000 (the "Named Executive
Officers").
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -----------
----------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#)
- --------------------------- ---- -------- -------- ----------- -------
Edward E. Goldman, M.D. (1) 1999 $250,000 $ -- $ 1,416(2) --
CEO 1998 $ 72,115 $ -- $ 288(2) 650,000(3)
1997 $ -- $ -- $ -- --
Debra S. Richman (4) 1999 $203,077 $ -- $ 5,578(2) --
Executive Vice President- 1998 $ 68,462 $ -- $ 1,106(2) 100,000
Business Development 1997 $ -- $ -- $ -- --
(1) Dr. Edward Goldman, M.D. served as President until March 2000.
(2) Represents group term life insurance benefits and also includes an
automobile allowance for Ms. Debra Richman.
(3) Pursuant to his employment agreement, (i) in exchange for the payment
by Dr. Edward Goldman of $50,000, Dr. Edward Goldman received from
Andrx a warrant to purchase through April 30, 2006,
24
650,000 shares of Cybear common stock at its then market price of $3.00
per share (the "Goldman Warrant"), of which Dr. Edward Goldman has
purchased 125,000 shares of Cybear common stock as of March 20, 2000,
and (ii) Dr. Edward Goldman received options to acquire 40,000 shares
(after giving effect to a 2:1 stock split of Andrx common stock) of
common stock of Andrx having an exercise price per share of $18.50, the
fair market value of Andrx common stock at the close of business on the
date of grant, of which Dr. Edward Goldman has exercised options to
acquire 8,500 shares of common stock of Andrx as of March 20, 2000 (see
employment and severance agreements).
(4) Ms. Debra Richman resigned from the Company in February 2000.
OPTION GRANTS TABLE
The Company did not grant any stock options to the Named Executive
Officers during 1999.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table indicates the number of shares acquired and value
realized from the exercise of options and the total number and value of
exercisable and unexercisable stock options held by each of the Named Executive
Officers listed as of December 31, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE -------------------------------- ---------------------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE (1) UNEXERCISABLE (1)
------------- ---------- -------------- --------------- ----------------- -------------------
Edward E. Goldman, M.D. (2, 3) -- -- -- -- $ -- $ --
Debra S. Richman (4) -- -- 37,500 62,500 $ 142,969 $ 238,281
(1) Based on a fair market value of $6.8125 at December 31, 1999
(2) Dr. Edward Goldman, M.D. served as President until March 2000.
(3) On October 1, 1999, Dr. Goldman acquired 125,000 shares of Cybear
common stock pursuant to the exercise of a portion of the Goldman
Warrant. On that date, the closing sales price of Cybear common stock
was $8.375.
(4) Ms. Richman resigned from the Company in February 2000. In connection
with her resignation, options to purchase 37,500 shares of common stock
of the Company accelerated and became vested (see employment and
severance agreements).
COMPENSATION OF DIRECTORS
In June 1999, each non-employee director of the Company was granted
stock options under the Company's stock option plan to purchase 25,000 shares of
Common Stock. These options vested immediately, were granted at fair market
value on the date of the grant ($16.00 per share) and expire ten years from the
date of the grant. In addition, the Compensation and Audit committee chairmen
are entitled to receive $1,000 and each committee member is entitled to receive
$500 per meeting attended, at their option. Through March 23, 2000, the Company
paid to Dr. Philip P. Gerbino $40,000 in consideration for Dr. Gerbino's
services on the Special Committee of the Independent Directors of Cybear.
25
EMPLOYMENT AND SEVERANCE AGREEMENTS
Cybear has entered into a five-year employment agreement with Edward
Goldman, M.D. pursuant to which he serves as Cybear's Chief Executive Officer
effective as of September 15, 1998. The agreement provides for an annual salary
of $250,000 during the first two years and $300,000 for the remaining three
years. The agreement may be renewed for additional two-year periods upon the
agreement of the parties.
The agreement also provides that Dr. Goldman will continue to receive
his salary until the expiration of the term of the employment agreement if his
employment is terminated by the Company for any reason other than death,
disability or "good cause" or by Dr. Goldman by reason of a material breach of
the agreement by Cybear. In the event of such a termination, Dr. Goldman is
entitled to receive full compensation to which he would otherwise be entitled
under the agreement as if he had not so terminated his employment and was
continuing to serve as an employee thereunder for the full term of the
agreement, payable in a single lump sum distribution in cash or in equivalent
marketable securities of Andrx on the date of such termination.
