U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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)
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 ___
The number of shares outstanding of the Registrant's Common Stock is 13,269,400
(as of May 6, 1999).
DOCUMENTS INCORPORATED BY REFERENCE
None
CYBEAR, INC.
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Balance Sheets as of December 31, 1998
and March 31, 1999 3
Unaudited Statements of Operations for the three months ended
March 31, 1998 and 1999 and for the cumulative period from
February 5, 1997 (inception) to March 31, 1999 4
Unaudited Statements of Cash Flows for the three months ended
March 31, 1998 and 1999 and for the cumulative period from
February 5, 1997 (inception) to March 31, 1999 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
CYBEAR, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYBEAR, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1998 1999
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,983 $ 325,479
Receivable from Blue Lake Ltd. 366,000 --
Prepaid expenses 194,385 348,091
----------- -----------
Total current assets 564,368 673,570
Property and equipment, net 2,406,629 3,310,013
Software development costs, net 358,000 402,444
Other assets 2,954 84,242
----------- -----------
Total assets $ 3,331,951 $ 4,470,269
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,153,059 $ 613,215
Accrued liabilities 301,782 328,598
Due to Andrx Corporation 2,344,727 5,420,624
----------- -----------
Total current liabilities 3,799,568 6,362,437
----------- -----------
Shareholders' deficit:
Convertible preferred stock, $.01 par value;
2,000,000 shares authorized, none issued and
outstanding at December 31, 1998 and March 31, 1999 -- --
Common stock, $.001 par value; 25,000,000 shares
authorized, 13,269,400 shares issued and
outstanding at December 31, 1998 and March 31, 1999 13,269 13,269
Additional paid-in-capital 3,558,695 3,649,057
Deficit accumulated during development stage (4,039,581) (5,554,494)
----------- -----------
Total shareholders' deficit (467,617) (1,892,168)
----------- -----------
Total liabilities and shareholders' deficit $ 3,331,951 $ 4,470,269
=========== ===========
The accompanying notes to unaudited financial statements
are an integral part of the balance sheets.
3
CYBEAR, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED CUMULATIVE FROM
MARCH 31, FEBRUARY 5, 1997
------------------------------ (INCEPTION) TO
1998 1999 MARCH 31, 1999
------------ ----------- --------------
Revenues:
Software development services to Andrx Corporation $ -- $ -- $ 95,927
------------ ------------ ------------
Operating expenses:
Software development 305,793 494,311 3,061,230
Selling, general and administrative 224,681 2,330,604 5,275,635
Write-off of software license -- -- 159,897
Litigation settlement charge -- -- 125,000
------------ ------------ ------------
Total operating expenses 530,474 2,824,915 8,621,762
------------ ------------ ------------
Loss from operations (530,474) (2,824,915) (8,525,835)
Other income (expense):
Interest expense on due to Andrx Corporation (32,102) (90,513) (329,174)
Interest income -- 515 515
------------ ------------ ------------
Loss before income taxes (562,576) (2,914,913) (8,854,494)
Income tax benefit -- 1,400,000 3,300,000
------------ ------------ ------------
Net loss $ (562,576) $ (1,514,913) $ (5,554,494)
============ ============ ============
Basic and diluted net loss per share $ (0.04) $ (0.11) $ (0.43)
============ ============ ============
Basic and diluted weighted average shares of common
stock outstanding 13,000,000 13,269,400 12,947,899
============ ============ ============
The accompanying notes to unaudited financial statements
are an integral part of these statements.
