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 June 30, 1999
Commission File No. 0-26389
CYBEAR, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3936988
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Blue Lake Drive, Suite 200
Boca Raton, Florida 33431
- ------------------------------- -------------------
(Address of principal (Zip Code)
executive offices)
(561) 999-3500
----------------------------------------------------
(Registrant's telephone number, including area code)
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 17,184,787
(as of August 3, 1999).
DOCUMENTS INCORPORATED BY REFERENCE
None
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CYBEAR, INC.
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Balance Sheets
as of June 30, 1999 and December 31, 1998 3
Unaudited Statements of Operations
for the three and six months ended
June 30, 1999 and 1998 4
Unaudited Statements of Cash Flows
for the six months ended
June 30, 1999 and 1998 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
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CYBEAR, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CYBEAR, INC.
UNAUDITED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50,907,296 $ 3,983
Accounts receivable 25,000 --
Receivable from Blue Lake Ltd. -- 366,000
Prepaid expenses and other current assets 321,764 194,385
------------ ------------
Total current assets 51,254,060 564,368
Property and equipment, net 3,561,716 2,406,629
Product development costs, net 438,592 358,000
Other assets 746,317 2,954
------------ ------------
Total assets $ 56,000,685 $ 3,331,951
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 902,228 $ 1,153,059
Accrued liabilities 547,037 301,782
Due to Andrx Corporation -- 2,344,727
------------ ------------
Total current liabilities 1,449,265 3,799,568
------------ ------------
Commitments and contingencies (Note 6)
Shareholders' equity (deficit):
Convertible preferred stock, $.01 par value;
2,000,000 shares authorized, none issued and
outstanding at June 30, 1999 and December 31, 1998 -- --
Common stock, $.001 par value; 25,000,000 shares
authorized, 17,184,787 shares issued and
outstanding at June 30, 1999 and 13,269,400
shares issued and outstanding at December 31, 1998 17,185 13,269
Additional paid-in-capital 61,878,806 3,558,695
Accumulated deficit (7,344,571) (4,039,581)
------------ ------------
Total shareholders' equity (deficit) 54,551,420 (467,617)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 56,000,685 $ 3,331,951
============ ============
</TABLE>
The accompanying notes to unaudited financial statements are an integral
part of the balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
CYBEAR, INC.
UNAUDITED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Subscription revenue $ 27,171 $ -- $ 27,171 $ --
------------ ------------ ------------ ------------
Operating expenses:
Network operations and operations support 748,821 112,940 1,531,558 127,486
Product development 517,662 428,643 983,010 734,414
Sales and marketing 938,308 144,527 1,669,170 259,274
General and administrative 660,983 79,558 1,315,970 154,585
Depreciation and amortization 299,110 34,915 490,091 55,298
------------ ------------ ------------ ------------
Total operating expenses 3,164,884 800,583 5,989,799 1,331,057
------------ ------------ ------------ ------------
Loss from operations (3,137,713) (800,583) (5,962,628) (1,331,057)
Other income (expense):
Interest expense on due to Andrx Corporation (125,669) (47,547) (216,182) (79,649)
Interest income 49,236 -- 49,751 --
------------ ------------ ------------ ------------
Loss before income taxes (3,214,146) (848,130) (6,129,059) (1,410,706)
Income tax benefit 1,424,069 -- 2,824,069 --
------------ ------------ ------------ ------------
Net loss $ (1,790,077) $ (848,130) $ (3,304,990) $ (1,410,706)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.13) $ (0.07) $ (0.25) $ (0.11)
============ ============ ============ ============
Basic and diluted weighted average shares of common
stock outstanding 13,578,994 13,000,000 13,425,052 13,000,000
============ ============ ============ ============
</TABLE>
The accompanying notes to unaudited financial statements are an
integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
CYBEAR, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,304,990) $ (1,410,706)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 490,091 55,298
Write-off of capitalized product development costs 50,372 --
Changes in operating assets and liabilities:
Account receivable (25,000) --
Receivable from Blue Lake Ltd. 366,000 --
Prepaid expenses and other current assets (127,379) 4,442
Other assets (689,133) (10,722)
Accounts payable (250,831) 41,935
Accrued liabilities 245,255 42,767
------------ ------------
Net cash used in operating activities (3,245,615) (1,276,986)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,566,824) (135,461)
Product development costs (173,186) --
------------ ------------
Net cash used in investing activities (1,740,010) (135,461)
------------ ------------
Cash flows from financing activities:
Advances from Andrx Corporation, net of utilization
of Cybear's tax attributes 5,101,466 1,416,125
Net proceeds from issuance of shares of common stock 50,787,472 --
------------ ------------
Net cash provided by financing activities 55,888,938 1,416,125
------------ ------------
Net increase in cash and cash equivalents 50,903,313 3,678
Cash and cash equivalents, beginning of period 3,983 1,000
------------ ------------
Cash and cash equivalents, end of period $ 50,907,296 $ 4,678
============ ============
Supplemental disclosure of non-cash activities:
Conversion of due to Andrx Corporation into shares of common stock $ 7,446,193 $ --
============ ============
</TABLE>
The accompanying notes to unaudited financial statements are an
integral part of these statements.