In the event Dr. Goldman's employment with Cybear is terminated within
six months following a "Change in Control" of Cybear, then Cybear is obligated
to pay him on the date of such termination a single lump sum distribution equal
to his salary for the remaining term of the agreement. Notwithstanding the
foregoing, Dr. Goldman's employment will not be deemed terminated if, in lieu of
his position with Cybear, Andrx or any other entity owned or controlled by Andrx
offers him a replacement position, where he will perform similar executive
duties and will receive a compensation package at least equal to the one set
forth in the agreement; provided, however, that he is not required to be
appointed as president and chief executive of any entity, but rather that he
shall continue to perform employment duties generally performed by senior
management personnel of an entity in the healthcare industry.
In recognition of the potential value of Dr. Goldman to Cybear and to
induce him to forego other employment opportunities, (i) in exchange for the
payment by Dr. Edward Goldman of $50,000, Dr. Edward Goldman received from Andrx
a warrant to purchase 650,000 shares of Cybear common stock at its then market
price of $3.00 per share, of which Dr. Edward Goldman has purchased 125,000
shares of Cybear common stock as of March 20, 2000, and (ii) Dr. Edward Goldman
received options to acquire 40,000 shares (after giving effect to a 2:1 stock
split of Andrx common stock) of common stock of Andrx having an exercise price
per share of $18.50, the fair market value of Andrx common stock at the close of
business on the date of grant, of which Dr. Edward Goldman has exercised options
to acquire 8,500 shares of common stock of Andrx as of March 20, 2000.
The stock to be issued pursuant to the exercise of Dr. Goldman's
warrant includes piggyback registration rights. The warrant is exercisable from
April 30, 1999 to April 30, 2006, subject to contractual obligations with Andrx.
In August 1998, Cybear entered into an employment agreement with Debra
Richman pursuant to which Ms. Richman served as Cybear's executive vice
president-business development. The agreement provided for a two-year term
ending August 2000, a base salary of $160,000 and $80,000 in deferred
compensation payable in eight $10,000 quarterly installments. Ms. Richman was
also granted options to purchase 100,000 shares of Cybear's common stock at its
then market price of $3.00 per share under Cybear's stock option plan. On the
first anniversary of the agreement, 37,500 options vested and became
exercisable. In February 2000, Ms. Richman resigned from Cybear and entered into
a severance arrangement with Cybear pursuant to which (i) Cybear agreed to pay
to Ms. Richman her base salary through May 2000 and (ii) unvested options to
purchase 37,500 shares of Cybear's common stock previously granted to Ms.
Richman became vested and exercisable as provided for in her employment
agrement.
26
In June 1999, Cybear entered into an employment agreement with Jack
Greenman, its executive vice president and chief financial officer. The
agreement provides for a four-year initial term of employment. Mr. Greenman's
salary is $175,000 per year, with a non-discretionary bonus of $25,000 on his
first three anniversaries of employment, and an additional $25,000 bonus upon
agreement to terms for his continued employment after the initial four-year
term. He is also eligible to receive discretionary bonuses and he receives a car
allowance. Mr. Greenman was also granted options to purchase 100,000 shares of
Cybear's common stock at its then market price of $16.00 per share with 40%
vesting on the first anniversary of employment and 20% vesting on each of the
three subsequent anniversaries.
In the event that prior to the expiration of the initial four-year
term, Mr. Greenman terminates his employment or Cybear terminates his employment
for good cause as defined in the agreement, Cybear's sole obligation is to pay
Mr. Greenman's salary and other accrued entitlements up to the date of
termination. If Cybear terminates Mr. Greenman's employment prior to the
expiration of the initial term for other than good cause as defined in the
agreement or within six months after a change in control of Cybear, Mr. Greenman
is entitled to severance compensation consisting of at least twelve months of
his base salary and the immediate vesting of stock options that would have
vested in the next 12 months.
In March 2000, Cybear entered into an employment agreement with Timothy
E. Nolan, its president and chief operating officer. The agreement provides for
a four-year term of employment. Mr. Nolan's salary is $400,000 per year, with a
discretionary yearly bonus of $150,000 and a car allowance of $7,200 per year.
