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, 1998
[ ] 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. 333-24671
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: None
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 disclosure of delinquent filers in response to Item 405
of Regulation S-K (ss. 229.405) 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 is 13,269,400
(as of March 26, 1999).
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $315,148,250 (as of March 26, 1999).
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
Some of the information in this Report contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, product development plans, strategies, expectations regarding
competition and market acceptance of our products and the Internet as a secure
and reliable communications and commerce medium, and possible effects of pending
and future government regulation. Forward-looking statements typically are
identified by use of terms like "may," "will," "expect," "anticipate,"
"estimate" 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, availability of capital resources, ability to effectively
compete, economic conditions, unanticipated difficulties in product
development, ability to gain market acceptance and market share, ability to
manage growth, reliance on short-term non-exclusive contracts, Internet security
risks and uncertainty relating to the evolution of the Internet as a medium for
commerce, dependence on third party content providers, dependence on our key
personnel, ability to protect our intellectual property, Year 2000 problems
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
"Commission").
toni
PART I
ITEM 1. BUSINESS
OVERVIEW
Cybear is an information technology company using the Internet and
Internet-based browser technologies to develop applications designed to improve
communications and increase efficiencies for healthcare providers. Cybear has
focused its efforts on developing its Solutions product line, an Internet
Service Provider ("ISP") system that provides information and Internet-based
productivity applications to the participants in the healthcare industry. In
March 1999, Cybear introduced its first Solutions product, SolutionsMD, which is
designed to address the communications and operational needs of physicians.
Cybear's other Solutions products, derived from SolutionsMD, will provide
Internet-based productivity software applications and communication networks for
other participants in the healthcare industry.
SolutionsMD is a subscription-based Internet portal site that provides a
combination of healthcare content, practice management tools, the entry point to
a comprehensive communications network and ongoing access to further Solutions
products and services. We intend to market our first product, SolutionsMD to
physicians and physician organizations throughout the United States.
Over the next year, we intend to supplement our core SolutionsMD product by
introducing SolutionsNet, SolutionsRx and SolutionsHosp. These complementary
products will contain applications, content and connectivity features that the
more specialized users of these products will find useful. Our ability to create
private communications networks is an important improvement over the paper and
fax communications typically used by physicians and their staffs and other
healthcare providers. We believe that our Solutions products will provide the
structured communications and information necessary to improve the efficiency
and quality of patient care, meeting the information demands of managed care and
other reimbursement systems.
-1-
In addition to our subscribers, we believe advertisers will be attracted to our
site because of our ability to target physicians by specialty, interact with
them electronically and allow them to order pharmaceutical samples and other
goods over a secure network.
OUR RECENT MERGER
We were incorporated in Delaware on February 5, 1997 and are in the development
stage. On November 20, 1998, Cybear, Inc., a then 98% owned subsidiary of Andrx
Corporation ("Andrx"), merged with a wholly-owned subsidiary of 1997 Corp. Andrx
is a company that formulates and commercializes controlled-release
pharmaceuticals using proprietary drug delivery technologies. 1997 Corp. was a
"blank check" company seeking a business combination with an operating entity.
Upon completion of the merger, Cybear, Inc. became a wholly-owned subsidiary of
1997 Corp. and 1997 Corp. changed its name to Cybear, Inc. As of December 31,
1998, Cybear, Inc. was 95% owned by Andrx Corporation. The merger was intended
to be a tax-free reorganization for federal income tax purposes and was treated
as a recapitalization of Cybear, Inc. for accounting and financial reporting
purposes.
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.
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, the acceptance
of capitated, risk-based contracts by healthcare providers has created increased
demands for real-time accurate clinical and administrative information among
network providers.
Despite these needs, healthcare organizations have been allocating as little as
2% of their operating budgets for information technology ("IT"). This is
significantly less than the level of IT expenditures by other U.S. industries,
like manufacturing, insurance and banking, which have been allocating 4%, 7% and
10%, respectively, of their operating budgets to IT.
Many healthcare providers have not adopted sufficient communication and
information technology functions necessary to efficiently maintain quality care
and improved reimbursement. As a result, wasted efforts, redundant tests and
procedures and administrative inefficiencies are a daily part of medical
practice. It is not unusual for patients and providers to experience delays in
obtaining authorizations, to access specialists or to have diagnostic or
therapeutic procedures performed. For example, physicians find it increasingly
difficult to monitor the thousands of different medications covered by insurers,
so pharmacists often times 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. This complex communication currently depends on the
inefficiencies inherent in mail, telephone and fax communications. These methods
are inefficient and contribute to the difficulties physicians and networks are
experiencing with clinical and expense management.
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
-2-
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 are
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 payors. The Internet's open architecture, universal accessibility
and acceptance makes it a powerful communications medium overcoming many of the
limitations of legacy healthcare IT systems. Additionally, the Internet has
gained wide acceptance in the healthcare community initially as an information
access and gathering tool, with approximately 75% of U.S. physicians accessing
the Internet regularly for that purpose only. 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 SolutionsMD to meet healthcare providers' need to improve the
accuracy and efficiency of communications with other providers, third party
payors and provider networks. In order to meet the demands of managed care, 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 Solutions integrated set of Internet-based products and services are
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 payors that must interact to
successfully manage patient care. These products will include applications,
information and data transfer capabilities designed by us to meet their
particular needs and through our dedicated ISP, will allow for the creation of
secure intranets for members of these networks to communicate and share private
information. Our Internet-based technology platform allows for efficient
installation, maintenance and customization using the subscriber's existing
computer system.
CYBEAR'S COMPETITIVE ADVANTAGES
We believe our extensive healthcare experience combined with our own sales
force, our Internet-based technology platform and our in-house software
development capabilities provide us with a competitive advantage to be the
leading Internet communications and applications provider for the healthcare
community. Our main strengths are:
/bullet/ We Have Extensive 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 extensive experience
in healthcare practice management and pharmaceutical industries. Our
development, marketing and support staff have 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 to our subscribers and we
can build meaningful and lasting subscriber and advertiser
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,
-3-
physician organizations and pharmaceutical companies. We believe that
these relationships will allow us to rapidly expand our subscriber
base.
/bullet/ We Have an Internet-Based Technology Platform - Unlike our competitors,
we provide direct Internet access to our subscribers through our own
ISP rather than having to 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 subscribers through web-hosting and the
ability to develop private intranets, which we believe will result in
subscribers 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 20 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 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 will allow us to make continuous
improvements to our products.
CYBEAR'S STRATEGY
Our strategy to become the leading Internet-based platform linking physicians
with other healthcare providers, third party payors and participants in the
healthcare industry is based upon several elements, including:
/bullet/ Rapidly Building a Physician Subscriber Base - We are marketing
SolutionsMD to physicians, their staff and physician organizations that
have ever-increasing and complex communications needs. In addition to
individual physician subscribers, large physician organizations will
either subscribe to encourage their members to subscribe to
SolutionsMD. We expect administrative staff, particularly office
managers, schedulers and billers will be regular users of many of the
administrative tools of SolutionsMD.
/bullet/ Using Physician Subscriber Base to Obtain Additional Industry Users -
By developing a physician-centered subscriber base, we believe that we
will attract non-physician subscribers such as pharmacies, hospitals
and Independent Practice Associations ("IPA's") who will use our future
products to communicate and transact business with our SolutionsMD
physician subscribers. 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 Subscribers - We believe that our
ISP-related ability to link physician organizations through private
networks will improve communications and administrative efficiency, and
that this in turn will limit the desire and ability of individual
subscribers to discontinue subscribing to our products and services in
favor of competitors.
/bullet/ Building Brand Recognition - We believe that establishing the
SolutionsMD and our other Solutions brands and building brand
recognition is critical to our ability to attract and retain new
subscribers, advertisers and e-commerce co-marketers. We have allocated
significant resources and commenced a marketing campaign to develop
awareness of Cybear and SolutionsMD through advertising, product
promotion and strategic relationships.
/bullet/ Capitalizing on Multiple Revenue Sources - We intend to generate
revenues from multiple sources, including subscription fees,
advertising revenues, e-commerce sales commissions
-4-
and transaction fees. We believe that this revenue model will reduce
dependence on any single revenue source and maximize our revenue
generating potential.
PRODUCTS
OUR TECHNOLOGY PLATFORM
Our Internet-based technology platform for our Solutions product line includes a
dedicated ISP, which ensures secure and reliable Internet access to our
subscribers, the use of Java language-based programming to design our user
applications, and a fully-redundant Network Operations Center ("NOC") to provide
scalability and reliability to our subscriber base.
COMMON FEATURES OF SOLUTIONS PRODUCTS
Each of our Solutions products will share the following common features tailored
to meet the needs of the targeted user:
Component Features
- ----------------------------------------------------------------------------------------------------------------------
ISP-Based Communications System /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/ E-mail, private network capabilities and web hosting services
/bullet/ Tiered multiple user groups for password secure Intranet
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 web site template, search engine/directory, and online newsletter
publisher, each customizable to the needs of the user, and web site
access and usage tracking
/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
- ----------------------------------------------------------------------------------------------------------------------
-5-
SOLUTIONSMD
SolutionsMD includes a broad range of practice management tools to assist
physicians and their office staff, increase physician productivity and enhance
potential reimbursement. SolutionsMD is designed to manage communications
between physicians and the various other segments of the healthcare industry
that interact with them. Cybear launched SolutionsMD in March 1999. The
following highlights the SolutionsMD physician, practice and office tools:
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/ Formularies different insurance carriers,
/bullet/ FDA Approvals minimizes changes and substitutions
/bullet/ 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.
- ----------------------------------------------------------------------------------------------------------------------
OFFICE TOOLS
Application Content Benefit
- ----------------------------------------------------------------------------------------------------------------------
Supply Replacement /bullet/ Medical Supplies Online ordering of medical,
Injectables Vaccines pharmaceutical and office supplies
/bullet/ Office Supplies frees staff time and insures
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/ OSHA Compliance training courses, and OSHA
/bullet/ Disaster Protocols compliance evaluation and protocols.
- ----------------------------------------------------------------------------------------------------------------------
Infrastructure Support /bullet/ Office Forms Database Extensive repository of office forms
for all needs, both business and
clinical.
- ----------------------------------------------------------------------------------------------------------------------
-6-
PRACTICE TOOLS
Application Content Benefit
- ----------------------------------------------------------------------------------------------------------------------
Managed Care Applications /bullet/ Contract Manager Helps manage differing insurance
/bullet/ Eligibility and contracts, checks a patient's
Authorization insurance status, obtains referral
/bullet/ Capitation Evaluation authorization and evaluates managed
care payments.
- ----------------------------------------------------------------------------------------------------------------------
Care Management /bullet/ Patient Satisfaction Survey Patient services including
/bullet/ Patient Education satisfaction evaluation, educational
/bullet/ Patient Support handouts, online patient support
/bullet/ Practice Benchmarks 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
/bullet/ CPT 4 Online listings, and compares practice
/bullet/ HCFA Norms coding to HFCA audit criteria.
- ----------------------------------------------------------------------------------------------------------------------
Practice Compliance /bullet/ Compliance Newsletter Keeps practice abreast of compliance
/bullet/ Legislative Update issues and legislative initiatives,
/bullet/ Legal Resources alerts regarding fraud and abuse
/bullet/ Fraud and Abuse Alerts issues and evaluates health care
attorney qualifications.