5
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CYBEAR, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 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 for the three and six months ended June 30,
1999 and the unaudited cash flows for the six months ended June 30, 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.
In the three months ended June 30, 1999, for financial reporting
purposes, Cybear emerged from the development stage.
Cybear's comprehensive losses and net losses are the same for all
periods presented.
(2) REGISTRATION STATEMENT
In June 1999, the Company successfully completed the public offering of
3,450,000 shares of its common stock, raising approximately $50.8 million in net
proceeds.
(3) REVENUE RECOGNITION
Revenue for the three and six months periods ended June 30, 1999
represents subscriptions to the Company's Solutions MD product. Revenue is
earned when the Company's services are provided. The Company has entered into
certain agreements with medical organizations (see Note 6) to provide the
Company's services to the organization's members in exchange for various
consulting services. Certain of these agreements result in a net cash outflow.
Such agreements with net cash outflows are reflected as barter revenue below.
The Company is currently further evaluating the value of such agreements and may
make changes in future periods to its revenue recognized in the three and six
months periods ended June 30, 1999. Revenue recorded in the three and six months
periods ended June 30, 1999 has not been significant as the Company has recently
emerged from the development stage. Revenue recorded in the three and six month
periods ended June 30, 1999 consists of the following:
Barter agreements $25,000
Cash subscriptions 2,171
-------
$27,171
=======
6
<PAGE>
CYBEAR, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
(4) INCOME TAXES
Cybear's taxable results were included in the consolidated income tax
return of Andrx Corporation ("Andrx") as long as Andrx owned at least 80% of the
common stock of Cybear. The Company and Andrx have a tax allocation agreement
that provides, among other things, for the allocation of federal income tax
liabilities or benefits to the Company at the approximate amounts which would
have been computed as if the Company had filed separate income tax returns.
Cybear's taxable results through the completion of the public offering (see Note
2) will be included in the consolidated income tax return of Andrx. Upon
completion of the public offering in June 1999, Andrx's ownership in Cybear was
reduced below 80%, from approximately 96% to approximately 76%. Consequently,
Cybear will thereafter file its income tax returns separately. For the three and
six months ended June 30, 1999, the Company recorded $1,424,069 and $2,824,069,
respectively, in income tax benefit. The income tax benefit reflects the
reimbursement from Andrx for the utilization of Cybear's tax attributes pursuant
to the tax allocation agreement. For the three and six months ended June 30,
1998, the Company did not record any income tax provision or benefit as Andrx
could not utilize Cybear's tax attributes.
(5) NET LOSS PER SHARE
For all periods presented, 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) COMMITMENTS
In May 1999, the Company entered into a one-year agreement with Genesis
Health Ventures, Inc. ("Genesis"). Pursuant to the agreement, Genesis will
provide consulting services concerning providers' and facilities' information
needs, workflows and reimbursement structures of the long term care industry. In
addition, Genesis will promote the installation and use of Solutions MD to 500
of its provider physicians. In consideration thereof, Cybear will pay Genesis
$150,000 for the consulting services with $50,000 payable on the date of the
agreement and $25,000 at the end of each quarter thereafter provided that
Solutions MD is installed and used by an additional 125 Genesis providers each
quarter. In addition, Cybear will provide Solutions MD to the Genesis providers
with no monthly subscription fee during the term of the agreement.
In May 1999, Cybear entered into a five-year renewable consulting
agreement with Innovative Clinical Solutions, Ltd. formerly known as PhyMatrix
Management Company, Inc. ("PhyMatrix") superceding the previous three-year
agreement entered in February 1999. In exchange for a $1 million consulting fee
to be paid by Cybear, PhyMatrix will make reasonable good faith efforts to cause
healthcare professionals employed by or in connection with any medical practice
managed by or affiliated with PhyMatrix to subscribe to Solutions MD, to market
Solutions MD to others, and to present Cybear with advertisers wishing to
advertise on Solutions MD. PhyMatrix also agreed to pay Cybear $600,000
representing the 24 subscription months for the first 1,000 subscribers obtained
from PhyMatrix. In addition, Cybear and PhyMatrix will share revenues generated
from subscribers and advertisers provided by Phymatrix.
7
<PAGE>
CYBEAR, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
(6) COMMITMENTS (CONTINUED)
On June 1, 1999, the Company entered into an agreement with Cox
Interactive Media, Inc. ("CIM"), an operator of web sites and other online and
interactive services in over twenty cities in the U.S. The agreement has a
25-month term beginning on June 1, 1999, and may be extended by mutual
agreement. Under the terms of the agreement, the Company will, by September 1,
1999, provide healthcare-related content for new health channels that CIM will
include on 23 of its existing web sites and 6 future web sites and the Company's
logo will appear on the initial health channel page of the CIM web sites.
Additionally, the Company's products will be advertised on the CIM web sites.
The Company will pay to CIM a fee of $3,625,000 in monthly installments during
the term of the agreement in exchange for CIM's implementing, updating and
maintaining the Internet portal box that will appear on the new health channels
to be included on CIM's web sites and for advertising services CIM will provide
to the Company.
(7) RELATED PARTY TRANSACTIONS
The Company and Andrx have a corporate services agreement whereby Andrx
provides the Company with various services of its management. For the three and
six months ended June 30, 1999 and 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 $30,000 for both the three months ended June 30,
1999 and 1998, respectively, and $60,000 for both the six months ended June 30,
1999 and 1998, respectively.
Cybear's taxable results will be included in the consolidated income
tax return of Andrx as long as Andrx owned at least 80% of the common stock of
Cybear. The Company and Andrx have a tax allocation agreement that provides,
among other things, for the allocation of federal income tax liabilities or
benefits 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 $1,424,069 and $2,824,069, for the three and six
months ended June 30, 1999, respectively, reflecting the reimbursement from
Andrx for the utilization of Cybear's tax attributes pursuant to the tax
allocation agreement (see Note 4).
Due to Andrx in the accompanying balance sheet as of December 31, 1998,
represented advances from Andrx to fund the Company's operations and the related
accrued interest. Such advances bore interest at prime plus 1/2%. Upon
completion of the public offering in June 1999 (see Note 2), Andrx converted its
advances due from Cybear, net of the reimbursement for tax attributes described
above, to Cybear's capital in exchange of 465,387 shares of Cybear common stock
at the public offering price of $16.00 per share. The Company recorded $125,669
and $216,182 in interest expense on the Due to Andrx for the three and six
months ended June 30, 1999, respectively, and $47,547 and $79,649 for the three
and six months ended June 30, 1998, respectively.
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 and $66,250 in rent expense relative to
this lease for the three and six months ended June 30, 1999, respectively.
8
<PAGE>
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. READERS 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. READERS 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, was incorporated on February 5, 1997.
Cybear, Inc. is an information technology company using the Internet and
Internet-based applications to improve the efficiency of day-to-day
administrative and communications tasks of healthcare providers that interact to
manage patient care. Cybear is developing its Solutions product line, an
Internet Service Provider system designed to provide information and
Internet-based productivity applications to physicians, physician organizations,
pharmacies, hospitals and consumers.
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. In the three months ended June
30, 1999, Cybear has emerged from the development stage for financial reporting
purposes. In June 1999, the Company successfully completed a public offering of
3,450,000 shares of its common stock, raising approximately $50.8 million in net
proceeds. As of June 30, 1999, Cybear was approximately 76% owned by Andrx
Corporation ("Andrx").
Cybear has incurred net operating losses and negative cash flows from
operating activities since its inception. As of June 30, 1999, Cybear had an
accumulated deficit of approximately $7.3 million. In addition, Cybear intends
to continue to invest heavily in product development, network operations,
customer support, sales and marketing and administrative areas. As a result,
Cybear expects to continue to incur substantial operating losses for the
foreseeable future, and may never achieve or sustain profitability.
9
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 ("1999 QUARTER"), AS COMPARED TO THREE MONTHS
ENDED JUNE 30, 1998 ("1998 QUARTER").
Cybear had $27,171 in revenues for the 1999 Quarter and had no revenues
for the 1998 Quarter. Revenue for the 1999 Quarter represents subscriptions to
the Company's Solutions MD product, as well as from certain barter agreements
(see Note 3 to the accompanying unaudited financial statements).