Mr. Nolan was also granted options to purchase 300,000 shares of Cybear's common
stock (waiving any conversion premium that may result from the closing of the
tracking stock transaction with Andrx) and 75,000 shares of Andrx's common stock
at market price with 20% vesting at grant date and the balance vesting equally
over four years on the anniversaries of employment. He is also eligible to
receive deferred compensation, payable within 30 days after the four-year term
of employment, of $700,000 minus the "additional value". The additional value is
defined as the cumulative amount Mr. Nolan received or is entitled to receive as
a result of his employment by the Company excluding the above noted salary and
bonus and increases thereof and benefits.
In the event Mr. Nolan's employment with Cybear is terminated within
one year following a "Change in Control" of Cybear, then Mr. Nolan is entitled
to severance compensation consisting of $500,000 and the immediate vesting of
all unvested Cybear and Andrx stock options. Notwithstanding the foregoing, Mr.
Nolan's employment will not be deemed terminated if, in lieu of his position
with Cybear, Andrx or any other entity owned or controlled by Andrx offers him
an executive position for at least the same pay and benefits.
Mr. Nolan has been a director of the Company since June 1999 and as
such, he was granted options to acquire 25,000 shares of Cybear's common stock
in June 1999.
Cybear has been negotiating an employment agreement with Dr. Eric D.
Moskow, M.D., who recently became its executive vice president-market
development. Following are what are expected to be the material terms. There can
be no assurance that such terms will not be modified prior to execution. The
agreement provides for a three-year initial term of employment. Dr. Moskow's
salary is $250,000 per year and he receives a car allowance. Mr. Moskow was also
granted options to purchase 85,000 shares of Cybear's common stock at market
price with 20% vesting immediately and the remaining vesting equally over three
years on the anniversaries of employment. If Cybear terminates Mr. Moskow's
employment prior to the expiration of the initial term for other than good cause
as defined in the agreement, Mr. Moscow is entitled to severance compensation
consisting of at least twelve months of his base salary and the immediate
vesting of stock options that would have vested in the next 12 months. If Cybear
terminates Mr. Moscow's employment prior to the expiration of the initial term
within six months after a change in control of Cybear, Mr. Moscow is entitled to
severance compensation consisting of at least twelve months of his base salary
and the immediate vesting of all unvested stock options.
Dr. Moskow has been a director of the Company since June 1999. From
June 1999 to February 2000, he also served as an advisor to the executive
committee of the board of directors. As such, Dr. Moskow was granted options to
purchase 100,000 shares of Cybear's common stock in 1999.
27
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is presently comprised of Scott Lodin,
Melvin Sharoky and Martin Stoller with Dr. Edward E. Goldman as a non-voting
member. Mr. Lodin currently serves as the Secretary of the Company and Dr.
Goldman currently serves as the Chief Executive Officer of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In evaluating the reasonableness of compensation paid to the Company's
executive officers, the Compensation Committee takes into account, among other
factors, how compensation compares to compensation paid by competing companies,
individual contributions and the Company's performance. Base salary is
determined based upon individual performance, competitive compensation trends
and a review of salaries for like jobs at similar companies. It is the Company's
policy that the compensation of executive officers also be based, in part, on
the grant of stock options as an incentive to enhance the Company's performance.
Stock options are granted based upon a review of such executive's
responsibilities and relative position in the Company, such executive's overall
job performance and such executive's existing stock option position.
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock since June 18, 1999, the first day of significant trading
of the Company's Common Stock, with the cumulative total shareholder return on
the Nasdaq Stock Market (U.S.) Index and the Hambrecht and Quist Healthcare
Information Services Index over the same period (assuming the investment of $100
in the Company's Common Stock and in the two other indices, and reinvestment of
all dividends). Past financial performance should not be considered to be a
reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
[GRAPH OMITTED]
28
* Assumes that $100 was invested on June 18, 1999 in the Company's
Common Stock, in the Hambrecht and Quist Healthcare Information Services Index,
or the Nasdaq Stock Market Index, and that all dividends are reinvested.
JUNE 18, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
----------- ----------- ----------- -----------
Cybear, Inc. $ 100.00 $ 84.79 $ 50.76 $ 41.45
Nasdaq Stock Market (U.S.) Index 100.00 104.62 107.01 154.43
Hambrecht & Quist Healthcare Information Services Index 100.00 99.15 72.33 82.94
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of March 13, 2000, by
each person owning more than 5% of such common shares and, the directors and the
Named Executive Officers, and by all officers and directors, as a group.
NUMBER OF SHARES PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER (1), (2) BENEFICIALLY OWNED OUTSTANDING
- --------------------------------------------------------------- ------------------------------------ -------------------
Andrx Corporation 12,877,054 (5) 72.5%
Alan P. Cohen 12,905,554 (3),(4) 72.5%
John H. Klein 444,444 (6) 2.5%
Edward E. Goldman, M.D. 650,500 (7) 3.7%
Timothy E. Nolan 85,000 (8) *
Eric D. Moskow, M.D. 67,000 (9) *
Scott Lodin 12,903,554 (3),(4),(10) 72.5%
Angelo C. Malahias 12,902,554 (3),(4) 72.5%
Melvin Sharoky, M.D. 12,913,454 (3),(4) 72.6%
Philip. P. Gerbino 25,000 (4) *
Martin Reid Stoller, Ph.D. 26,300 (4) *
Debra S. Richman - (11) *
All Directors and Officers as a Group (11 persons) 13,767,698 (12) 75.7%
* Less than 1%
(1) Except as indicated, the address of each person named in the table is
c/o Cybear, Inc. 5000 Blue Lake Dr. suite 200, Boca Raton, Florida
33431.
(2) Except as otherwise indicated, the persons named in this table have
sole voting and investment power with respect to all shares of common
stock listed, which include shares of common stock that such persons
have the right to acquire a beneficial interest within 60 days from the
date of this Report.
29
(3) Includes shares owned indirectly by Andrx Corporation. and 525,000
shares of common stock deemed to be beneficially owned by Edward E.
Goldman, M.D.
(4) Includes 25,000 shares of common stock issuable upon the exercise of
stock options.
(5) Includes 525,000 shares of common stock deemed to be beneficially owned
by Edward E. Goldman, M.D.
(6) Includes 111,111 shares of common stock issuable upon the exercise of
stock options.
(7) Includes 525,000 shares of common stock issuable upon the exercise of a
warrant issued to Dr. Goldman by Andrx exercisable beginning on April
30, 1999 having an exercise price of $3.00 per share.
(8) Represents 85,000 shares of common stock issuable upon the exercise of
stock options.
(9) Represents 67,000 shares of common stock issuable upon the exercise of
stock options.
(10) Includes 1,000 shares of common stock held by Mr. Lodin as custodian
for his minor children.
(11) Ms. Richman resigned from the Company in February 2000.
(12) Includes the shares of common stock described in notes (4) through (7),
and (10); 413,111 shares of common stock issuable upon the exercise of
the stock options described in notes (4), (6), and (8) through (10) and
500 shares of common stock held by Jack S. Greenman, the Company's
executive vice president and chief financial officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since Cybear's inception, Andrx and Cybear have operated pursuant to a
corporate services agreement pursuant to which Andrx provides certain legal,
financial and administrative services to Cybear in exchange for $120,000 per
annum. In addition, Andrx and Cybear have operated pursuant to a tax allocation
agreement pursuant to which Cybear will be responsible for its tax liability as
if it had filed a separate income tax return when its taxable results are
included in the consolidated income tax return of Andrx. The Company recorded a
tax benefit of $2,824,000 for the year ended December 31, 1999 reflecting the
reimbursement from Andrx for the utilization of Cybear's income tax attributes
pursuant to the tax allocation agreement.
In January 1999, Andrx sold to John Klein, the Chairman of the Company,
100,000 shares of Cybear common stock at its then market price of $3.00 per
share for $300,000.
In November, 1998, the Company entered into a five year sublease
agreement with Strategy Business and Technology Solutions, LLC (the "Lessor"), a
company owned by the chairman of the Company, whereby the Company leased
approximately 4,000 square feet of office space to house its business
development and sales activities. The Company agreed to pay the Lessor $10,000
and $417 per month in base rent and electricity, respectively. In November 1999,
the Company terminated the lease and incurred an early termination penalty of
$95,000. In addition, for the year ended December 31, 1999, the Company recorded
$111,332 in rent expense relative to this lease.
In May 1999, Cybear entered into a five-year renewable consulting
agreement with Innovative Clinical Solutions, Ltd. ("ICSL"). Dr. Eric Moskow,
M.D., a director of the Company and also the Company's Executive
Vice-President-Market Development is a director of ICSL and was the Executive
Vice-President of Strategic Planning of ICSL from September 1996 to February,
2000. The Company agreed to pay ICSL a $1 million consulting fee. ICSL will make
reasonable good faith efforts to cause healthcare professionals employed by or
any medical practice managed by or affiliated with ICSL to subscribe to Cybear's
Physician Practice Portal product, to market Cybear's Physician Practice Portal
product to others, and to present Cybear with potential advertisers. ICSL also
agreed to pay Cybear $600,000 representing 24 subscription months for the first
1,000 subscribers obtained from ICSL. In addition, Cybear and ICSL will share
revenues generated from subscribers and advertisers provided by ICSL.
30
In December 1999, Cybear received from Andrx a tracking stock
recapitalization plan offer which would give Andrx shareholders the ability to
distinguish their investment in Andrx and Cybear. The plan would create a new
class of Andrx stock to separately track the performance of Cybear ("Cybear
Group Common").
In March 2000, Andrx and Cybear announced that they executed a
definitive agreement with respect to the previously announced tracking stock
recapitalization plan. This plan was recommended to the Cybear Board of
Directors by its Special Committee and approved by the Boards of both Cybear and
Andrx. The plan will be submitted to Andrx and Cybear shareholders for approval
later this year.
Pursuant to the Agreement, Andrx will acquire all of the publicly
traded shares of common stock of Cybear in a tax-free "roll-up" merger. Public
shareholders currently own approximately 5.4 million shares (assuming the
exercise by Edward E. Goldman, M.D., Cybear's chief executive officer, of a
warrant to acquire 525,000 shares of common stock of Cybear currently owned by
Andrx), or 30.5%, of the common shares of Cybear, and those shareholders will
receive one share of Cybear Group Common for every Cybear share they currently
own. In the recapitalization, the number of Cybear shares held by Andrx will be
reduced from 12.4 million shares to 10.3 million shares so as to provide the
equivalent of a 20% increase in shares held by the non-Andrx shareholders of
Cybear. As a result, the non-Andrx shareholders of Cybear will own approximately
34.5% of the Cybear Group Common following the closing of the transaction.
Pursuant to the Agreement, each Andrx common share will be converted into (i)
one share of Andrx Group Common and (ii) approximately .1622 shares of Cybear
Group Common, after giving effect to Andrx' pending two-for-one stock split (in
the form of a stock dividend) announced on March 1, 2000. Upon completion of the
recapitalization, (i) Cybear will be a wholly owned subsidiary of Andrx with
100% of its value publicly traded in the form of Cybear Group Common; (ii)
current Cybear shareholders will own approximately 34.5% of the Cybear Group
Common; and (iii) current Andrx shareholders will own 100% of the Andrx Group
Common and approximately 65.5% of the Cybear Group Common.
Andrx and Cybear will be filing a preliminary joint proxy statement and
a registration statement with respect to the proposed transaction with the SEC,
which is subject to review by the SEC. In addition to shareholders approval, the
transaction will be subject to various Federal and state regulatory approvals
and, accordingly, no assurance can be given that this proposed transaction will
be consummated.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) CONSOLIDATED FINANCIAL STATEMENTS Reference is made to the Index to
Financial Statements included in Part II, Item 8 of this Report.
(2) FINANCIAL STATEMENT SCHEDULES All other schedules for which
provision is made in applicable regulations of the Commission are omitted
because they are not applicable or the required information is in the
Consolidated Financial Statements or notes thereto.