- ----------------------------------------------------------------------------------------------------------------------
FUTURE SOLUTIONS PRODUCTS
Cybear is developing additional Internet-based products and services targeted to
the needs of other healthcare providers such as physician organizations,
pharmacies and hospitals. Like physicians, all of these providers interact and
must communicate with patients and others in their field as well as with other
segments of the healthcare community. These products 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 these future
products will attract new subscribers that will benefit from the connectivity
features to communicate among themselves and with physicians. Among the
Solutions products currently in development are:
/bullet/ SOLUTIONSNET is designed for physician networks and healthcare business
organizations at the management and operational level. The target
market for this product includes physician organizations with the need
to improve communications with and among their members and improve
their ability to manage risk. SolutionsNet will contain all of the
features and services of SolutionsMD and will serve as the SolutionsMD
management interface to allow an organization to manage their
SolutionsMD Intranet. In addition,
-7-
SolutionsNet will contain numerous additional web-based applications
designed specifically for the healthcare business organization
including:
/bullet/ Online real-time eligibility and authorization transaction
capability for varying plan sizes.
/bullet/ Quality assurance tracking of patient satisfaction and
customer service through all levels of the organization.
/bullet/ Benchmarking statistical information to compare the
SolutionsNet user's performance to goals and standards.
/bullet/ Prescription management tools that give the organization the
ability to effectively manage and analyze prescription
utilization.
/bullet/ Online consulting services for support and guidance through a
network of partners.
/bullet/ SOLUTIONSRX is targeted to the approximately 21,000 independent
pharmacists, a segment of the healthcare community that is experiencing
increasing market pressure due to consolidation and the growth of
national pharmacy chains. SolutionsRx will have applications that can
be used by independent pharmacies to better compete with chains, and
Cybear believes that these applications will be useful to the pharmacy
chain market as well. In addition to standard portal products,
SolutionsRx will offer unique programs developed by Cybear, including:
/bullet/ Drug dosing and compounding calculations and drug imaging
identification to ensure proper delivery of the accurate
amount of medication based on a patient's demographics.
/bullet/ Online prescription refilling and renewal.
/bullet/ E-commerce through the pharmacist's web page.
/bullet/ Access to numerous journals, regulatory information, formulary
listings and clinical study summaries.
/bullet/ SOLUTIONSHOSP is targeted to hospital systems and hospital-physician
networks. SolutionsHosp will complement and enhance the functionality
of existing hospital-based information systems, and will serve as the
interface to SolutionsMD subscribers. SolutionsHosp will contain all of
the tools and resources as SolutionsMD as well as several specific
applications designed for this market including:
/bullet/ Delivery of discharge orders and updates to admitting
physicians. Physicians will be able to complete admission
paperwork via the secure Intranet.
/bullet/ Access to transcription services to easily complete and access
chart notes.
/bullet/ A sophisticated indexing and search system to quickly locate
chart content and create summaries and reports for hospital
staff and management.
/bullet/ Two-way secure connectivity among hospital lab and imaging
departments and the medical staff.
These products will be packaged in a similar product configuration to
SolutionsMD and utilize a similar marketing strategy. Cybear expects to release
the initial versions of these three products over the next year.
OTHER PRODUCTS UNDER DEVELOPMENT
Cybear is developing a consumer-oriented healthcare web site that will be
marketed to other web sites and ISPs to become the healthcare channel for these
providers. This site will be content-neutral and will use some of the content
developed for SolutionsMD.
-8-
Additionally, in parallel with SolutionsMD, Cybear will continue to develop and
test additional management applications including its electronic prescription
management product designed for use in physician office-based practices.
STRATEGIC RELATIONSHIPS
An essential element of Cybear's growth strategy is the development and use of
various strategic partnering relationships that will serve to more rapidly
increase the subscriber base, provide high-quality content and ensure that
Cybear's Internet-based technology platform will remain state-of-the art. In
focusing Cybear's strategic relationships on distribution, content and
technology, Cybear ensures its subscriber base a continuing flow of useful
Internet-based product.
The following is a brief description of our key strategic relationships:
DISTRIBUTION PARTNERS
INTERNATIONAL ONCOLOGY NETWORK. A physician practice management organization
serving 1,000 oncologists. Cybear is its preferred ISP and Internet business
applications provider.
THE IPA ASSOCIATION OF AMERICA ("T.I.P.A.A.A."). The preeminent organizing body
for independent practice associations in the United States that represents over
200,000 physicians across the country. In 1998, Cybear entered into a three-year
strategic alliance with T.I.P.A.A.A. to become its preferred ISP and Internet
business applications provider. T.I.P.A.A.A. has actively endorsed Cybear's
Solutions product line and will help to market Cybear's products to
T.I.P.A.A.A.'s membership.
OMNA PRACTICE MANAGEMENT. A multi-specialty physician practice management
organization. Cybear is its preferred ISP and Internet business applications
provider.
PHYMATRIX CORPORATION. A publicly-traded physician practice management company
serving over 12,000 physicians. Cybear is its preferred ISP and Internet
business applications provider.
CONTENT PARTNERS
DATA ADVANTAGE CORP. A provider of hospital statistic databases and rating
mechanisms useful for benchmarking comparisons.
ENVOY CORPORATION. A provider of online transaction processing applications.
Envoy's transaction network provides online eligibility verification for
numerous managed care organizations.
INFOSPACE, INC. A nonmedical Internet content provider specializing in general
information such as telephone and address directories, government, weather and
lifestyle information content.
MEDIMEDIA USA, INC. Creator of the Infoscan database of drug formularies
categorized by managed care organizations.
MEDPAPER, INC.. A provider of organizational communications software that
provides a template for creation of broadcast "newsletter" information via the
Internet.
-9-
MOORE MEDICAL SUPPLY. A medical supply provider with online supply ordering
facilities.
REUTERS HEALTH INFORMATION, INC. A leading provider of custom news feeds
focusing on healthcare, business and entertainment as well as Moneynet portfolio
content.
VISTAR TECHNOLOGIES, INC. A provider of online physician credentialing forms
generation and printing services.
TECHNOLOGY PARTNERS
ANDOVER GROUP. A technology standards organization sponsored by Hewlett Packard
that works with Microsoft Health Users Group ("MSHUG") in developing medical
transmission standards.
GTE. A leading telecommunications infrastructure provider. Cybear is a partner
in GTE's beta program of ADSL networks in the Tampa market as well as a GTE
dial-up partner.
MICROSOFT HEALTH USERS GROUP. The technology standards organization that jointly
developed the current standards by which medical data is transmitted. Cybear is
a committee member of MSHUG, which allows Cybear to provide input on the
development of future medical data transmission standards.
SUN MICROSYSTEMS. The leading developer of 100% Java language-based software
applications. Cybear is a member of the Sun Development Group and has
collaborated with Sun Microsystems in the development of Java software tools.
We are actively pursuing strategic relationships with other key distribution,
content and technology leaders that we believes will further our growth
strategies and competitive advantages. Certain of our existing relationships, as
well as others that may be established in the future, involve or may involve the
sale or issuance of our common stock to our partners. For example, our
three-year strategic alliance with T.I.P.A.A.A. entered into in 1998 provides
that, in exchange for Cybear's preferred vendor status, Cybear agrees to make
three $100,000 annual payments to T.I.P.A.A.A. and to grant T.I.P.A.A.A. an
option to purchase 100,000 shares of its common stock. The first 30,000 of such
options have an exercise price of $3.00 per share, have a seven-year term and
vest at the rate of one share for every two T.I.P.A.A.A. physicians that become
and remain a Cybear user for a minimum of three months. In the event that such
30,000 options are not vested by the expiration date of the agreement, the
options shall vest in 2003. After the first 30,000 options have vested, the
remaining 70,000 options will vest at the rate of one share for every two
T.I.P.A.A.A. physicians that become and remain a Cybear subscriber for a minimum
of three months during the term of this agreement. These 70,000 options will
have an exercise price equal to the market price of Cybear's common stock on the
date these options vest and will have a five-year term from the date of grant.
MARKETING AND SALES
GENERAL
We market our products and services primarily through two mechanisms: our
in-house sales force and our strategic distribution partnerships. We have hired
an in-house sales force of individuals with healthcare backgrounds and
relationships oriented to building the physician subscriber base. The sales
force activity will be complemented by senior management in approaching other
-10-
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: subscribers,
advertisers and e-commerce co-marketing/revenue-sharing relationships.
In addition to our two-pronged sales efforts and our multifaceted marketing
approach, we believe that the generation of revenue in the following three major
areas underscores the importance of diversified revenue streams in our financial
model:
SUBSCRIBER MARKETING
Our subscriber marketing strategy is to identify and attract selected targets
with large physician affiliations within the managed care arena to permit the
maximum product penetration with a minimum investment of resources. Primary
targets include physician organizations with a high probability of conversion
and a high probability of successful distribution to and utilization by the
physician. Our senior management is actively involved in marketing discussions
with these larger entities, and our established relationships represent
successful implementations of this strategy.
Cybear also has deployed its marketing staff to build its individual and small
group physician subscriber base, offering promotional trial subscriptions, with
the intention that trial subscribers will become continuing subscribers after
they have had the opportunity to use our SolutionsMD and experience its practice
enhancing capabilities. We plan to employ this technique in marketing our other
Solutions products.
SITE ADVERTISING
The 650,000 physicians in the United States who are SolutionsMD's targeted
customers make more than 80% of the decisions regarding the $1.0 trillion
domestic annual healthcare expenditures. With almost $1.5 million in decision
making power per physician, this is a highly sought after audience.
As has been demonstrated in other market areas, the Internet has a unique
ability to deliver effective, targeted, and interactive messaging and
communication to its target. That focus, combined with the tremendous purchasing
power of a physician user base, makes SolutionsMD a valuable advertising and
product promotion medium to potential advertisers such as pharmaceutical
companies. Cybear will provide very targeted advertising alternatives for
various areas of business seeking to increase their healthcare market share,
from large pharmaceutical companies seeking to present specific products to the
particular healthcare specialists that would likely prescribe and administer
such products, to consumer goods distributors seeking marketing to local
healthcare practitioners.
Cybear's strategy to attract advertisers is to build its base of subscribers
from the healthcare community to include not only individual practitioners but
also large organizations of practitioners of particular specialties, so that
businesses seeking to advertise on SolutionsMD will be able to
-11-
access their desired targeted audience. Our SolutionsNet and SolutionsHosp
products will include a portal page that is co-branded by Cybear and the network
sponsor. Advertisers will also participate in special partnership and/or
sponsorship opportunities and will have a presence on SolutionsMD beyond a
typical targeted banner advertisement. Special services and promotional programs
will be available to partners and sponsors that will greatly increase their
visibility to SolutionsMD users. Advertisers also have the flexibility to
purchase general or targeted advertisements.
E-COMMERCE CO-MARKETING
Cybear's marketing efforts are also directed to establishing co-marketing
relationships with other e-commerce businesses, whereby the Solutions product
line serves as a medium for these other e-commerce ventures to sell their goods
or services to Cybear's subscribers with Cybear sharing in the revenues of such
sales. Our alliances with Office Max and Moore Medical Supply are two
examples of this potential revenue generating, product enhancing marketing
avenue.
CUSTOMER SERVICE AND SUPPORT
Cybear believes that effective customer service is essential to attracting and
retaining subscribers 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 will be provided through its customer service
and sales support centers 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. Cybear's customer service
center screens all requests for telephone support and directs the call to the
appropriate customer service personnel. 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
Our NOC located in Boca Raton, Florida, is a state-of-the-art network control
and hosting facility which manages, maintains and supports the SolutionsMD
network and its users. The NOC includes all the hardware, software, and
personnel necessary to support the ISP, our product lines and corporate data
processing needs. The NOC includes a Network Consulting Group and other
personnel to assist with customer support and troubleshooting.
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 varied
-12-
needs of healthcare professionals and healthcare consumers 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 SolutionsMD 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 resources to
devote to the development, promotion and sale of their services; longer
operating histories; greater financial, technical and marketing resources;
greater name recognition; and larger subscriber bases than Cybear and,
therefore, may have a greater ability to attract subscribers and advertisers.
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 strategic 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 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
2000. 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.
-13-
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
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.
-14-
INTELLECTUAL PROPERTY
Cybear considers its methodologies, computer software and knowledge bases to be
proprietary. Cybear owns all of its applications. 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.
Cybear has filed one patent application and several copyright applications
relating to its software technology and has obtained trademark protection for
the name Cybear. There can be no assurance that these or other applications will
result in issued patents or copyrights. 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 15, 1999, Cybear had 65 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. This facility is located
in a high-technology office park and includes a state-of-the-art power and
communications infrastructure that will be adequate for Cybear's needs for the
foreseeable future. The lease provides for annual rent of $270,600, excluding
taxes, insurance, utilities and common area maintenance charges, and has a
five-year term beginning on January 1, 1999, with one five-year renewal option
at market rates. Cybear currently leases approximately 5,725 square feet of
space in Tampa, Florida, for its software development staff, pursuant to two
leases expiring in November 1999, each with a one-year renewal option, at a
current total annual rent of approximately $95,000. Cybear also subleases
approximately 4,000 square feet of office space in Ridgefield Park, New Jersey
housing its business development and marketing activities. This lease is for a
term of five years beginning November 1998, and the rent under this lease is
$10,000 per month plus $417 per month for electrical service. Cybear has
adequate insurance for these premises.
-15-
ITEM 3. LEGAL PROCEEDINGS
On March 18, 1998, Andrx received a letter from counsel for Medix
Resources, Inc. ("Medix") and its subsidiary, Cymedix Lynx Corporation
("Cymedix") alleging the theft and unlawful appropriation by Andrx, Cybear, and
certain directors, officers and employees of Cybear and Andrx of certain
computer medical software and internet medical communications technology
allegedly owned by Cymedix. The letter demanded trebled damages totaling $396.6
million pursuant to the civil theft provisions of Florida law, including
Florida's Racketeer Influenced and Corrupt Organization Act and certain other
provisions of federal and state law. On March 23, 1998, Cybear and Andrx filed a
complaint against Medix and Cymedix in Broward County, Florida for libel and
slander arising from the improper public dissemination of the contents of the
aforesaid demand letter. On June 2, 1998, Medix, on behalf of Cymedix, filed a
complaint against Cybear, Andrx and certain of their directors, officers and
employees in Hillsborough County, Florida making the same allegations as were
reflected in the aforesaid demand letter. On December 22, 1998, the Medix
complaint was provisionally dismissed and transferred to Broward County Florida
by the Hillsborough County Court. In February 1999, this matter was settled,
with all of the parties respectively releasing the others from any liability,
through the payment to Medix of $125,000.
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 other 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
In a special meeting of shareholders held on November 19, 1998, 1997
Corp. submitted the following matters to the record holders of its 45,000 then
outstanding shares for approval: (1) the merger of Cybear Capital Corp., a
wholly owned subsidiary of 1997 Corp. (the former name of the Company), with and
into Cybear, Inc., a Florida corporation, (2) the subsequent amendment of the
1997 Corp.'s Certificate of Incorporation to increase the number of shares of
the 1997 Corp.'s common stock from 10 million shares to 25 million shares and to
change the Company's name from "1997 Corp." to "Cybear, Inc.," and (3) adoption
of Cybear, Inc.'s Employee Stock Option Plan as the Company's stock option plan.
All of these matters were approved by a majority of the 1997 Corp.'s
shareholders present in person or by proxy and entitled to vote thereon. The
following is a tabulation of votes cast in person at the meeting or by proxy
solicitation:
FOR AGAINST ABSTAINED
--- ------- ---------
Merger 44,640 100 50
Amendment of Certificate
of Incorporation 44,640 100 50
Adoption of Cybear, Inc.
Stock Option Plan 39,640 100 5,050
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has been traded on the OTC Bulletin Board under the symbol
"CYBR" since January 28, 1999. High and low bid prices for the common stock
during the period from January 28, 1999 through March 26, 1999 ranged from $3.25
to $25.25 according to information obtained from the OTC Bulletin Board. On
March 26, 1999, the last reported sales price was $23.75 per share. The
quotations are over-the-market quotations and, accordingly, reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. Because only 269,400 shares are freely tradable, there has
been a limited public market for our common stock and the prices may not reflect
the true value of our common stock.
HOLDERS
At March 22, 1999, there were approximately 28 holders of record of Cybear's
common stock. Cybear believes the number of beneficial owners of its common
stock is approximately 325.
-16-
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.
-17-
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.
STATEMENT OF OPERATIONS DATA*:
FOR THE PERIOD FROM CUMULATIVE FROM
FEBRUARY 5, 1997 FEBRUARY 5, 1997
(INCEPTION) TO FOR THE YEAR ENDED (INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- ----------------- -----------------
Revenues $ 95,927 $ -- $ 95,927
Software development expenses $ 945,497 $ 1,621,422 $ 2,566,919
General and administrative expenses $ 680,779 $ 2,264,252 $ 2,945,031
Loss from operations $(1,530,349) $(4,170,571) $(5,700,920)
Net loss $(1,558,569) $(2,481,012) $(4,039,581)
Basic and diluted net loss per share $ (0.12) $ (0.19) $ (0.31)
Basic and diluted weighted average shares
of common stock outstanding 12,768,303 13,030,999 12,906,266
BALANCE SHEET DATA:
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
Working capital deficit $(1,378,412) $(3,235,200)
Total assets $ 395,456 $ 3,331,951
Total liabilities $ 1,410,119 $ 3,799,568
Stockholders' deficit $(1,014,663) $( 467,617)
*Certain prior year amounts have been reclassified to conform with the
current year presentation.
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. CYBEAR'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THIS REPORT AND DETAILED FROM TIME TO TIME IN
CYBEAR'S FILINGS WITH THE COMMISSION. THE FOLLOWING DISCUSSION ALSO SHOULD BE
READ TOGETHER WITH CYBEAR'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
CONTAINED IN ITEM 8 OF THIS REPORT.
INTRODUCTION
Cybear, a Delaware corporation in the development stage, was incorporated on
February 5, 1997. Cybear is an information technology company using the Internet
and Internet-based browser technologies to develop applications designed to
improve communications and increase efficiencies for healthcare providers.
Cybear has focused its efforts on developing its Solutions product line, an
Internet service provider system that provides information and Internet-based
productivity applications to the healthcare community. In March 1999, Cybear
introduced its first Solutions product, SolutionsMD, which addresses the
communications and operational needs of physicians. Cybear's other Solutions
products, derived from SolutionsMD, will provide Internet-based productivity
software applications and communication networks for other constituents of the
healthcare community. From February 5, 1997 (inception) through December 31,
1998, Cybear's principal activities have consisted of developing its products,
establishing its administrative, selling and marketing, network operations and
customer support infrastructure and providing software development services to
Andrx.
RECENT MERGER. On November 20, 1998, Cybear, Inc., a Florida corporation, merged
with 1997 Corp. pursuant to a Merger Agreement and Plan of Reorganization dated
July 15, 1998. 1997 Corp. was a "blank check" company that had a registration
statement on file with the Securities and Exchange Commission to seek a business
combination with an operating entity. Upon consummation of the merger, Cybear,
Inc. became a wholly-owned subsidiary of 1997 Corp. 1997 Corp. changed its name
to Cybear, Inc. and 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. (the
Florida corporation that merged into 1997 Corp.) for accounting and financial
reporting purposes.
The result of the merger was that the holders of Cybear, Inc.'s (the Florida
corporation) common stock own 13,000,000 shares of Cybear's common stock or
approximately 98% of Cybear's common stock and the 1997 Corp.'s original
shareholders own 269,400 shares of Cybear's common stock or approximately 2% of
Cybear's common stock. See Note 1 of the Notes to the Consolidated Financial
Statements.
RELATIONSHIP WITH ANDRX. As of December 31, 1998, Cybear was 95% owned by Andrx
and has been funded primarily through Andrx. In September 1998, Andrx and Cybear
entered into a Credit Agreement with respect to Andrx's funding obligations to
Cybear. The Credit Agreement provides that Andrx will continue to fund Cybear's
operations until Cybear is in a position to raise at least $4,000,000 on its own
(whether through debt or equity) or 12 months from the consummation of the
above-described merger, whichever occurs first, and that Andrx will make at
least $3,000,000 available to Cybear on Cybear's demand. Interest accrues on the
unpaid principal amount from the date of borrowing until the principal amount is
repaid in full, at an
-19-
annual interest rate equal to the prime rate plus 1/2%. Cybear recorded $28,220
in interest expense on the balance due to Andrx for the period from February 5,
1997 (inception) to December 31, 1997 and $210,441 for the year ended December
31, 1998.
Cybear and Andrx have a corporate services agreement whereby Andrx provides
Cybear with various services such as executive management, accounting and
finance, legal, payroll and human resources. For the period from February 5,
1997 (inception) to December 31, 1997 and for the year ended December 31, 1998,
Cybear 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 $110,000
for the period from February 5, 1997 (inception) to December 31, 1997 and
$120,000 for the year ended December 31, 1998.
Cybear and Andrx have a tax allocation agreement that provides, among other
things, for the allocation of federal income tax liabilities to Cybear at the
approximate amounts that would have been computed as if Cybear and Andrx had
filed separate income tax returns. Cybear recorded a tax benefit of $1,900,000
for the year ended December 31, 1998, reflecting the reimbursement from Andrx
for the utilization of Cybear's tax attributes pursuant to the tax allocation
agreement.
PRODUCTS AND SOURCES OF REVENUE. Cybear introduced SolutionsMD to the healthcare
community in March 1999. With respect to SolutionsMD, Cybear anticipates that
its revenues will initially consist of recurring revenues from product
subscriptions. SolutionsMD is sold to subscribers on an individual monthly
subscription basis with the monthly subscription fee for the basic product
package initially set at $24.95 per user. A premium package with more
applications is expected to be released in the second half of 1999 at a monthly
subscription fee of $34.99. Cybear may consider giving subscription discounts
for paid-in-advance contracts. Subscribers will also be able to purchase
additional services for additional fees. Currently, all subscriptions are on a
month-to-month basis, payable in advance. Advance billings and collections
relating to future product usage will be recorded as deferred revenue and
recognized when revenue is earned. If Cybear is successful in building its
subscriber base, brand recognition and increasing traffic on its web site,
Cybear expects to generate additional revenues through advertising and
sponsorships on its Solutions products.
Advertising revenues will be derived principally from short-term contracts in
which Cybear will guarantee a minimum number of page impressions to be delivered
to subscribers over a specified period of time for a fixed fee. Sponsorship
revenues will be derived principally from contracts that have typically longer
terms than standard advertising contracts and will involve more integration with
Cybear's services such as the placement of logos on the home page or other
sections of Cybear's applications. Revenues on advertising and sponsorship
contracts will be recognized ratably in the period in which the advertisement is
displayed, provided that no significant Cybear obligations remain, at the lesser
of the ratio of impressions delivered over the total guaranteed impressions or
the straight line basis over the term of the contract. To the extent that
minimum guaranteed impressions are not met, Cybear will defer recognition of the
corresponding revenues until the guaranteed impressions are achieved.
With respect to its management applications products, Cybear plans to build a
customer base consisting of physician organizations, pharmacies and hospitals
and anticipates that its primary source of revenues derived from such management
applications products will be in the form of transaction fees. Cybear will
recognize revenue when services are provided.
-20-
Cybear's strategy is to rapidly develop a broad customer base and a source of
revenue by marketing SolutionsMD and its other Solutions products once
introduced, which are intended to provide a one-stop location on the Internet
for the healthcare community to locate relevant news, healthcare-related
information and customizable features unique to each user. Cybear's launched
product, SolutionsMD, will provide a base for the marketing of Cybear's other
Solutions products to the healthcare industry.