4
CYBEAR, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED CUMULATIVE FROM
MARCH 31, FEBRUARY 5, 1997
------------------------------ (INCEPTION) TO
1998 1999 MARCH 31, 1999
------------ ------------ --------------
Cash flows from operating activities:
Net loss $ (562,576) $ (1,514,913) $ (5,554,494)
Adjustments to reconcile net loss to net cash used in
operating activities -
Write-off of software license -- -- 159,897
Provision for litigation settlement -- -- 125,000
Depreciation and amortization 20,383 190,982 395,626
Changes in operating assets and liabilities:
Receivable from Blue Lake Ltd. -- 366,000 --
Prepaid expenses 11,903 (153,706) (348,091)
Other assets -- (20,800) (23,754)
Accounts payable (27,585) (539,844) 613,215
Accrued liabilities (39,385) 26,816 203,598
------------ ------------ ------------
Net cash used in operating activities (597,260) (1,645,465) (4,429,003)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (69,596) (1,053,936) (3,635,594)
Capitalized software development costs -- (55,000) (413,000)
Purchase of software license -- -- (160,000)
------------ ------------ ------------
Net cash used in investing activities (69,596) (1,108,936) (4,208,594)
------------ ------------ ------------
Cash flows from financing activities:
Advances from Andrx Corporation 666,856 4,475,897 11,733,076
Payments from Andrx Corporation for utilization of
Cybear's tax attributes -- (1,400,000) (3,300,000)
Proceeds from issuance of shares of common stock -- -- 500,000
Proceeds from promissory note issued for purchase
of shares of convertible preferred stock -- -- 30,000
------------ ------------ ------------
Net cash provided by financing activities 666,856 3,075,897 8,963,076
------------ ------------ ------------
Net increase in cash -- 321,496 325,479
Cash, beginning of period 1,000 3,983 --
------------ ------------ ------------
Cash, end of period $ 1,000 $ 325,479 $ 325,479
============ ============ ============
Supplemental disclosure of non-cash activities:
Conversion of due to Andrx into additional paid-in capital $ -- $ -- $ 3,012,452
============ ============ ============
The accompanying notes to unaudited financial statements
are an integral part of these statements.
5
CYBEAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1999
(1) GENERAL
In the opinion of management, the accompanying unaudited financial
statements have been prepared by Cybear, Inc. ("Cybear" or the "Company")
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations. However, management believes that the disclosures
contained herein are adequate to make the information presented not misleading.
The unaudited financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
The unaudited results of operations and the unaudited cash flows for the three
months ended March 31, 1999, are not necessarily indicative of the results of
operations or cash flows which may be expected for the remainder of 1999. The
unaudited financial statements should be read in conjunction with the financial
statements and related notes for the year ended December 31, 1998, included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(2) REGISTRATION STATEMENT
On April 20, 1999, the Company filed a registration statement for a
public offering of primary shares of its common stock. No assurance can be given
that this offering will be consummated.
(3) INCOME TAXES
Cybear's taxable results are included in the consolidated income tax
return of Andrx Corporation ("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. For the three months ended March 31, 1998,
the Company did not record any income tax provision or benefit. For the three
months ended March 31, 1999, the Company recorded $1,400,000 in income tax
benefit. The Company and Andrx have a tax allocation agreement that provides,
amongst 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 income tax benefit reflects
the reimbursement from Andrx for the utilization of Cybear's tax attributes
pursuant to the tax allocation agreement. As of March 31, 1999, Cybear did not
have any tax net operating loss carryforwards as all of Cybear's tax attributes
to date have been used by Andrx.
(4) NET LOSS PER SHARE
For the three months ended March 31, 1998 and 1999, 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.
6
CYBEAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1999
(5) 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
three months ended March 31, 1998 and 1999, 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 $30,000 for the three months ended March 31,
1998 and 1999, respectively.
The Company and Andrx have a tax allocation agreement that provides,
amongst 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 $1,400,000 for the three months ended March 31, 1999 reflecting the
reimbursement from Andrx for the utilization of Cybear's tax attributes pursuant
to the tax allocation agreement (see Note 3).
Due to Andrx in the accompanying unaudited 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 March 31, 1999) 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 $32,102
in interest expense on the Due to Andrx for the three months ended March 31,
1998 and $90,513 for the three months ended March 31, 1999. As of March 31,
1999, the Company has not paid any interest on the Due to Andrx.
The Company subleases 4,000 square feet of office space in Ridgefield
Park, New Jersey from Strategy Business and Technology Solutions, LLC, a company
owned by the chairman of the Company, 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. The Company recorded $33,125 in rent expense relative to this lease for
the three months ended March 31, 1999.
7
CYBEAR, INC.