Network operations and operations support costs were $748,821 for the
1999 Quarter compared to $112,940 for the 1998 Quarter. Network operations and
operations support costs consist primarily of personnel and related costs
associated with operating the network operations center and providing customer
support, telecommunications costs, content fees and maintenance expense on
computer hardware and software. The increase in network operations and
operations support costs for the 1999 Quarter related to the establishment of
the network operations center and the development of the operations support
infrastructure.
Product development costs were $517,662 for the 1999 Quarter compared
to $428,643 for the 1998 Quarter. Product 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
product development costs for the 1999 Quarter reflects the progress and
expansion of Cybear's development activities.
Sales and marketing expenses were $938,308 for the 1999 Quarter
compared to $144,527 for the 1998 Quarter. Sales and marketing expenses consist
primarily of salaries and personnel related costs and costs of developing and
distributing promotional material. The increase in sales and marketing expenses
for the 1999 Quarter related primarily to the establishment of the selling and
marketing infrastructure and the development and distribution of promotional
material.
General and administrative expenses were $660,983 for the 1999 Quarter
compared to $79,558 for the 1998 Quarter. General and administrative expenses
consist primarily of salaries and personnel related expenses for executives and
administrative functions, housing expenses and professional fees. The increase
in general and administrative expenses for the 1999 Quarter related to the
establishment of the administrative infrastructure.
Depreciation and amortization expense was $299,110 for the 1999 Quarter
compared to $34,915 for the 1998 Quarter. Depreciation and amortization expense
consists primarily of the depreciation and amortization of property and
equipment and of capitalized product development costs. The increase in
depreciation and amortization for the 1999 Quarter resulted primarily from
Cybear's purchases 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.
Interest expense was $125,669 for the 1999 Quarter compared to $47,547
for the 1998 Quarter. Interest expense represented interest on due to Andrx
under the credit agreement between the two companies to fund Cybear's
operations. Upon completion of the public offering in June 1999, Andrx converted
its advances due from Cybear, net of the reimbursement for tax attributes, to
Cybear's capital in exchange of 465,387 shares of Cybear common stock at the
public offering price of $16.00 per share.
Cybear had interest income of $49,236 for the 1999 Quarter and had no
interest income for the 1998 Quarter. The interest income resulted primarily
from the investments in money market funds of the net proceeds of $50.8 million
generated from the public offering of 3,450,000 shares completed in June 1999.
10
<PAGE>
Cybear's taxable results through the completion of the public offering
in June 1999 were included in the consolidated income tax return of Andrx.
Cybear's taxable results were included in the consolidated income tax return of
Andrx as long as Andrx owned 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 or benefits 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 $1,424,069 for the
1999 Quarter reflecting the reimbursement from Andrx for the utilization of
Cybear's tax attributes pursuant to the tax allocation agreement.
SIX MONTHS ENDED JUNE 30, 1999 ("1999 PERIOD"), AS COMPARED TO SIX MONTHS ENDED
JUNE 30, 1998 ("1998 PERIOD").
Cybear had revenues of $27,171 for the 1999 Period and had no revenues
for the 1998 Period. Revenue for the 1999 Period represents subscriptions to the
Company's Solutions MD product as well as from certain barter agreements (see
Note 3 to the accompanying unaudited financial statements).
Network operations and operations support costs were $1.5 million for
the 1999 Period compared to $127,486 for the 1998 Period. The increase in
network operations and operations support costs for the 1999 Period related to
the establishment of the network operations center and the development of the
operations support infrastructure.
Product development costs were $983,010 for the 1999 Period compared to
$734,414 for the 1998 Period. The increase in the product development costs for
the 1999 Period reflects the progress and expansion of Cybear's development
activities.
Sales and marketing expenses were $1.7 million for the 1999 Period
compared to $259,274 for the 1998 Period. The increase in sales and marketing
expenses for the 1999 Period related primarily to the establishment of the
selling and marketing infrastructure and the development and distribution of
promotional material.
General and administrative expenses were $1.3 million for the 1999
Period compared to $154,585 for the 1998 Period. The increase in general and
administrative expenses for the 1999 Period related to the establishment of the
administrative infrastructure.
Depreciation and amortization expense was $490,091 for the 1999 Period
compared to $55,298 for the 1998 Period. The increase in depreciation and
amortization for the 1999 Period resulted primarily from the Company's purchases
of computer hardware and software used in the establishment of its network
operations center and the development of its products, and leasehold
improvements to the rented space housing its corporate headquarters and network
operations center.
Interest expense was $216,182 for the 1999 Period compared to $79,649
for the 1998 Period. Interest expense represented interest on due to Andrx under
the credit agreement between the two companies to fund Cybear's operations.
Cybear had interest income of $49,751 for the 1999 Period and had no
interest income for the 1998 Period. The interest income resulted primarily from
the investments in money market funds of the net proceeds of $50.8 million
generated from the public offering of 3,450,000 shares completed in June 1999.
Cybear recorded a tax benefit of $2,824,069 for the 1999 Period
reflecting the reimbursement from Andrx for the utilization of Cybear's tax
attributes pursuant to the tax allocation agreement.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, Cybear had $50.9 million in cash and cash
equivalents and a working capital of $49.8 million compared with a working
capital deficit of $3.2 million as of December 31, 1998. The increase in working
capital was primarily a result of the successful completion of a public offering
in June 1999 and the conversion of the due to Andrx into shares of common stock
of Cybear at the public offering price of $16.00 per share.
Net cash used in operating activities for the 1999 Period was $3.2
million compared to $1.3 million for the 1998 Period. In the 1999 Period, net
cash used in operating activities was primarily attributable to Cybear's loss
from operations and increase in other assets, offset by the depreciation and
amortization expense and the collection of the receivable from Blue Lake Ltd.
reflecting Blue Lake Ltd.'s reimbursement for a portion of the leasehold
improvements incurred by Cybear for its corporate headquarters and network
operations center. The increase in other assets results primarily from the
payment of a portion of the consulting fee to Innovative Clinical Solutions,
Ltd. formerly known as PhyMatrix Management Company, Inc. and payment to Cox
Interactive Media, Inc. (see Note 6 to the accompanying unaudited financial
statements). In the 1998 Period, net cash used in operating activities was
primarily attributable to Cybear's loss from operations.
Net cash used in investing activities for the 1999 Period was $1.7
million compared to $135,461 for the 1998 Period. In the 1999 Period, Cybear
invested $1.6 million 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 $173,186 in product
development costs associated with the development of Solutions MD and Solutions
Rx. In the 1998 Period, Cybear invested $135,461 in capital expenditures
consisting mainly of computer hardware and software and furniture used in its
product development activities.
Net cash provided by financing activities for the 1999 Period was $55.9
million compared to $1.4 million for the 1998 Period. In the 1999 Period, net
cash provided by financing activities consisted of $50.8 million in net proceeds
generated from the public offering of 3,450,000 shares of common stock of the
Company and $5.1 million of advances from Andrx to fund Cybear's operations, net
of the reimbursement from Andrx for the utilization of Cybear's tax attributes
pursuant to the tax allocation agreement. In the 1998 Period, net cash provided
by financing activities consisted of advances from Andrx to fund Cybear's
operations.
From time to time, Cybear may be involved in litigation relating to
claims arising out of its operations in the normal course of business. Cybear is
not currently a party to any legal proceeding or aware of any other claim, the
adverse outcome of which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Cybear's business, operating
results and financial condition.
Cybear anticipates that its cash requirements will continue to increase
as it continues to expend substantial resources to build its infrastructure,
develop its products and establish its sales and marketing, network operations,
customer support and administrative organizations. Cybear currently anticipates
that its available cash resources will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for the next
twelve months.
12
<PAGE>
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 in the fourth 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 June
30, 1999, it had completed approximately 60% 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 40% of
the initiatives are in process.
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 has developed or 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 $65,000 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.
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.
13
<PAGE>
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.
14
<PAGE>
CYBEAR, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on June 1, 1999 reporting under
Item 5 "Other Events" the Company's entering into an agreement with Cox
Interactive Media, Inc. No financial statements were required to be filed.
15
<PAGE>
CYBEAR, INC.
SIGNATURES
Pursuant to the requirements of the Securities 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 Officer)
By: /s/ Jack Greenman
-----------------------------------------------------------
Name: Jack Greenman
Title: Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
August 16, 1999
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 50,907,296
<SECURITIES> 0
<RECEIVABLES> 25,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,254,060
<PP&E> 4,148,482
<DEPRECIATION> (586,766)
<TOTAL-ASSETS> 56,000,685
<CURRENT-LIABILITIES> 1,449,265
<BONDS> 0
0
0
<COMMON> 17,185
<OTHER-SE> 54,534,235
<TOTAL-LIABILITY-AND-EQUITY> 56,000,685
<SALES> 0
<TOTAL-REVENUES> 27,171
<CGS> 0
<TOTAL-COSTS> 5,989,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,182
<INCOME-PRETAX> (6,129,059)
<INCOME-TAX> 2,824,069
<INCOME-CONTINUING> (3,304,990)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,304,990)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