Over the next year, Cybear intends to build on its SolutionsMD by introducing
further products such as SolutionsNet, SolutionsRx and SolutionsHosp that are
targeted to other areas of the healthcare community such as pharmacists,
independent practice associations and hospitals. These products will have many
of the same features as SolutionsMD with certain different applications and
services tailored to the target market.
Cybear has incurred net operating losses and negative cash flows from operating
activities since its inception. As of December 31, 1998, CyBear had an
accumulated deficit of $4,039,581. In addition, Cybear intends to continue to
invest heavily in product development and marketing. As a result, Cybear expects
to continue to incur substantial operating losses for the foreseeable future,
and may not achieve or sustain profitability.
In addition, Cybear may offer promotional packages to subscribers at subsidized
prices. These arrangements may require Cybear to incur significant expenses, and
Cybear cannot guarantee that it will generate sufficient revenues to offset
these expenses. Cybear cannot be certain that it can achieve sufficient revenues
in relation to its expenses to ever become profitable. If Cybear does achieve
profitability, it cannot be certain that it can sustain or increase
profitability on a quarterly or annual basis in the future.
If Cybear's revenues fall short of its projections, its business, financial
condition and operating results would be materially adversely affected. Cybear
may also need to raise additional capital through public or private debt or
equity financings to fund the deployment of its Solutions products. However,
Cybear may not be able to raise additional capital on favorable terms or at all.
Cybear's quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, some of which are outside its control.
These factors include: the number of subscribers to SolutionsMD and their use of
the site, market acceptance of Cybear's products, Cybear's ability to timely
release its connectivity products, advertisers or sponsors on Cybear's web site,
fees Cybear may pay for distribution, service or content agreements and
promotional arrangements or other costs Cybear may incur as it expands its
operations, Cybear's ability to attract and retain personnel with the necessary
strategic, technical and creative skills required to develop and service its
customers, the amount and timing of capital expenditures and other costs
relating to the expansion of Cybear's operations, the introduction of new
products or services by Cybear or its competitors, pricing changes in the
industry, technical difficulties in the use of the Internet or Cybear's web
site, system downtime, undetected software errors, the level of traffic on
Cybear's web site and the level of usage of the Internet generally, future
government regulations that may affect healthcare or the Internet and general
economic conditions.
Due to all of these factors, in some future quarter Cybear's operating results
may fall below market expectations. If this happens, the trading price of
Cybear's common stock would likely decline, perhaps significantly.
As a result of Cybear's limited operating history and the emerging nature of the
products and markets in which it competes, Cybear's historical financial data is
of limited value in planning
-21-
future operating expenses. Accordingly, Cybear's planned expenses are based in
part on its expectations concerning future revenues and are fixed to a large
extent. Cybear expects its expenses to increase significantly in the future as
it continues to incur significant network operations, operations support, sales
and marketing, product development and administrative expenses. Cybear's success
depends on its ability to increase its revenues to offset its expenses. Cybear
cannot guarantee that it will be able to generate sufficient revenues to offset
its expenses or that it will be able to achieve profitability. If its revenues
fall short of its projections, Cybear's business, financial condition and
operating results could be materially and adversely affected.
RESULTS OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenues were $95,927 for the period from February 5, 1997 (inception) to
December 31, 1997 and consisted of software development services rendered to
Andrx. Cybear had no revenues for the year ended December 31, 1998 as it is in
the development stage.
Software development costs were $945,497 for the period from February 5, 1997
(inception) to December 31, 1997 compared to $1,621,422 for the year ended
December 31, 1998. Software development costs include outside consultant fees,
payroll, benefits and housing expenses of employees involved in the creation,
design and development of Cybear's products. Also included in the period from
February 5, 1997 (inception) to December 31, 1997, are the costs of providing
software development services to Andrx. The increase in the software development
costs for the year ended December 31, 1998 reflects the progress and expansion
of Cybear's development activities.
General and administrative expenses were $680,779 for the period from February
5, 1997 (inception) to December 31, 1997 compared to $2,264,252 for the year
ended December 31, 1998. General and administrative expenses include costs
incurred in the areas of sales and marketing, network operations and
maintenance, administration, and customer support. The increase in general and
administrative expenses for the year ended December 31, 1998 relates to the
establishment of the administrative, selling and marketing and customer support
infrastructure and the establishment of a network operations center.
In the year ended December 31, 1998, Cybear recorded $159,897 to write off the
unamortized portion of a software license obtained from a third party in 1997.
The software was to be used as a means to handle certain types of electronic
data interchange ("EDI") messages in Cybear's Internet-based management
applications. In the fourth quarter of 1998, new EDI standards were approved for
use in the medical systems community in the U.S. and are now released as open
standards to the development community. Cybear has now adopted these new
standards to be compatible with the industry standards and has integrated them
into its software development process. This has rendered obsolete the software
licensed by Cybear.
In the year ended December 31, 1998, Cybear recorded a settlement charge of
$125,000 in connection with a legal settlement reached with Medix and Cymedix to
settle all previously outstanding legal disputes between the companies.
Interest expense was $28,220 in the period from February 5, 1997 (inception) to
December 31, 1997. Interest expense was $210,441 for the year ended December 31,
1998. Interest expense represents interest on advances from Andrx under the
Credit Agreement between the two companies to fund Cybear's operations. At
December 31, 1998, such net advances including interest
-22-
amounted to $5,357,179 and bear interest at prime (7.75% at December 31, 1998)
plus 1/2%.
Cybear's taxable results are included in the consolidated income tax return of
Andrx. Cybear's taxable results will be included in the consolidated income tax
return of Andrx as long as Andrx owns at least 80% of the common stock of
Cybear. Cybear and Andrx have a tax allocation agreement that provides, among
other things, for the allocation of federal income tax liabilities to Cybear at
the approximate amounts that would have been computed as if Cybear had filed
separate income tax returns. Cybear recorded a tax benefit of $1,900,000 for the
year ended December 31, 1998 reflecting the reimbursement from Andrx for the
utilization of Cybear's tax attributes pursuant to the tax allocation agreement.
As of December 31, 1998, Cybear has a net operating loss carryforward in the
amount of approximately $800,000 which is available to offset future earnings.
Under the provisions of SFAS No. 109, Cybear has provided a valuation allowance
to reserve against 100% of its deferred tax asset given Cybear's history of net
losses.
The following table sets forth the selected quarterly data for the year ended
December 31, 1998:
FISCAL 1998 QUARTER ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
Revenue $ -- $ -- $ -- $ --
Operating expenses:
Software development 305,793 449,812 413,721 452,096
General and administrative 224,681 350,771 577,623 1,111,177
Write-off of software license -- -- -- 159,897
Litigation settlement charge -- -- -- 125,000
----------- ----------- ----------- -----------
Total operating expenses 530,474 800,583 991,344 1,848,170
----------- ----------- ----------- -----------
Loss from operations (530,474) (800,583) (991,344) (1,848,170)
Interest expense on due to Andrx Corporation (32,102) (47,547) (65,610) (65,182)
----------- ----------- ----------- -----------
Loss before income taxes (562,576) (848,130) (1,056,954) (1,913,352)
Income tax benefit -- -- -- 1,900,000
----------- ----------- ----------- -----------
Net loss $ (562,576) $ (848,130) $(1,056,954) $ (13,352)
=========== =========== =========== ===========
LIQUIDITY AND CAPITAL RESOURCES
From February 5, 1997 (inception) through December 31, 1998, Cybear has incurred
a net loss of $4,039,581 and has been dependent upon funding from Andrx. As of
December 31, 1998, Cybear owed Andrx $2,344,727. As of December 31, 1998, Cybear
had $3,983 in cash and a working capital deficit of $3,235,200.
Net cash used in operating activities for the period from February 5, 1997
(inception) through December 31, 1997 was $1,397,238 compared to $1,386,300 for
the year ended December 31, 1998. Net cash used in operating activities was
primarily attributable to Cybear's loss from operations offset by accounts
payable and accrued liabilities.
-23-
Net cash used in investing activities for the period from February 5, 1997
(inception) through December 31, 1997 was $400,535 compared to $2,699,123 for
the year ended December 31, 1998. For the period from February 5, 1997
(inception) through December 31, 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 entered into an agreement with
a third party to license the use of the third party's software for an unlimited
period of time. Cybear purchased this license for $160,000. In 1998, Cybear
wrote-off the unamortized portion of this software license as noted above. In
1998, Cybear invested $2,341,123 in capital expenditures consisting mainly of
computer hardware and software used in the establishment of its network
operations center and the development of its products, and leasehold
improvements to the rented space housing its corporate headquarters and network
operations center. Cybear also capitalized $358,000 in software development
costs associated with the development of SolutionsMD.
Net cash provided by financing activities for the period from February 5, 1997
(inception) through December 31, 1997 was $1,798,773 compared to $4,088,406 for
the year ended December 31, 1998. For the period from February 5, 1997
(inception) to December 31, 1997, net cash provided by financing activities
consisted of proceeds from issuance of shares of Cybear's stock and funding from
Andrx. In February 1997, Cybear issued 12,870,000 shares of common stock to
Andrx for an aggregate amount of $500,000 and 130,000 shares of convertible
preferred stock for a promissory note of $30,000. The promissory note was paid
in full and the preferred stock was converted into 130,000 shares of common
stock. In addition, Cybear received advances of $1,268,773 from Andrx to fund
its operations. In 1998, net cash provided by financing activities consisted of
advances from Andrx to fund Cybear's operations and the reimbursement from Andrx
for the utilization of Cybear's tax attributes pursuant to the tax allocation
agreement. The advances bear interest at prime (7.75% at December 31, 1998) plus
1/2%. On November 20, 1998, 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 to Cybear.
In September 1998, Andrx and Cybear entered into a Credit Agreement with respect
to Andrx's funding obligations to Cybear. The Credit Agreement provides that
Andrx will continue to fund Cybear's operations until Cybear is in a position to
raise at least $4,000,000 on its own (whether through debt or equity) or 12
months from the consummation of the above-described merger, whichever occurs
first, and that Andrx will make at least $3,000,000 available to Cybear on
Cybear's demand. Interest accrues on the unpaid principal amount from the date
of borrowing until the principal amount is repaid in full, at an annual interest
rate equal to the prime rate plus 1/2%.
In the year ended December 31, 1998, Cybear recorded a settlement charge of
$125,000 in connection with a legal settlement reached with Medix and Cymedix to
resolve all previously outstanding legal disputes between the companies. The
disputes involved allegations of misappropriation by Cybear, Andrx and certain
of their respective officers, directors and employees of medical software and
Internet communications technology allegedly owned by Cymedix, and Cybear's
claims for defamation against Cymedix and Medix relating to such allegations.
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 other 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.
-24-
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. Andrx is committed to the required
funding of Cybear's operations until Cybear is able to raise capital from third
parties or the next twelve months. From February 5, 1997 (inception) through
December 31, 1998, Cybear has been dependent upon funding from Andrx. As of
December 31, 1998, Cybear owed Andrx $2,344,727. Cybear currently anticipates
that its available cash resources and available funding from Andrx will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least the next 12 months. Based on Andrx's most
recent financial statements, Cybear believes that Andrx currently has the
resources to fund Cybear's cash requirements for at least the next 12 months.
In March 1999, Cybear announced that it intends to file a registration statement
for a public offering of its common stock. Cybear expects to complete such
offering during the second quarter of 1999. No assurance can be given that the
registration statement will be filed or that, if filed, the offering will be
consummated.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Cybear's computer
equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or a miscalculation, causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Based upon its identification and assessment efforts to date, Cybear believes
that certain of the computer equipment and software it currently uses will
require replacement or modification. In the ordinary course of replacing
computer equipment and software, Cybear will attempt to obtain replacements that
are Year 2000 compliant. Utilizing both internal and external resources to
identify and assess needed Year 2000 remediation, Cybear began its Year 2000
identification, assessment, remediation and testing efforts in the fourth
quarter 1998 and expects to complete such activities by third quarter 1999 and
that such efforts will be completed prior to any currently anticipated impact on
its computer equipment and software. Cybear estimates that as of March 15, 1999,
it had completed approximately 40% of the initiatives that it believes will be
necessary to fully address potential Year 2000 issues relating to its computer
equipment and software. The projects comprising the remaining 60% of the
initiatives are in process and expected to be completed on or about the third
quarter 1999.
Cybear has also mailed letters to its significant vendors and service providers
to determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and whether the products and services purchased from or by such
entities are Year 2000 compliant. As of March 15, 1999, Cybear had received
responses on Internet documentation from approximately 92% of such third
parties, and 93% of the companies that have responded have provided written
assurance that they are Year 2000 compliant, with the remaining 7% expecting to
address all their significant Year 2000 issues on a timely basis. A follow-up
mailing to significant vendors and service providers that did not initially
respond, or whose responses were deemed unsatisfactory by Cybear, was conducted
in March 1999.
Cybear believes that the cost of its Year 2000 identification, assessment,
remediation and testing efforts, as well as currently anticipated costs to be
incurred by Cybear with respect to Year 2000 issues of third parties, will not
exceed $500,000 and will be funded from current existing financial resources. As
of the date of this prospectus, Cybear had incurred costs of approximately
$100,000
-25-
related to its Year 2000 identification, assessment, remediation and testing
efforts. These costs were for planning, analysis, repair or replacement of
existing software, upgrades of existing software, or evaluation of information
received from significant vendors, service providers, or customers. Other
non-Year 2000 efforts have not been and are not expected to be materially
delayed.
Cybear has not yet completed comprehensive analysis of the operational problems
and costs (including loss of revenues) that would be reasonably likely to result
from the failure by Cybear and certain third parties to complete efforts
necessary to achieve Year 2000 compliance on a timely basis. A contingency plan
for dealing with the most reasonably likely worst case scenario is under
development and should be completed by December 31, 1999.
The costs of Cybear's Year 2000 identification, assessment, remediation and
testing efforts and the dates on which Cybear believes it will complete such
efforts are based upon management's best estimates, which were derived using
numerous assumptions regarding future events, including the continued
availability of certain resources, third-party remediation plans, and other
factors. Cybear cannot assure you that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology and other similar uncertainties.
In addition, variability of definitions of "compliance with Year 2000" and the
variety of different products and services and combinations thereof sold by
Cybear may lead to claims relating to Year 2000 compliance whose impact on
Cybear is not currently estimable. Cybear cannot provide assurance that the
aggregate cost of defending and resolving such claims, if any, will not
materially adversely affect Cybear's results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Cybear has adopted the provisions of SFAS No. 130
beginning January 1, 1998, as required. Cybear's comprehensive losses and net
losses are the same for all periods presented.
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. Cybear has adopted
the provisions of SFAS No. 131 for the year ending December 31, 1998 as
required. Currently, Cybear does not believe it has any separately reportable
business segments or other disclosure information required by the Statement.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
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 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
-26-
results on the hedged item in the income statement, and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the provision of SFAS No. 133 as of the beginning of
any fiscal quarter June 16, 1998 and thereafter. SFAS No. 133 cannot be applied
retroactively. SFAS No. 133 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
Cybear's election, before January 1, 1998).
Cybear has not yet quantified the impact of adopting SFAS No. 133 on its
financial statements and has not determined the timing or method of its adoption
of SFAS No. 133.
-27-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.........................F-2
CONSOLIDATED BALANCE SHEETS................................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS......................................F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT...........................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS......................................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 in the development stage) and subsidiary, a 95% owned
subsidiary of Andrx Corporation and subsidiaries, as of December 31, 1997 and
1998, and the related consolidated statements of operations, shareholders'
deficit and cash flows for the period from February 5, 1997 (inception) to
December 31, 1997, for the year ended December 31, 1998 and for the cumulative
period from February 5, 1997 (inception) to December 31, 1998. 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 generally accepted auditing
standards. 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 subsidiary as
of December 31, 1997 and 1998, and the results of their operations and their
cash flows for the period from February 5, 1997 (inception) to December 31,
1997, for the year ended December 31, 1998 and for the cumulative period from
February 5, 1997 (inception) to December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 12, 1999.
F-2
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1997 1998
----------- -----------
ASSETS
Current assets:
Cash $ 1,000 $ 3,983
Receivable from Blue Lake Ltd. -- 366,000
Prepaid expenses 30,707 194,385
----------- -----------
Total current assets 31,707 564,368
Property and equipment, net 189,065 2,406,629
Software development costs -- 358,000
Software license 160,000 --
Other assets 14,684 2,954
----------- -----------
Total assets $ 395,456 $ 3,331,951
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 64,813 $ 1,153,059
Accrued liabilities 76,533 301,782
Due to Andrx Corporation 1,268,773 2,344,727
----------- -----------
Total current liabilities 1,410,119 3,799,568
----------- -----------
Commitments and contingencies (Notes 7 and 11)
Shareholders' deficit:
Convertible preferred stock, $.01 par value;
2,000,000 shares authorized, none issued and
outstanding at December 31, 1997 and 1998 -- --
Common stock, $.001 par value; 25,000,000 shares
authorized, 13,000,000 and 13,269,400 shares
issued and outstanding at December 31, 1997 and
1998, respectively 13,000 13,269
Additional paid-in-capital 530,906 3,558,695
Deficit accumulated during development stage (1,558,569) (4,039,581)
----------- -----------
Total shareholders' deficit (1,014,663) (467,617)
----------- -----------
Total liabilities and shareholders' deficit $ 395,456 $ 3,331,951
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM CUMULATIVE FROM
FEBRUARY 5, 1997 FEBRUARY 5, 1997
(INCEPTION) TO FOR THE YEAR ENDED (INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
-------------------- ------------------ -----------------
Revenues:
Software development services to Andrx Corporation $ 95,927 $ - $ 95,927
------------ ------------ ------------
Operating expenses:
Software development 945,497 1,621,422 2,566,919
General and administrative 680,779 2,264,252 2,945,031
Write-off of software license -- 159,897 159,897
Litigation settlement charge -- 125,000 125,000
------------ ------------ ------------
Total operating expenses 1,626,276 4,170,571 5,796,847
------------ ------------ ------------
Loss from operations (1,530,349) (4,170,571) (5,700,920)
Interest expense on due to Andrx Corporation (28,220) (210,441) (238,661)
------------ ------------ ------------
Loss before income taxes (1,558,569) (4,381,012) (5,939,581)
Income tax benefit -- 1,900,000 1,900,000
------------ ------------ ------------
Net loss $ (1,558,569) $ (2,481,012) $ (4,039,581)
============ ============ ============
Basic and diluted net loss per share $ (0.12) $ (0.19) $ (0.31)
============ ============ ============
Basic and diluted weighted average shares of common
stock outstanding 12,768,303 13,030,999 12,906,266
============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING TOTAL
---------------------- ------------------------- PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE DEFICIT
--------- --------- ----------- ----------- ----------- ----------- -------------
FEBRUARY 5, 1997 (INCEPTION) -- $ -- -- $ -- $ -- $ -- $ --
Issuance of shares of
common stock to Andrx
Corporation as promoter -- -- 12,870,000 12,870 487,130 -- 500,000
Issuance of shares of
convertible preferred stock 130,000 130 -- -- 29,870 -- 30,000
Shares of common stock
issued in connection
with conversion of shares
of convertible preferred stock (130,000) (130) 130,000 130 -- -- --
Options granted to consultants -- -- -- -- 13,906 -- 13,906
Net loss -- -- -- -- -- (1,558,569) (1,558,569)
--------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 -- -- 13,000,000 13,000 530,906 (1,558,569) (1,014,663)
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 -- 3,012,452
Options granted to consultants -- -- -- -- 15,606 -- 15,606
Net loss -- -- -- -- -- (2,481,012) (2,481,012)
--------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 -- $ -- 13,269,400 $ 13,269 $ 3,558,695 $(4,039,581) $ (467,617)
========= ========= =========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM CUMULATIVE FROM
FEBRUARY 5, 1997 FEBRUARY 5, 1997
(INCEPTION) TO FOR THE YEAR ENDED (INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
------------------- ------------------ ------------------
Cash flows from operating activities:
Net loss $(1,558,569) $(2,481,012) $(4,039,581)
Adjustments to reconcile net loss to net cash used in
operating activities -
Write-off of software license -- 159,897 159,897
Provision for litigation settlement -- 125,000 125,000
Depreciation and amortization 51,470 123,662 175,132
Non cash charges for options granted to consultants 13,906 15,606 29,512
Changes in operating assets and liabilities:
Receivable from Blue Lake Ltd. -- (366,000) (366,000)
Prepaid expenses (30,707) (163,678) (194,385)
Other assets (14,684) 11,730 (2,954)
Accounts payable 64,813 1,088,246 1,153,059
Accrued liabilities 76,533 100,249 176,782
----------- ----------- -----------
Net cash used in operating activities (1,397,238) (1,386,300) (2,783,538)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (240,535) (2,341,123) (2,581,658)
Software development costs -- (358,000) (358,000)
Purchase of software license (160,000) -- (160,000)
----------- ----------- -----------
Net cash used in investing activities (400,535) (2,699,123) (3,099,658)
----------- ----------- -----------
Cash flows from financing activities:
Advances from Andrx Corporation 1,268,773 5,988,406 7,257,179
Payments on due to Andrx Corporation -- (1,900,000) (1,900,000)
Proceeds from issuance of shares of common stock 500,000 -- 500,000
Proceeds from promissory note issued for purchase
of shares of convertible preferred stock 30,000 -- 30,000
----------- ----------- -----------
Net cash provided by financing activities 1,798,773 4,088,406 5,887,179
----------- ----------- -----------
Net increase in cash 1,000 2,983 3,983
Cash, beginning of period -- 1,000 --
----------- ----------- -----------
Cash, end of period $ 1,000 $ 3,983 $ 3,983
=========== =========== ===========
Supplemental disclosure of non-cash activities:
Conversion of due to Andrx into additional paid-in capital $ -- $ 3,012,452 $ 3,012,452
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) GENERAL
Cybear, Inc. ("Cybear" or the "Company"), a Delaware corporation in the
development stage, was incorporated on February 5, 1997. As of December 31,
1998, Cybear, Inc. was a 95% owned subsidiary of Andrx Corporation ("Andrx").
Cybear is an information technology company using the Internet and
Internet-based browser technologies to develop applications designed to improve
communications and increase efficiencies within the healthcare community. The
Company has focused its efforts on developing SolutionsMD, an Internet service
provider system ("ISP") that will provide information and Internet-based
applications to the healthcare community. The Company is also developing a suite
of Internet-based management applications and communication networks
for the healthcare community. From February 5, 1997 (inception) through December
31, 1998, the Company's principal activities have consisted of developing its
products, establishing its administrative, selling and marketing, customer
support and network operations infrastructure and providing software development
services to Andrx.
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.
Under the terms of the Merger Agreement, all outstanding Cybear, Inc. (FL)
common shares were cancelled and were converted by virtue of the Merger into a
total of 13,000,000 1997 Corp. common shares. All outstanding employee stock
options of Cybear, Inc. (FL) were assumed by 1997 Corp. There was no change in
the ownership of the 270,000 registered shares of 1997 Corp. common stock
outstanding immediately prior to the Merger (after giving effect to a
five-for-one common stock dividend payable on each of the 45,000 outstanding
shares of 1997 Corp.). As required by Rule 419 promulgated pursuant to the
Securities Act of 1933, as amended, stockholders of 1997 Corp. were required to
reconfirm their purchase of 1997 Corp.'s common shares and each stockholder who
rejected or failed to approve the Merger Agreement was paid his or her pro rata
share of the funds deposited in the Rule 419 escrow account at Continental Stock
Transfer and Trust Company, or approximately $5.13 per share. Funds were
returned for a total of 100 shares.