(3) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.0 Merger Agreement and Plan of Reorganization dated as of July 15,
1998 among 1997 Corp., Cybear, Inc. and Cybear Capital Corp.*
2.1 Agreement and Plan of Merger dated as of September 17, 1999 among
Cybear, Inc., TN Acquisition Corporation, telegraph New
Technology, Inc. and Telegraph Consulting Corporation.*
2.2 Agreement and Plan of Merger and Reorganization dated March 23,
2000 by and among Andrx Corporation, Cybear Inc., New Andrx
Corporation, Andrx Acquisition Corp., and Cybear Acquisition
Corp.(1)
3.1 Registrant's Certificate of Incorporation, as amended.*
3.2 Registrant's Bylaws.*
31
3.3 Certificate of Ownership and Merger of Cybear, Inc. (FL) with and
into the Registrant*
4.1 Specimen common stock certificate*
10.1 Stock Option Plan*
10.2+ Form of Employment Agreement between Edward Goldman and the
Registrant.*
10.3+ Form of Employment Agreement between Debra Richman and the
Registrant.*
10.4 Form of Indemnification Agreement between the Registrant and each
of its directors and executive officers.*
10.5 Corporate Services Agreement between the Registrant and Andrx
Corporation.*
10.6 Credit Agreement between Andrx Corporation and the Registrant.*
10.7 Tax Allocation Agreement between the Registrant and Andrx
Corporation.*
10.8 Letter Agreement between the Registrant and Andrx Corporation.*
10.9 Lease Agreement relating to premises located at 5000 Blue Lake Dr
suite 200, Boca Raton, Florida.*
10.10 Lease Agreement relating to premises located 105 Challenger Rd,
Ridgefield Park, New Jersey.*
10.11 Agreement between the Registrant and Cox Interactive Media, Inc.*
10.12+ Letter of Employment between the Registrant and Jack Greenman.*
10.13 First Amendment to Lease Agreement relating to premises located
at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.(1)
10.14 Second Amendment to Lease Agreement relating to premises located
at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.(1)
10.15+ Letter of Employment between the Registrant and Timothy E.
Nolan(1)
16 Letter from Feldman Sherb Ehrlich & Co., P.C. (formerly Feldman
Radin & Co., P.C.)*
21 Subsidiaries of the Registrant(1)
23.1 Consent of Arthur Andersen LLP.(1)
27.1 Financial Data Schedule.(1)
* Previously filed.
+ Agreement between registrant and Executive Officer
(1) Filed herewith
32
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K/A was filed on November 22, 1999 reporting
the financial statements of Telegraph Consulting Corporation and the Company's
pro forma financial statements. The Report was an amendment to the Report on
Form 8-K filed on September 29, 1999 reporting under Item 2 "Acquisition or
Disposition of Assets" regarding the Company's acquisition of Telegraph
Consulting Corporation.
(C) ITEM 601 EXHIBITS
The exhibits required by Item 601 of Regulation S-K are set forth in
(A)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required by Regulation S-K are set
forth in (A)(2) above.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CYBEAR, INC.
BY:/s/ EDWARD E. GOLDMAN
------------------------------------
Edward E. Goldman, M.D.
Chief Executive Officer and Director
BY: /s/ JACK S. GREENMAN
------------------------------------
Jack S. Greenman
Executive Vice President and Chief
Financial Officer
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN H. KLEIN Chairman and Director March 28, 2000
- ------------------------------
John H. Klein
/s/ EDWARD E. GOLDMAN Chief Executive Officer and Director March 28, 2000
- ------------------------------ (Principal Executive Officer)
Edward E. Goldman, M.D.
/s/ TIMOTHY E. NOLAN President, Chief Operating Officer and Director March 28, 2000
- ------------------------------
Timothy E. Nolan
/s/JACK S. GREENMAN Executive Vice President and Chief Financial March 28, 2000
- ------------------------------ Officer (Principal Financial and Accounting Officer)
Jack S. Greenman
/s/ERIC D. MOSKOW Executive Vice President - Market March 28, 2000
- ------------------------------ Development and Director
Eric D. Moskow, M.D.
/s/ SCOTT LODIN Secretary and Director March 28, 2000
- ------------------------------
Scott Lodin
/s/ ALAN P. COHEN Director March 28, 2000
- ------------------------------
Alan P. Cohen
/s/ ANGELO C. MALAHIAS Director March 28, 2000
- ------------------------------
Angelo C. Malahias
34
/s/ MELVIN SHAROKY Director March 28, 2000
- ------------------------------
Melvin Sharoky, M.D.
/s/ PHILIP P. GERBINO Director March 28, 2000
- ------------------------------
Philip P. Gerbino, Ph.D.
/s/ MARTIN REID STOLLER Director March 28, 2000
- ------------------------------
Martin Reid Stoller, PhD
35
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.2 Agreement and Plan of Merger and Reorganization dated March 23,
2000 by and among Andrx Corporation, Cybear Inc., New Andrx
Corporation, Andrx Acquisition Corp., and Cybear Acquisition
Corp.
10.13 First Amendment to Lease Agreement relating to premises located
at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.
10.14 Second Amendment to Lease Agreement relating to premises located
at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.
10.15+ Letter of Employment between the Registrant and Timothy E. Nolan
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
+ Agreement between registrant and Executive Officer