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SOME OF THE INFORMATION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. FOR THIS PURPOSE, ANY
STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT STATEMENTS OF HISTORICAL FACT
MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
TYPICALLY ARE IDENTIFIED BY USE OF TERMS LIKE "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "ESTIMATE" AND SIMILAR WORDS, ALTHOUGH SOME FORWARD-LOOKING
STATEMENTS ARE EXPRESSED DIFFERENTLY. YOU SHOULD BE AWARE THAT THE ACTUAL
RESULTS OF CYBEAR, INC. ("CYBEAR" OR THE "COMPANY") 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 DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN OUR FILINGS WITH THE
U.S. SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
INTRODUCTION
Cybear, a Delaware corporation in the development stage, was
incorporated on February 5, 1997. As of March 31, 1999, Cybear was 94% owned by
Andrx Corporation ("Andrx"). Cybear is an information technology company using
the Internet and Internet-based applications designed to improve the efficiency
of day-to-day administrative and communications tasks of healthcare providers
that interact to manage patient care. 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 physicians,
physician organizations, pharmacies and hospitals. In March 1999, Cybear
introduced its first Solutions product, Solutions MD, which addresses the
communications and operational needs of physicians. Cybear's other Solutions
products, derived from Solutions MD, will provide Internet-based productivity
software applications and communication networks for other constituents of the
healthcare community. As of March 31, 1999, Cybear has not yet generated any
revenue from its Solutions MD product. From February 5, 1997 (inception) through
March 31, 1999, Cybear'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. Consequently, Cybear is considered to be in the development
stage for financial reporting purposes.
RECENT MERGER. 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 SEC to seek a business combination with an operating
entity. Upon consummation of the Merger, Cybear, Inc. (FL) became a wholly owned
subsidiary of 1997 Corp. and 1997 Corp. changed its name to Cybear, Inc. 1997
Corp. (now called Cybear, Inc.) remains the continuing registrant for SEC
reporting purposes. The Merger was intended to be a tax-free reorganization for
federal income tax purposes and was treated as a recapitalization of Cybear,
Inc. (FL) for accounting and financial reporting purposes. The result of the
Merger was that the holders of Cybear Inc. (FL)'s common stock prior to the
Merger own 13,000,000 shares of Cybear, Inc.'s common stock or approximately 98%
of Cybear, Inc.'s common stock and 1997 Corp.'s original shareholders own
269,400 shares of Cybear, Inc.'s common stock or approximately 2% of Cybear,
Inc.'s common stock. In March 1999, Cybear Inc. (FL) was merged into Cybear,
Inc.
8
PRODUCTS AND SOURCES OF REVENUE. Cybear introduced Solutions MD to the
healthcare community in March 1999. With respect to Solutions MD, Cybear
anticipates that its revenues will initially consist of recurring revenues from
product subscriptions. Solutions MD 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.
9
Cybear's strategy is to rapidly develop a broad customer base and a
source of revenue by marketing Solutions MD 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, Solutions MD, 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 Solutions MD by
introducing further products such as Solutions Net, Solutions Rx and Solutions
Hosp 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 Solutions MD 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 March 31, 1999, Cybear had an
accumulated deficit of $5,554,494. In addition, Cybear intends to continue to
invest heavily in its product development, network operations, customer support,
sales and marketing and administrative areas. As a result, Cybear expects to
continue to incur substantial operating losses for the foreseeable future, and
may 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 Solutions MD and
their use of the site, market acceptance of Cybear's products, Cybear's ability
to release its connectivity products in a timely manner and attract advertisers
or sponsors for 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 its products 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.
10
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 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
THREE MONTHS ENDED MARCH 31, 1998 ("1998 QUARTER"), AS COMPARED TO THREE MONTHS
ENDED MARCH 31, 1999 ("1999 QUARTER").
Cybear had no revenues for the 1998 Quarter and the 1999 Quarter as it
is a development stage company.
Software development costs were $305,793 for the 1998 Quarter compared
to $494,311 for the 1999 Quarter. 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. The increase in the
software development costs for the 1999 Quarter reflects the progress and
expansion of Cybear's development activities.
Selling, general and administrative expenses were $224,681 for the 1998
Quarter compared to $2,330,604 for the 1999 Quarter. Selling, 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 selling, general and administrative expenses for the
1999 Quarter relates to the establishment of the administrative, selling and
marketing and customer support infrastructure and the establishment of a network
operations center.