The result of the Merger was that the holders of Cybear Inc. (FL)'s common stock
own 13,000,000 shares of Cybear, Inc.'s common stock or approximately 98% of
Cybear, Inc.'s common stock and the 1997 Corp.'s original shareholders own
269,400 shares of Cybear, Inc.'s common stock or approximately 2% of Cybear,
Inc.'s common stock.
F-7
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
MANAGEMENT'S PLANS
From February 5, 1997 (inception) through December 31, 1998, the Company has
incurred a net loss of $4,039,581 and has been dependent upon funding from
Andrx. Management anticipates incurring additional net losses in the near term,
as the focus of the Company's business is to develop and market its products. In
September 1998, Andrx and Cybear entered into a credit agreement with respect to
Andrx's funding obligations to Cybear. The credit agreement provides that Andrx
will continue to fund Cybear's operations until Cybear is in a position to raise
at least $4,000,000 on its own (whether through debt or equity) or 12 months
from the consummation of the Merger, whichever date is earlier and that Andrx
will make at least $3,000,000 available to Cybear on Cybear's demand. Interest
will accrue on the unpaid principal amount from the date of borrowing until the
principal amount is repaid in full, at an annual interest rate equal to the
prime rate plus 1/2% (see Note 8).
Cybear is planning to introduce SolutionsMD to the healthcare community in the
first quarter of 1999. The Company has not yet completed third-party testing of
its Internet-based management applications or the development or testing of
certain system enhancements. The Company will be required to commit considerable
time, effort and resources to finalize such development and adapt its software
to satisfy specific requirements of potential customers. There can be no
assurance that Cybear will successfully develop its products, achieve or sustain
profitability or positive cash flow from its operations.
The likelihood of the success of the Company must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the development of new business ventures. Cybear's business
risks include its limited operating history, its history of losses, the emerging
and competitive nature of its markets, the greater financial, marketing and
other resources of its competitors, the rapid technology change in its industry,
changes in government regulations, dependence on network infrastructure,
telecommunications carriers and content providers, dependence on a limited
number of key personnel, dependence on continued growth in the use of the
Internet and its adoption as an advertising medium, security risks involved with
Internet commerce and market acceptance and profitability of its products.
F-8
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Cybear, Inc. and its subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
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.
SOFTWARE LICENSE, NET
In 1997, Cybear entered into an agreement with a third party to license the use
of their software as a means to handle certain types of electronic data
interchanges ("EDI") messages in the Company's Internet-based management
applications. As of December 31, 1997, the Company had capitalized $160,000
under this agreement. In the fourth quarter of 1998, new EDI standards were
approved for use in the medical systems community in the U.S. and are now
released as open standards to the development community. The Company has now
adopted these new standards to be compatible with the industry standards and has
integrated them into its software development process. This has rendered
obsolete the software licensed by the Company. Accordingly, the Company has
written off its software license in its consolidated statement of operations for
the year ended December 31, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company utilizes the provisions of Financial Accounting Standards Board
("FASB") Statement on Financial Accounting Standards ("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 circumstance indicate
F-9
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
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 future cash flow value. Except for the write-off of
its software license as noted above, such provisions had no impact on the
Company's financial position or results of operations as of or for the period
from February 5, 1997 (inception) to December 31, 1997 and for the year ended
December 31, 1998.
REVENUE RECOGNITION
Software development service revenues which to date have been rendered to Andrx
are recognized at the time the services are rendered.
SOFTWARE DEVELOPMENT COSTS
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Once technological feasibility has been
established, such costs are capitalized until the software has completed beta
testing and is generally available. Software 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. As of
December 31, 1998, the Company has achieved technical feasibility for
SolutionsMD but not for its Internet-based management applications. Accordingly,
the capitalized software development costs represent only costs associated with
the development of the Company's SolutionsMD product. Software development costs
for SolutionsMD were incurred with third-party vendors. The Company did not
record any amortization of its capitalized software development costs in the
year ended December 31, 1998 as it had not yet released SolutionsMD.
START-UP COSTS
All costs to organize the Company and start up its operations are expensed as
incurred.
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
period from February 5, 1997 (inception) to December 31, 1997 and for the year
ended December 31, 1998, 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 10).
F-10
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
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". The
Company's taxable results will be included in the consolidated income tax return
of Andrx as long as Andrx owns at least 80% of the common stock of the Company
(see Note 6).
NET LOSS PER SHARE
SFAS No. 128, "Earnings Per Share". SFAS No. 128 specifies the computation,
presentation and disclosure requirements for earnings or loss per share. The
provisions of SFAS No. 128 are effective for financial statements for periods
ended after December 15, 1997. The Company has adopted the provisions of SFAS
No. 128.
For the period from February 5, 1997 (inception) to December 31, 1997, and for
the year ended December 31, 1998, 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 diluted loss per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1997 and 1998, the carrying amounts of the receivable from
Blue Lake Ltd., the accounts payable, accrued liabilities and the due to Andrx
approximate fair value. In accordance with SFAS No. 107, "Disclosures about fair
value of financial instruments", the fair value of the due to Andrx was
estimated based on future cash flows discounted at current interest rates
available to the Company for instruments with similar characteristics.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company has adopted the
provisions of SFAS No. 130 as of January 1, 1998. The adoption of the provisions
of this standard had no impact on the Company's existing reporting disclosures.
Cybear's comprehensive losses and net losses are the same for all periods
presented.
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.
F-11
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
DERIVATIVES
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
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 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 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the provision of SFAS No. 133 as of the beginning of
any fiscal quarter after issuance. SFAS No. 133 cannot be applied retroactively.
SFAS No. 133 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 has not yet quantified the
impacts of adopting SFAS No. 133 on its financial statements and has not
determined the timing of or method of adoption of SFAS No. 133.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year
presentation.
(3) RECEIVABLE FROM BLUE LAKE LTD.
In September 1998, the Company entered into a lease agreement with Blue Lake
Ltd. ("Blue Lake") to house its corporate headquarters and network systems (see
Note 7). As part of the lease agreement, Blue Lake has agreed to pay the Company
$406,667 ("Landlord Contribution") of the total costs incurred by the Company to
improve the rented space prior to its occupancy. Payment of the Landlord
Contribution is due 30 days from the date of receipt by Blue Lake of copy of an
invoice and other support documents from the contractor. As of December 31,
1998, 90% of the leasehold improvements were completed and invoiced, and as such
the Company recorded a receivable of $366,000 from Blue Lake. The Company has
collected the receivable in 1999.
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment is summarized as follows:
DECEMBER 31,
---------------------------
1997 1998
----------- -----------
Computer hardware and software $ 164,410 $ 1,806,831
Furniture and fixtures 73,408 241,911
Leasehold improvements 2,717 532,916
----------- -----------
240,535 2,581,658
Less: accumulated depreciation and amortization (51,470) (175,029)
----------- -----------
Property and equipment, net $ 189,065 $ 2,406,629
=========== ===========
F-12
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(5) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
---------------------
1998 1997
-------- --------
Payroll and employee benefits $ 76,533 $116,782
Litigation settlement charge -- 125,000
Other -- 60,000
-------- --------
$ 76,533 $301,782
======== ========
(6) INCOME TAXES
The components of the income tax benefit are summarized as follows:
DECEMBER 31,
-----------------------
1998 1997
-------- ----------
Current $ -- $1,900,000
Deferred -- --
-------- ----------
Total $ -- $1,900,000
======== ==========
The Company and Andrx have a tax allocation agreement that provides, among other
things, for the allocation of federal income tax liabilities to the Company at
the approximate amounts which would have been computed as if the Company had
filed separate income tax returns. The tax benefit reflects the reimbursement
from Andrx for the utilization of Cybear's tax attributes pursuant to the tax
allocation agreement.
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,
------------------------
1997 1998
--------- ---------
Net operating loss carryforward $ 576,500 $ 324,989
Tax over book depreciation (2,597) (7,525)
Operating reserves -- 24,704
Software license (50,180) --
--------- ---------
523,723 342,168
Valuation allowance (523,723) (342,168)
--------- ---------
Net $ -- $ --
========= =========
As of December 31, 1998, the Company has a net operating loss carryforward in
the amount of approximately $800,000 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. 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
F-13
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
significant shareholders over a three-year period in excess of 50%.
(7) 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, 1998 are as
follows:
1999 $ 608,000
2000 545,000
2001 450,000
2002 450,000
2003 313,000
----------
$2,366,000
==========
In addition, as part of the Company's President's contract, effective September
15, 1998, Andrx has issued to the President 20,000 options to purchase common
stock of Andrx, at its then market price, vesting in four annual increments of
5,000 shares on the anniversary of the date of grant and for payment of $50,000,
a warrant to purchase 650,000 shares of common stock of the Company exercisable
at its then market price of $3.00 per share, beginning on April 30, 1999 (the
"Warrant Exercise Date"). The warrant expires seven years after the Warrant
Exercise Date subject to contractual obligations with Andrx. As such
transactions were effected at market prices, there is no impact on the Company's
accompanying consolidated financial statements.
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
In September 1998, Cybear entered into a lease with Blue Lake Ltd. (see Note 3)
for 18,400 square feet of space in Boca Raton, Florida to house its corporate
headquarters and network systems. In January 1999, the leased premises were
enlarged to 21,648 square feet. The lease provides for an annual base rent of
$271,000 excluding taxes, insurance, utilities and common area maintenance
charges and has a five-year term commencing on January 1, 1999 with one
five-year renewal option at market rates.
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
(see Note 8), for 4,000 square feet of office space in Ridgefield Park, New
Jersey to house its business development and sales activities. The lease
provides for $120,000 and $5,000 in annual base rent and electricity,
respectively, and has a five-year term commencing on November 1, 1998. In
addition, the Company agreed to pay a security deposit of $20,000. For the year
ended December 31, 1998, the Company has recorded an expense of $20,834 relative
to this lease which had not been paid as of December 31, 1998.
In October 1998, the Company entered into a three year lease with Bell South
Telecommunications, Inc. to provide business Internet service to the Company.
This lease is effective January 1999 and provides for $159,000 in annual
recurring charges.
F-14
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
In addition, the Company leases various office equipment and telephone lines
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, 1998:
1999 $ 994,000
2000 1,004,000
2001 979,000
2002 566,000
2003 537,000
------------
$ 4,080,000
============
Rent expense amounted to $130,000 for the period from February 5, 1997
(inception) to December 31, 1997 and $145,000 for the year ended December 31,
1998.
PREFERRED VENDOR AGREEMENTS
In 1998, the Company entered into a three-year strategic alliance with The IPA
Association of America ("TIPAAA"), the nation's leading trade association
focused on physician independent practice associations whereby Cybear will
become the preferred ISP and Internet business applications provider for TIPAAA.
In consideration of its preferred vendor status, Cybear agreed to make to TIPAAA
three $100,000 annual payments and to grant TIPAAA an option to purchase 100,000
shares of its common stock . The first 30,000 of such options have an exercise
price of $3.00 per share and have a seven (7) year term and shall vest at the
rate of one share for every two TIPAAA physicians that become and remain a
Cybear user for a minimum of three months. In the event, that all such options
are not vested by the expiration date of the agreement, such options shall vest
in 2003. After such 30,000 have vested, the remaining 70,000 options will vest
at the rate of one share for every two TIPAAA physicians that become and remain
a Cybear user for a minimum of three months during the term of this agreement.
These 70,000 options will have an exercise price equal to the market price of
Cybear common stock on the date such options vest and shall have a five (5) year
term from the date of grant. The Company will record charges to earnings for the
options that vest. In the year ended December 31, 1998, the Company has paid and
recorded the annual fee of $100,000 to prepaid expenses. The Company will start
amortizing the annual fees over the term of its contract with TIPAAA when its
SolutionsMD product is launched.
In February 1999, the Company entered into a three-year agreement with PhyMatrix
Corporation ("PhyMatrix") whereby Cybear will receive preferential access to all
PhyMatrix physicians to use Cybear's ISP and applications. PhyMatrix will use
Cybear's applications as the means of communicating with its physician group
practices and independent practice associations ("PhyMatrix Business Partners")
and PhyMatrix will market Cybear's ISP and its applications for business
development purposes. In consideration of its preferred vendor status, Cybear
agreed to, among other things, to consult with and provide advice to PhyMatrix
concerning hardware and software that may be required by PhyMatrix to
electronically communicate with the PhyMatrix Business Partners, to create, when
commercially practicable, applications and efficiencies that are of interest to
PhyMatrix, to advance to PhyMatrix the funds for hook-ups or dial-up modems that
Cybear believes to be reasonably necessary to run Cybear's applications and
establish electronic communications between the PhyMatrix Business Partners, and
after recouping any advance noted above, pay to PhyMatrix, on a quarterly basis,
50% of the net revenues that Cybear derives from PhyMatrix directly or from the
PhyMatrix Business Partners
F-15
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
or from any business developed through PhyMatrix. Cybear's net revenues are
defined as the total amount collected by Cybear from PhyMatrix or PhyMatrix
Business Partners, before interest and taxes attributable thereto.
LICENSE AGREEMENT
In October 1998, the Company entered into a three-year license agreement
effective January 1999, with Medimedia USA, Inc. ("MMUSA") whereby MMUSA granted
a non exclusive license to use the InfoScan formulary database ("Licensed
Product") and related documentation for the lookup of drug formulary statuses by
the Company and its customers. The Company is permitted to use the Licensed
Product internally and to integrate it into its software products. In return,
the Company has agreed to pay MMUSA an annual database access fee of $20,000 and
a fee per prescription equal to 10% of the Company's receipts per script from
licensees, users, subscribers or retail pharmacies connecting to Cybear client
installations. Total fees paid by Cybear shall not exceed $150,000 in any one
year. In the year ended December 31, 1998, the Company has paid and recorded the
annual database access fee of $20,000 to prepaid expenses. The annual fee will
be amortized in 1999.
(8) RELATED PARTY TRANSACTIONS
The Company and Andrx have a corporate services agreement whereby Andrx provides
the Company with various services of its management such as executive
management, accounting and finance, legal, payroll and human resources. For the
period from February 5, 1997 (inception) to December 31, 1997 and for the year
ended December 31, 1998, 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 $110,000 for the period from February 5, 1997 (inception) to
December 31, 1997 and $120,000 for the year ended December 31, 1998.
The Company and Andrx have a tax allocation agreement that provides, among other
things, for the allocation of federal income tax liabilities to the Company at
the approximate amounts which would have been computed as if the Company had
filed separate income tax returns. The Company recorded a tax benefit of
$1,900,000 for the year ended December 31, 1998 reflecting the reimbursement
from Andrx for the utilization of Cybear's tax attributes pursuant to the tax
allocation agreement (see Note 6).
Due to Andrx in the accompanying balance sheets represents advances from Andrx
to fund the Company's operations and the related accrued interest. Such advances
bear interest at prime (7.75% at December 31, 1998) plus 1/2%. On November 20,
1998, 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 to the
Company. In September 1998, Andrx and Cybear entered into a credit agreement
with respect to Andrx's funding obligations to Cybear. The credit agreement
provides that Andrx will continue to fund Cybear's operations until Cybear is in
a position to raise at least $4,000,000 on its own (whether through debt or
equity) or 12 months from the consummation of the merger with 1997 Corp.,
whichever date is earlier and that Andrx will make at least $3,000,000 available
to Cybear on Cybear's demand. The Company recorded $28,220 in interest expense
on the Due to Andrx for the period from February 5, 1997 (inception) to December
31, 1997 and $210,441 for the year ended December 31, 1998. As of December 31,
1998, the Company has not paid any interest expense on the Due to Andrx.
F-16
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
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 year ended December 31, 1998.
In February 1997, Cybear entered into an agreement with Group One Enterprises,
Inc. ("Group One"), a minority shareholder of the Company, whereby Group One
agreed to provide certain consulting services to the Company. The agreement with
Group One was terminated in 1997. Costs incurred for services provided by Group
One were $68,000 for the period from February 5, 1997 (inception) to December
31, 1997.
In September 1998, Andrx agreed to sell to the Company's chairman 333,333 shares
of Cybear common stock for $1 million or at its then current market price of
$3.00 per share. Andrx will use such proceeds to fund its loan commitment to
Cybear. As of December 31, 1998, Andrx had sold 233,333 shares to the Company's
chairman for $700,000. In January 1999, Andrx sold the remaining 100,000 under
this agreement to the Company's chairman for $300,000. As such transactions were
effected at market prices, there is no impact on the Company's accompanying
consolidated financial statements.
(9) CONVERTIBLE PREFERRED STOCK
In February 1997, the Company issued 130,000 shares of convertible preferred
stock to Group One for a promissory note of $30,000. The fair value of the
convertible preferred stock was $0.23 per share as determined by the Company's
Board of Directors. As of December 31, 1997, the promissory note was paid in
full. The preferred stock issued had the same voting and dividend rights as the
common stock but had a liquidation preference and was convertible into common
stock of the Company on a one-for-one basis if the consulting agreement with
Group One was terminated before an initial public offering. The agreement with
Group One was terminated in 1997 and the 130,000 shares of preferred stock were
converted into 130,000 shares of common stock.
(10) STOCK INCENTIVE PLAN
The Company has reserved 1,000,000 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 January 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 800,000 to 1,800,000.
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.
Had compensation cost for the Company's stock options been based on fair value
at the grant dates consistent with the methodologies of SFAS No. 123, the
F-17
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
Company's pro forma basic and diluted net loss and basic and diluted net loss
per share would have been $1,590,717 and $0.12 for the period from February 5,
1997 (inception) to December 31, 1997 and $2,581,962 and $0.20 for the year
ended December 31, 1998, respectively.
A summary of the Plan's activity is as follows:
OUTSTANDING EXERCISABLE
---------------------------------------------- -------------------
NUMBER OF EXERCISE PRICE PER SHARE WTD. AVG.
SHARES ------------------------------- EXERCISE
UNDER 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
=======
OPTIONS OUTSTANDING AT EXERCISABLE OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
- --------------------------------------------------------------- ------------------------
RANGE OF WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
EXERCISE REMAINING LIFE EXERCISE EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
- ------------- ------- -------------- ------------- --------- -------------
$1.00 - $1.00 280,000 8.2 1.0 70,000 $1.00
$2.00 - $2.00 130,500 9.4 2.0 -- --
$3.00 - $3.00 574,583 9.8 3.0 -- --
------- ------
985,083 9.3 2.3 70,000 $1.00
======= ======
The range of weighted average fair market value per share as of the grant date
was $0.70 for the stock options granted during the period from February 5, 1997
(inception) to December 31, 1997 and $1.50 to $2.23 for the stock options
granted during the year ended December 31, 1998. The fair market value of each
option grant was estimated using the Black-Scholes option pricing model with the
following assumptions:
FOR THE PERIOD FROM
FEBRUARY 5, 1997
(INCEPTION) TO FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
Risk-free interest rate 5.3% 4.8%
Average life of options (years) 6.0 4.5
Average volatility 75% 85%
Dividend yield -- --
F-18
CYBEAR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(11) LITIGATION
On March 18, 1998, Andrx received a letter from counsel for Medix Resources,
Inc. ("Medix") and its subsidiary, Cymedix Lynx Corporation ("Cymedix") alleging
the theft and unlawful appropriation by Andrx, the Company, and certain
directors, officers and employees of the Company and Andrx of certain computer
medical software and internet medical communications technology allegedly owned
by Cymedix. The letter demanded trebled damages totaling $396.6 million pursuant
to the civil theft provisions of Florida law, including Florida's Racketeer
Influenced and Corrupt Organization Act and certain other provisions of federal
and state law. On March 23, 1998, the Company and Andrx filed a complaint
against Medix and Cymedix in Broward County, Florida for libel and slander
arising from the improper public dissemination of the contents of the aforesaid
demand letter. On June 2, 1998, Medix, on behalf of Cymedix, filed a complaint
against the Company, Andrx and certain of their directors, officers and
employees in Hillsborough County, Florida making the same allegations as were
reflected in the aforesaid demand letter. On December 22, 1998, the Medix
complaint was provisionally dismissed and transferred to Broward County Florida
by the Hillsborough County Court. In February 1999, this matter was settled,
with all of the parties respectively releasing the others from any liability,
through the payment to Medix of $125,000 which was accrued in the accompanying
consolidated financial statements for the year ended December 31, 1998.
From time to time, the Company may be involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not currently a party to any other 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 the Company's business,
operating results and financial condition.
(12) EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
In March 1999, the Company announced that it intends to file a registration
statement for a public offering of its common stock. Cybear expects to complete
such offering during the second quarter of 1999. No assurance can be given that
the registration statement will be filed or that, if filed, the offering will be
consummated.
F-19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Cybear are set forth below. All
directors 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 52 Chairman and Director
Edward E. Goldman, M.D. 53 President, Chief Executive Officer
and Director
Debra S. Richman 40 Executive Vice President-Business
Development
Scott Lodin 42 Secretary and Director
Alan P. Cohen 43 Director
Joel L. Stocker 51 Vice President for Legal Affairs
JOHN H. KLEIN became the Chairman and a director of Cybear on 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. ("Zenith"), a manufacturer of
multi-source generic pharmaceutical drugs, which was acquired by IVAX
Corporation ("IVAX"), 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.
-28-
EDWARD E. GOLDMAN, M.D. became the President and Chief Executive Officer of
Cybear on September 1, 1998. From October 1985, he had served as founding
partner and executive officer of PhyMatrix Corporation, a publicly traded
physician practice management company, where he was Executive Vice President of
Physician Development and Chief Medical Officer. From February 1983 to September
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.
DEBRA S. RICHMAN joined Cybear as Executive Vice President--Business Development
in August 1998. From 1996 to 1998, Ms. Richman was the Executive Vice
President/Marketing for PhyMatrix. From 1994 to 1996 she was the Executive Vice
President/Chief Operating Officer of CompreMedx Medical Management, Inc., a
start-up physician management company. From 1989 to 1994 she had various
positions with Caremark International (previously Baxter International),
including as Vice President, Physician Networks and Vice President, Business
Development, Orthopedic Services. Ms. Richman is also a Vice President and
director of TIPAAA, which has an agreement with Cybear, as disclosed under
"Business--Marketing."
SCOTT LODIN has been Secretary and a director of Cybear since February 5, 1997
(inception). He joined Andrx in January 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
(inception) 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, which he
founded in August 1992. He is a graduate of the University of Florida and is a
registered pharmacist. In 1984, Mr. Cohen founded Best Generics, Inc., a generic
drug distribution firm ("Best"), which was sold to IVAX Corporation ("IVAX") in
1988. Mr. Cohen served as President of Best from April 1989 until June 1990.
Alan P. Cohen and certain members of his family controlled Corner Drugstore,
Inc., a privately-held retail drugstore chain. Corner Drugstore, Inc. filed for
reorganization under Chapter 11 of the United States Bankruptcy Code in December
1994.
JOEL L. STOCKER became Vice President for Legal Affairs in February of 1999. Mr.
Stocker's career has focused on the representation of healthcare providers and
insurers. Mr. Stocker founded and chaired the Health Law Department of Greenberg
Traurig, P.A. At Greenberg
-29-
Traurig, Mr. Stocker co-chaired the firm's technology committee. Mr. Stocker was
a principal shareholder at Greenberg and a member of the firm for 10 years.
Prior to that, he managed Wood, Lucksinger and Epstein's Miami, Florida health
law practice. Mr. Stocker is a graduate of the University of Michigan Law
School.
Cybear is currently searching for a Chief Financial Officer.
-30-
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for 1998
received by the Chief Executive Officer (the "CEO"). No executive officer of
Cybear received compensation in 1997 and 1998 in excess of $100,000. Mr. Cohen
and Mr. Lodin are employees of Andrx and were compensated by Andrx.
ANNUAL COMPENSATION
-------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------ ------ ------------
Edward E. Goldman, M.D. 1998 $72,115 -- (1)
President and CEO
(1) Dr. Goldman joined Cybear in September 1998. Pursuant to his employment
agreement, Andrx has issued to Edward Goldman, upon payment of $50,000, a
warrant to purchase 650,000 shares Cybear held by Andrx common stock at
its then market price of $3.00 per share and stock options for 20,000
shares of common stock of Andrx having an exercise price per share of the
fair market value of Andrx common stock at the close of business on the
date of grant. See "Employment Agreements."
STOCK OPTION GRANTS IN 1998
No grants of stock options were made to the CEO during 1998.
COMPENSATION OF DIRECTORS
Non-employee directors of Cybear do not receive cash compensation for their
services. Messrs. Cohen and Lodin are employees of Andrx and were compensated by
Andrx. Messrs. Klein and Goldman are employees of Cybear.
EMPLOYMENT AGREEMENTS
Cybear entered into a five-year employment agreement effective as of September
15, 1998 with Edward Goldman, M.D. pursuant to which he serves as Cybear's
President and Chief Executive Officer. 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 Cybear for any reason other than death 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
-31-
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 (without any present value adjustment) 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 (without
any present value adjustment) 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 be appointed as president and chief executive officer 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, Andrx agreed to issue to Dr. Goldman
upon payment of $50,000, a warrant to purchase 650,000 shares of Cybear common
stock held by Andrx (the "Warrant") at its then market price of $3.00 per share.
In addition, Andrx has issued to Dr. Goldman stock options for 20,000 shares of
Andrx common stock having an exercise price, per share, of the fair market value
of Andrx stock at the close of business on the date of grant. As such
transactions were effected at market prices, there is no impact on Cybear's
consolidated financial statements.
The stock to be issued pursuant to the exercise of the Warrant includes
piggyback registration rights. The Warrant is exercisable commencing on April
30, 1999 (the "Warrant Exercise Date"). The Warrant shall be exercisable for a
period of seven years after the Warrant Exercise Date, subject to contractual
obligations with Andrx.
Cybear has entered into an employment agreement with Debra Richman,
Cybear's Executive Vice President--Business Development. The agreement provides
for a two-year term, a base salary of $160,000 and $80,000 in deferred
compensation that is 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 1997 Stock
Option Plan. The options will vest and become exercisable in two annual
increments, as follows: two increments of 37,500 shares each will vest on the
first and second anniversary of the agreement and the remaining 25,000 options
will vest and become exercisable only if the agreement is renewed and then at
the end of the first calendar year of a renewal period.
In the event that Ms. Richman's employment by Cybear is terminated by Cybear
prior to the expiration of the initial two-year term for any reason that does
not constitute cause (as defined in the agreement), she will be entitled to
receive the balance of any unpaid base compensation for the remaining portion of
the initial term and any remaining unpaid portion of the deferred compensation,
as well as any accrued entitlements, including any unused vacation and
-32-
unreimbursed business expenses. In addition in the event of such termination of
employment by Cybear for other than cause during the first year of her
employment, options to purchase 50,000 shares shall accelerate and become
vested, and, if in the event of such termination during the second year of
employment, options to purchase 37,500 shares shall accelerate and become
vested.
Messrs. Cohen and Lodin are employees of Andrx and do not have employment
agreements with Cybear. Cybear does not have any agreements, plans or
understandings to pay any cash compensation to Messrs. Cohen and Lodin for
serving as directors or officers of Cybear. Mr. Lodin spends approximately 20%
of his time on Cybear matters.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Cybear had no compensation committee during 1998. Messrs. Cohen and Lodin
participated in deliberations of Cybear's Board of Directors concerning
compensation of executive officers.
-33-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Cybear's common stock as of March 26, 1999, by (i) each person
owning more than 5% of such common stock, (ii) each director and executive
officer; and (iii) by all directors and executive officers as a group:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER(1), (2) BENEFICIAL OWNERSHIP OUTSTANDING
- ------------------------ -------------------- -----------
Andrx Corporation 12,536,667 94.5%
John Klein 333,333 2.5%
Edward E. Goldman, M.D. - -
Debra Richman - -
Scott Lodin 12,536,667(3) 94.5%
Alan P. Cohen 12,536,667(3) 94.5%
Joel L. Stocker - -
All directors and executive officers as
a group (six persons) 12,870,000 97.0%
<FN>
- ---------------------------------------
(1) Except as indicated, the address of each person named in the table is c/o
Cybear, Inc., 5000 Blue Lake Drive, 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.
(3) Represents shares owned indirectly by Andrx Corporation.
</FN>
-34-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Cohen and Lodin are executive officers of Andrx and none of such persons
are required to commit his full time to the affairs of Cybear and it is likely
that such persons will not devote a substantial amount of time to the affairs of
Cybear. Such personnel may have conflicts of interest in allocating management
time among various business activities. Since its inception in February 1997,
Andrx has funded substantially all of Cybear's operations through loans or
purchases of shares of Cybear common stock. As of December 31, 1998, such
funding including interest amounted to $5,857,179. Andrx and Cybear have entered
into a corporate services agreement pursuant to which Andrx provides certain
legal, financial and administrative services to Cybear in exchange for $120,000
per annum. Andrx and Cybear have also entered into a tax allocation agreement
pursuant to which Cybear will be responsible for its tax liabilities as if it
had filed separate income tax returns. Cybear recorded a tax benefit of
$1,900,000 for the year ended December 31, 1998 reflecting the reimbursement
from Andrx for the utilization of Cybear's tax attributes pursuant to the tax
allocation agreement.
In September 1998, Andrx agreed to sell John Klein, the Chairman of Cybear,
333,333 shares of Cybear common stock for $1,000,000 or its then market price of
$3.00 per share. As of March 15, 1999, Andrx had sold the 333,333 shares of
Cybear common stock for $1,000,000. Andrx will use such proceeds to fund its
loan commitment to Cybear. As such transactions were effected at market prices,
there is no impact on Cybear's consolidated financial statements.
In September 1998, Andrx agreed to issue to Edward Goldman, M.D., Cybear's
President, upon payment of $50,000, a warrant to purchase 650,000 shares of
Cybear common stock held by Andrx (the "Warrant") at its then market price of
$3.00 per share. In addition, Andrx issued to Dr. Goldman stock options for
20,000 shares of Andrx common stock having an exercise price, per share, of the
fair market value of Andrx stock at the close of business on the date of grant.
The stock to be issued pursuant to the exercise of the Warrant includes
piggyback registration rights. The Warrant is exercisable commencing on April
30, 1999 (the "Warrant Exercise Date"). The Warrant shall be exercisable for a
period of seven years after the Warrant Exercise Date, subject to contractual
obligations with Andrx. As such transactions were effected at market prices,
there is no impact on Cybear's consolidated financial statements.
In November, 1998, Cybear entered into a five year sublease agreement with
Strategy Business and Technology Solutions, LLC (the "Lessor"), a company owned
by John Klein, whereby Cybear leases approximately 4,000 square feet of office
space in Ridgefield Park, New Jersey, to house its business development and
sales activities. Cybear agreed to pay the Lessor $10,000 and $417 per month in
base rent and electricity, respectively. In addition, Cybear agreed to pay a
security deposit of $20,000. For the year ended December 31, 1998, Cybear has
recorded an expense of $20,834 relative to this lease which had not been paid as
of December 31, 1998.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a description of a credit agreement and other funding
obligations of Andrx to Cybear.
-35-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
(1) Financial Statements.
See the Index to Consolidated Financial Statements contained in Item 8
of this Report for a description of Cybear's Consolidated Financial Statements
filed with this Report.
(2) Consolidated Financial Statement Schedules
All schedules for which provision is made in applicable regulations of
the Commission are not required under the related instructions, are inapplicable
or the required information has been included in Cybear's consolidated financial
statements and therefore such schedules have been omitted.
(3) Exhibits
EXHIBIT DESCRIPTION
3.1 Registrant's Certificate of Incorporation, as amended
3.2 Registrant's Bylaws (1)
10.1 Stock Option Plan*
10.2 Employment Agreement between the Registrant and Edward
Goldman, M.D.*
10.3 Employment Agreement between the Registrant and Debra Richman*
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(1)
10.6 Credit Agreement between Andrx Corporation and the
Registrant(1)
10.7 Tax Allocation Agreement between Andrx Corporation and the
Registrant
10.8 Lease Agreement relating to premises located at 5000 Blue Lake
Dr., Suite 200, Boca Raton, Florida
10.9 First Amendment to Lease Agreement relating to premises
located at 5000 Blue Lake Dr., Suite 200, Boca Raton, Florida
10.10 Lease Agreement relating to premises located at 105 Challeger
Rd., Ridgefield Park, New Jersey
27.1 Financial Data Schedule (SEC use only)
- ---------------------------
* Management Compensation Plan or Arrangement.
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2, including the post-effective amendments thereto
(File No. 333-24671) and incorporated herein by reference.
-36-
(b) Reports On Form 8-K
On December 7, 1998, the Registrant filed a Current Report of 8-K to
disclose the acquisition by merger of Cybear, Inc., a Florida corporation and
certain related matters.
(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.
-37-
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.
President, Chief Executive Officer and Director
Date: March 29, 1999
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 29, 1999
- ---------------------
John H. Klein
/s/ EDWARD E. GOLDMAN President, Chief Executive Officer and Director March 29, 1999
- --------------------- (Principal Executive and Financial Officer)
Edward E. Goldman, M.D.
/s/ CLAUDE BERTRAND Controller March 29, 1999
- --------------------- (Principal Accounting Officer)
Claude Bertrand
/s/ DEBRA RICHMAN Executive Vice President-Business March 29, 1999
- --------------------- Development
Debra Richman
/s/ ALAN COHEN Director March 29, 1999
- ---------------------
Alan Cohen
/s/ SCOTT LODIN Vice President, General Counsel, Secretary March 29, 1999
- --------------------- and Director
Scott Lodin
-38-
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Registrant's Certificate of Incorporation, as amended
10.1 Stock Option Plan*
10.2 Employment Agreement between the Registrant and Edward
Goldman*
10.3 Employment Agreement between the Registrant and Debra Richman*
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers*
10.7 Tax Allocation Agreement between Andrx Corporation and the
Registrant
10.8 Lease Agreement relating to premises located at 5000 Blue Lake
Dr., Suite 200, Boca Raton, Florida
10.9 First Amendment to Lease Agreement relating to premises
located at 5000 Blue Lake Dr., Suite 200, Boca Raton, Florida
10.10 Lease Agreement relating to premises located at 105 Challeger
Rd., Ridgefield Park, New Jersey
27.1 Financial Data Schedule (SEC use only)
- ---------------------------
* Management Compensation Plan or Arrangement.