Interest expense was $32,102 for the 1998 Quarter compared to $90,513
for the 1999 Quarter. Interest expense represents interest on advances from
Andrx under the Credit Agreement between the two companies to fund Cybear's
operations. These net advances, including interest, amounted to $2,344,727 and
$5,420,624 at December 31, 1998 and March 31, 1999, respectively, and bear
interest at prime (7.75% at March 31, 1999) 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 $1,400,000
for the 1999 Quarter reflecting the reimbursement from Andrx for the utilization
of Cybear's tax attributes pursuant to the tax allocation agreement. As of March
31, 1999, Cybear did not have any tax net operating loss carryforwards as all of
Cybear's tax attributes to date have been used by Andrx.
11
LIQUIDITY AND CAPITAL RESOURCES
From February 5, 1997 (inception) through March 31, 1999, Cybear
incurred a net loss of $5,554,494 and has been and continues to be dependent
upon funding from Andrx. As of March 31, 1999, Cybear owed Andrx $5,420,624. As
of March 31, 1999, Cybear had $325,479 in cash and a working capital deficit of
$5,688,867 comprised mainly of the Due to Andrx of $5,420,624.
Net cash used in operating activities for the 1998 Quarter was $597,260
compared to $1,645,465 for the 1999 Quarter. In the 1998 Quarter, net cash used
in operating activities was primarily attributable to Cybear's loss from
operations and decreases in accounts payable and accrued liabilities. In the
1999 Quarter, net cash used in operating activities was primarily attributable
to Cybear's loss from operations and decrease in accounts payable, offset by the
collection of the receivable from Blue Lake Ltd. (the "Landlord") reflecting the
Landlord's payment for a portion of the leasehold improvements incurred by
Cybear to its corporate headquarters and network operations center.
Net cash used in investing activities for the 1998 Quarter was $69,596
compared to $1,108,936 for the 1999 Quarter. In the 1998 Quarter, Cybear
invested $69,596 in capital expenditures consisting mainly of computer hardware
and software and furniture used in its software development activities. In the
1999 Quarter, Cybear invested $1,053,936 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, leasehold
improvements to the rented space housing its corporate headquarters and network
operations center and furniture for its corporate headquarters. Cybear also
capitalized $55,000 in software development costs associated with the
development of Solutions MD.
Net cash provided by financing activities for the 1998 Quarter was
$666,856 compared to $3,075,897 for the 1999 Quarter. In the 1998 Quarter, net
cash provided by financing activities consisted of advances from Andrx to fund
Cybear's operations. In the 1999 Quarter, 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
March 31, 1999) plus 1/2%.
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%.
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.
12
Cybear anticipates that its cash requirements will continue to increase
as it continues to expend substantial resources to build its infrastructure,
develop its products and establish its sales and marketing, network operations,
customer support and administrative organizations. Cybear currently anticipates
that its available cash resources and available funding from Andrx will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements through 1999. Based on Andrx's most recent financial
statements, Cybear believes that Andrx currently has the resources to fund
Cybear's cash requirements through 1999.
On April 20, 1999, the Company filed a registration statement for a
public offering of primary shares of its common stock. If the offering is
consummated, the Company will have sufficient funds to conduct its business for
at least the next twelve months. No assurance can be given that this 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 the end of the 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 April 30, 1999, it had completed approximately 45% 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 55% of the initiatives are in process and expected to be completed on
or about the end of 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. For those significant vendors
and service providers that have not provided written assurance that they are
Year 2000 compliant, Cybear is developing contingency plans to address issues
that might arise from interfaces with such entities.
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 report, Cybear had incurred costs of
approximately $55,000 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.
13
Cybear has initiated a 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 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.
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CYBEAR, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K:
None
15
CYBEAR, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereonto duly authorized.
By: /s/ EDWARD E. GOLDMAN, M.D.
-------------------------------------------
Name: Edward E. Goldman, M.D.
Title: President and Chief Executive Officer
(Principal Executive and Financial Officer)
By: /s/ CLAUDE BERTRAND
--------------------------------
Name: Claude Bertrand
Title: Vice President and Controller
(Principal Accounting Officer)
May 14, 1999
16
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule