U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file number 0-20356
CYBER-CARE, INC.
----------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0158479
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1903 S. CONGRESS AVENUE, SUITE 400, BOYNTON BEACH, FLORIDA 33426
----------------------------------------------------------------
(Address of principal executive offices)
(561) 737-2227
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s)), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The registrant has one class of common stock, $0.0025 par value, of which
64,785,253 shares were outstanding as of October 31, 2000.
<PAGE>
CYBER-CARE, INC.
10-QSB QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
FORM 10-QSB FORM 10-QSB FORM 10-QSB
PART NO. ITEM NO. DESCRIPTION PAGE NO.
I. FINANCIAL INFORMATION
1. Financial Statements (Unaudited)
- Condensed Consolidated Balance Sheet
as of September 30, 2000 3
- Condensed Consolidated Statements of
Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 4
- Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 5
- Notes to Condensed Consolidated
Financial Statements 8
2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
II. OTHER INFORMATION
1. Legal Proceedings 20
2. Changes in Securities and Use of Proceeds 20
3. Defaults Upon Senior Securities 21
4. Submission of Matters to a Vote of
Security Holders 21
5. Other Information 21
6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
<PAGE>
CYBER-CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................................. $ 11,260,246
Marketable securities ...................................... 15,208,950
Trade accounts receivable, net ............................. 5,056,433
Net assets of discontinued operations ...................... 8,868,236
Inventories ................................................ 3,445,005
Current maturities of notes receivable - related parties ... 1,777,679
Prepaid expenses and other current assets .................. 803,186
-------------
Total current assets .................................. 46,419,735
Property and equipment, net ................................ 2,110,551
Notes receivable - related parties, less current maturities 1,778,281
Intangibles, net ........................................... 17,313,598
Other assets ............................................... 3,209,537
-------------
Total assets .......................................... $ 70,831,702
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................... $ 1,560,282
Accrued liabilities ........................................ 2,315,725
Lines of credit ............................................ 1,304,377
Other current liabilities .................................. 164,270
-------------
Total current liabilities ............................. 5,344,654
Other liabilities .......................................... 154,608
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Total liabilities ..................................... 5,499,262
-------------
Commitments and contingencies ................................. -
Shareholders' Equity:
Preferred stock, 20,000,000 shares authorized; 19,800,000
shares available for issuance ......................... -
Common stock, $0.0025 par value, 200,000,000 shares
authorized; 64,770,624 shares issued and outstanding .. 161,927
Capital in excess of par ................................. 122,585,634
Stock subscription receivable ............................ (3,915,168)
Accumulated other comprehensive loss ..................... (2,208)
Accumulated deficit ...................................... (53,497,745)
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Total shareholders' equity ............................ 65,332,440
-------------
Total liabilities and shareholders' equity ............ $ 70,831,702
=============
The Accompanying Notes Are An Integral Part of the
Condensed Consolidated Financial Statements
3
<PAGE>
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue from operations .................................... $ 4,534,746 $ 5,035,371 $ 14,129,990 $ 11,738,998
------------ ------------ ------------ ------------
Costs and expenses:
Costs of services .................................... 2,777,610 1,851,668 8,989,724 4,479,206
Selling, general and administrative .................. 4,113,406 1,670,577 9,972,930 5,502,583
Research, development and engineering ................ 1,838,234 - 5,035,377 -
Depreciation and amortization ........................ 312,556 223,297 1,216,121 523,824
------------ ------------ ------------ ------------
Total costs and expenses ................. 9,041,806 3,745,542 25,214,152 10,505,613
------------ ------------ ------------ ------------
Operating (loss) income .................................... (4,507,060) 1,289,829 (11,084,162) 1,233,385
Other income (expense):
Interest income ...................................... 712,472 34,728 1,613,973 63,206
Interest expense ..................................... (223,639) (108,120) (886,185) (646,406)
Interest - beneficial conversion feature ............. - (132,156) (657,321) (884,289)
Gain on sale of subsidiary ........................... - - - 1,255,959
Write-off of investment in equity securities ......... - - (2,423,629) -
Other income ......................................... 5,353 76,790 17,877 167,090
------------ ------------ ------------ ------------
Total other income (expense) ............... 494,186 (128,758) (2,335,285) (44,440)
------------ ------------ ------------ ------------
(Loss) income from continuing operations ................... (4,012,874) 1,161,071 (13,419,447) 1,188,945
Loss from discontinued operations .......................... (943,662) (925,971) (1,626,503) (330,516)
------------ ------------ ------------ ------------
Net (loss) income .......................................... $ (4,956,536) $ 235,100 $(15,045,950) $ 858,429
============ ============ ============ ============
(Loss) income per share of common stock:
Basic (loss) income per common share:
(Loss) income from continuing operations ......... $ (0.06) $ 0.04 $ (0.22) $ 0.04
Discontinued operations .......................... (0.02) (0.03) (0.03) (0.01)
------------ ------------ ------------ ------------
Net (loss) income ................................ $ (0.08) $ 0.01 $ (0.25) $ 0.03
============ ============ ============ ============
Diluted (loss) income per common share:
(Loss) income from continuing operations ......... $ (0.06) $ 0.03 $ (0.22) $ 0.04
Discontinued operations .......................... (0.02) (0.02) (0.03) (0.01)
------------ ------------ ------------ ------------
Net (loss) income ................................ $ (0.08) $ 0.01 $ (0.25) $ 0.03
============ ============ ============ ============
Weighted average shares outstanding:
Basic ............................................ 64,706,447 30,752,747 59,924,005 26,058,396
============ ============ ============ ============
Diluted .......................................... 64,706,447 35,793,678 59,924,005 30,149,801
============ ============ ============ ============
</TABLE>
The Accompanying Notes Are An Integral Part of the
Condensed Consolidated Financial Statements
4
<PAGE>
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
(Loss) income from continuing operations ....................................................... $(13,419,447) $ 1,188,945
Loss from discontinued operations .............................................................. (1,626,503) (330,516)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation .......................................................................... 190,006 176,759
Amortization .......................................................................... 1,026,115 347,065
Provision for doubtful accounts ....................................................... 876,977 15,577
Write-off of investment in equity securities .......................................... 2,423,629 -
Interest - beneficial conversion feature .............................................. 657,321 884,289
Gain on sale of investments ........................................................... - (76,790)
Common stock issued for services ...................................................... 141,250 84,032
Net liabilities of discontinued operations ............................................ (773,524) (418,243)
Net assets of discontinued operations ................................................. (1,039,896) (733,546)
Equity in income from unconsolidated company .......................................... - (90,300)
Gain on sale of subsidiary ............................................................ - (1,255,959)
Changes in operating assets and liabilities, net of effects from dispositions:
Trade accounts receivable ....................................................... (2,318,030) (402,198)
Inventories ..................................................................... (3,152,625) (67,831)
Prepaid expenses and other current assets ....................................... 75,669 (252,777)
Accounts payable ................................................................ 864,581 (851,270)
Accrued liabilities ............................................................. 980,019 (366,355)
------------ ------------
Net cash used in operating activities .................................................... (15,094,458) (2,149,118)
------------ ------------
Investing activities:
Purchase of marketable securities .............................................................. (15,211,158) -
Advances to related parties, net ............................................................... (3,757,049) -
Capital expenditures ........................................................................... (618,883) (265,682)
Proceeds from sale of investment in equity securities .......................................... - 60,833
Cash received from acquisitions, net ........................................................... - 96,825
Proceeds from sale of subsidiary ............................................................... - 352,000
Payment of notes receivable .................................................................... - 205,365
Change in intangible and other assets .......................................................... (170,248) (893,139)
------------ ------------
Net cash used in investing activities .................................................... (19,757,338) (443,798)
------------ ------------
Financing activities:
Principal payments on long-term debt ........................................................... (133,334) -
Net borrowings (repayments) under lines of credit .............................................. (2,477,215) (214,954)
Proceeds from exercise of stock options and warrants ........................................... 4,623,056 94,000
Proceeds from sale of common stock ............................................................. 27,565,533 -
Proceeds from convertible debentures ........................................................... 5,142,895 -
(Repayment) proceeds from subordinated debentures .............................................. (367,500) 2,800,000
------------ ------------
Net cash provided by financing activities ................................................ 34,353,435 2,679,046
------------ ------------
Net (decrease) increase in cash and cash equivalents ........................................... (498,361) 86,130
Cash and cash equivalents at the beginning of period ........................................... 11,758,607 698,574
------------ ------------
Cash and cash equivalents at the end of period ................................................. $ 11,260,246 $ 784,704
============ ============
</TABLE>
The Accompanying Notes Are An Integral Part of the
Condensed Consolidated Financial Statements
5
<PAGE>
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
Supplemental disclosure of cash flow information:
Cash payments for interest ....................... $ 439,396 $ 611,961
Supplemental disclosure of non-cash investing and financing activities:
In March 2000, the Company refinanced aircraft debt totaling $14,500,000 in
principal, calling for a fixed interest rate of 9.95%, payable over sixty months
with a balloon payment due April 1, 2005. As part of the refinancing, the
Company purchased an airplane, which was previously leased, for $1,175,000 and
upgraded its engine maintenance program for $1,111,258.
In March 2000, the Company repaid a $600,000 note by issuing 60,000 shares of
the Company's common stock.
During the nine months ended September 30, 2000, certain officers repaid a
portion of their notes, aggregating $1,625,875, due to the Company in exchange
for shares of outstanding common stock, which were held by the officers.
During the nine months ended September 30, 2000, the Company issued warrants
under a consulting agreement to purchase up to 200,000 common shares valued at
$368,000, at an exercise price of $5.00 per share.
During the nine months ended September 30, 2000, the Company issued 942 shares
of common stock valued at $21,077 as additional consideration for an acquisition
that was made in 1998. During the quarter ended September 30, 2000, the Company
issued 70,000 shares of common stock valued at $310,660 as additional
consideration for an acquisition that was made in 1999.
During the nine months ended September 30, 2000, the Company issued 8,985,998
common shares upon conversion of $16,174,288 of convertible debentures and
applied $6,173,787 of deferred financing costs to capital in excess of par.
During the nine months ended September 30, 2000, the Company issued 29,091
common shares to consultants for services rendered and valued at $141,250.
During the nine months ended September 30, 2000, the Company entered into an
operating agreement with a limited liability company. In accordance with this
operating agreement, the Company has contributed 200,000 common shares, valued
at $2,384,400.
During the nine months ended September 30, 2000, the Company issued 15,000
common shares to an unrelated party in order to purchase a domain name, valued
at $101,250.
During the nine months ended September 30, 2000, three directors exercised
options to purchase 447,600 shares of the Company's common stock by issuing
notes to the Company in the amount of $885,875 which bears interest at the
applicable federal rate (AFR). These notes are included within the stockholders'
equity section of the accompanying condensed consolidated balance sheet. Also
during the three months ended September 30, 2000, one of these directors repaid
his note to the Company by returning to the Company 70,903 shares, valued at
$450,875.
The Accompanying Notes Are An Integral Part of the
Condensed Consolidated Financial Statements
6
<PAGE>
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Effective March 1, 1999, the Company issued 3,866,667 common shares valued at
$2,900,000 ($0.75 per share) to acquire Air Response, Inc. Also, as discussed in
Note 2, during September 2000, the Company entered into an agreement to sell Air
Response, Inc. to a former member of the Board of Directors of Cyber-Care, Inc.
and to Air Response Medical Transport Corporation. In connection with this
agreement, 345,921 shares of common stock have been returned to the Company,
valued at $2,400,000.
On May 3, 1999, the Company sold Valley Pain Centers, Inc. ("Valley") to two
former officers of the Company for 1,544,036 shares of the Company's common
stock with a market value of $2,702,000 ($1.75 a share), cash and other
consideration of $352,000, and the repayment of approximately $300,000 of
liabilities owed by Valley, resulting in a gain of $1,255,959. The Company
retired 1,544,036 shares of the Company's common stock from this transaction.
During the nine months ended September 30, 1999, the Company issued 298,579
common shares in lieu of cash payments of penalties and interest owed on the
subordinated debentures valued at $292,503. Penalties were caused by a delay in
filing a registration statement.
During the nine months ended September 30, 1999, the Company issued 135,750
shares of the Company's common stock in lieu of services rendered valued at
$84,032.
During the nine months ended September 30, 1999, the Company issued 57,630
common shares as partial consideration for the purchase of operating assets. The
shares were valued at $62,500.
During the nine months ended September 30, 1999, the Company repurchased 54,806
common shares of the Company at $1.75 from a former officer and director. In
payment of all obligations due the former officer and director, the Company
issued a note in the amount of $100,000.
During the nine months ended September 30, 1999, the Company issued 75,000
shares of the Company's common stock in lieu of services rendered by two former
employees.
During the nine months ended September 30, 1999, the Company issued 40,000
shares as part of a 1998 settlement to a former employee.
Effective September 1, 1999, the Company exchanged 7,399,996 common shares of
the Company valued at $1.12 per share to acquire 100% of the outstanding stock
of Cybercare, Inc.
In partial payment on the sale of shares of Westmark common stock, the Company
received $272,500 of its outstanding preferred stock held by Westmark.
During the nine months ended September 30, 1999, the Company used 6,918,001
shares of the Company's common stock for conversion of subordinated debentures
totaling $5,000,000.
In July 1999, the Company issued 118,223 shares of the Company's common stock to
officers and employees in repayment of loans valued at $0.60 per share or
$70,934.
The value of the above shares was determined using the quoted market prices on
the dates the transactions took place.
The Accompanying Notes Are An Integral Part of the
Condensed Consolidated Financial Statements
7
<PAGE>
CYBER-CARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Cyber-Care, Inc. ("Cyber-Care" or the "Company") was incorporated in the
State of Florida on September 29, 1989 and commenced operations on February 27,
1990. The Company is a technology assisted health management company with three
business segments: Technology assisted disease management, physical,
occupational and speech therapy services and institutional pharmacy services. As
discussed in Note 2, during September 2000, the Company entered into an
agreement to sell its international air ambulance transport segment.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements have been
prepared by the Company and are unaudited pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information related to the
Company's significant accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. In the opinion of management, these unaudited condensed
consolidated financial statements reflect all material adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and consolidated results of operations for the
interim periods presented. These results are not necessarily indicative of a
full years results of operations. Certain reclassifications have been made to
the prior period financial statements to conform to the September 30, 2000
presentation.
Although the Company believes that the disclosures provided are adequate
to make the information presented not misleading, these unaudited interim
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
The Company's condensed consolidated financial statements include the
activity of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
8
<PAGE>
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as all changes in a Company's net
assets except changes resulting from transactions with shareholders. It differs
from net income (loss) in that certain items recorded to equity would be part of
comprehensive income (loss).
The Company has one comprehensive income statement item, the effect of
which was a loss of $2,208 at September 30, 2000. As a result, the Company's
comprehensive loss was $2,208 and $0 for the nine months ended September 30,
2000 and 1999, respectively.
(Loss) Earnings Per Common Share
Basic (loss) earnings per common share is computed using the weighted
average common shares outstanding. Diluted (loss) earnings per share is computed
based on the assumption that all of the convertible preferred stock and
convertible subordinated debentures are converted into common shares, and that
all stock options where the exercise price is less than the market value have
been considered exercised under the treasury stock method.
Under this assumption, the weighted average number of common shares
outstanding are increased accordingly. Options and warrants have been excluded
from the calculation of loss per common share for the three and nine months
ended September 30, 2000 because their effect would have been anti-dilutive.
Marketable Securities
The Company's marketable securities are considered "available for sale"
and, as such, are stated at market value. The net unrealized gains and losses on
marketable securities are reported as part of accumulated other comprehensive
loss. Realized gains and losses from the sale of marketable securities are based
on the specific identification method.
Reclassifications
Certain research, development and engineering costs related to the
Company's technology assisted disease management segment were included in costs
of services and selling, general and administrative expenses during the first
two quarters of 2000. During the third quarter, the Company reclassified
$284,622 and $854,260, respectively, of such amounts to research, development
and engineering expenses for the three months ended September 30, 2000. During
the third quarter, the Company reclassified $415,560 and $2,638,075,
respectively, of such amounts to research, development and engineering expenses
for the nine months ended September 30, 2000. No material research, development
and engineering costs were incurred during 1999. This reclassification did not
impact the Company's net loss per share as reported in previous quarters.
9
<PAGE>
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. The Company does not expect its implementation will
have a material effect on its reported operating results.
Note 2 - Acquisitions and Dispositions
On September 15, 2000, the Company entered into an agreement (the
"Agreement") to sell the subsidiaries that comprise its international air
ambulance transport segment to a former board member of the Company and to Air
Response Medical Transport Corp. ("Purchasers") for $8,500,000 plus assumption
of all debts related to the subsidiaries' operations. Under the terms of the
Agreement, the Purchasers paid $2,400,000 in Cyber-Care common stock and issued
a $6,100,000 short-term note bearing interest at 10%, which is collateralized by
substantially all of the air ambulance assets. The Purchasers also assumed all
of the segment's debt, which aggregated approximately $18,400,000, in accordance
with this agreement.
The Company is accounting for the Agreement as a discontinued operation
and has deferred the expected gain on disposal until the Purchasers repay the
note or otherwise fulfill all of their obligations under the agreement.
Accordingly, the Company has reflected the net assets of this segment, including
amounts owed as part of the Agreement, as "Net Assets of Discontinued
Operations," in the accompanying condensed consolidated balance sheet. The gain
that may result from this transaction has been offset by an accrual for
estimated future operating losses, which is also included in "Net Assets of
Discontinued Operations." In addition, the operating results of this segment
have been reported as a single line item in the condensed consolidated
statements of operations.
Effective September 1, 1999 the Company acquired 100% of the outstanding
common stock of Cybercare, Inc. in exchange for 7,324,996 shares of the
Company's common stock valued at $1.12 per share and options to purchase 934,997
shares of the Company's common stock with a fair value of $553,836 (the
"Acquisition"). The Acquisition was accounted for using the purchase method of
accounting. Accordingly, the net assets and revenue and expenses of Cybercare,
Inc. were included in the Company's consolidated financial statements from the
date of acquisition. The former shareholders of Cybercare, Inc. were given
registration rights, of which all shares have been registered as of September
30, 2000, which provided that if the fair market value of the Company's common
stock at the effective date of the registration statement is less than $1.50,
enough additional shares will be issued to ensure that those shareholders
receive at least $1.50 per share.
On May 3, 1999, the Company sold Valley Pain Centers, Inc. ("Valley" or
"Disposition") to two former officers of the Company for 1,544,036 shares of the
Company's common stock with a market value of $2,702,000 ($1.75 a share), cash
and other consideration of $352,000, and the repayment of approximately $300,000
of liabilities owed by Valley, which resulted in a gain on the sale of
$1,255,959. The Company retired 1,544,036 shares of the Company's common stock
from this transaction.
10
<PAGE>
The following unaudited pro forma financial data is presented to
illustrate the estimated effects on the consolidated results of operations as if
the Company's Acquisition and Disposition had occurred as of the beginning of
each calendar year presented after giving effect to certain adjustments,
including amortization of goodwill and related income tax effects. The pro forma
financial information does not purport to be indicative of the results of
operations that would have occurred had the transactions taken place at the
beginning of the periods presented or of future results of operations.
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
2000 1999
------------- ------------
Revenue ............................ $ 14,129,990 $ 10,741,468
Loss from continuing operations .... $ (13,419,447) $ (26,243)
Net loss ........................... $ (15,045,950) $ (365,759)
Net loss per common share
(basic and diluted) ................ $ (0.25) $ (0.01)
Note 3 - Private Placement
On February 28, 2000, the Company received approximately $11,000,000, less
underwriters' fees of approximately $1,000,000, by selling 500,000 shares of the
Company's common stock at $22 per share. The Company also issued warrants to
purchase up to 100,000 additional common shares at an exercise price of $31.50
per share.
On April 10, 2000, the Company received approximately $20,000,000, less
underwriters fees of approximately $2,403,000, by selling 1,295,546 shares of
the Company's common stock at $15.44 per share. The Company also issued warrants
to purchase up to 500,000 additional common shares at an exercise price of
$18.44 per share.
Note 4 - Joint Venture Agreement
On March 21, 2000, the Company entered into a definitive agreement which
calls for the Company and SIIC Medical Science and Technology Group Limited
(SIIC), a Hong Kong public company, to establish a joint venture corporation to
undertake the marketing, application and service rendering of the Company's
"Electronic Housecall System" System and future related technologies and
products within a defined Asian territory including China. The Company will
initially invest $500,000 (in cash and equipment) for a 33% interest in the
joint venture agreement. The Company, SIIC and the joint venture have agreed on
terms and conditions relating to licensing, distribution and manufacturing.
11
<PAGE>
Note 5 - Stock Dividend
During the quarter ended March 31, 2000, the Board of Directors of the
Company approved a 5% cash dividend (aggregating $425,000, or $0.005 per share)
to the common stock shareholders of record on March 31, 2000. The dividend has
been placed in escrow and will be paid when the entire proceeds from the sale
are received, as described further in Note 2.
Note 6 - Limited Liability Company
On April 3, 2000, the Company entered into an operating agreement with an
unrelated party, which resulted in the Company and the unrelated party
establishing a limited liability company. This limited liability company will
develop strategic alliances, possibly through mergers and acquisitions, with
other healthcare and technology companies for the benefit of its investors,
including the Company. In accordance with the operating agreement, the Company
invested an initial 100,000 shares of its common stock during April 2000 and an
additional 100,000 shares of its common stock during July 2000 in exchange for
an 18.5% interest in the limited liability company. This investment is being
recorded using the equity method of accounting.
Note 7 - Notes Receivable - Related Parties
During the period ended January 1, 2000 through October 31, 2000, the
Company advanced $400,000 to two directors of the Company. The notes are
collateralized by shares of the Company's common stock owned by the directors
which are being held by the Company and call for interest at the applicable
federal rate (AFR), which approximated 7.6% at September 30, 2000, and mature on
December 31, 2000. The balance of these notes at September 30, 2000 was
$321,643, including accrued interest.
During the period November 15, 1999 through May 15, 2000, the Company
advanced $642,000 to shareholders of Help Innovations, Inc. from which the
Company acquired certain assets on November 1, 1999. Each of the advances during
this period were secured by a pledge of the Company's common stock. The number
of shares pledged, valued at then market prices, equaled the amount of the
advances. On September 7, 2000, Help Innovations, Inc. repaid $142,000 in cash
to the Company and on October 23, 2000, returned pledged shares of the Company
valued at $163,591 with the remainder of the note being considered part of the
original purchase price in the amount of $336,409. This amount will be recorded
as additional goodwill.
12
<PAGE>
During the nine months ended September 30, 2000, the Company advanced
$400,000 to an officer of its air ambulance subsidiary. The note calls for
interest to be charged at 8.50% per annum and is due on or before March 31,
2001. The note is collateralized by 773,333 shares of common stock of the
Company, which are held by the officer. The balance at September 30, 2000 was
$415,836, including accrued interest.
During the nine months ended September 30, 2000, the Company advanced
$500,000 to an officer/director of the Company. The note calls for interest at
10% per annum and is due on March 18, 2003. The balance at September 30, 2000
was $518,493, including accrued interest.
During the nine months ended September 30, 2000, the Company advanced
various amounts totaling $50,300 to various officers. These amounts are due on
demand and are interest bearing. During the nine months ended September 30,
2000, $30,300 was repaid by certain officers to the Company. The balance at
September 30, 2000 was $21,167, including accrued interest.
During the nine months ended September 30, 2000, the Company advanced
$1,728,864 to a Corporation related to one of its rehabilitation subsidiaries.
This amount will be paid back as part of the sale of this rehabilitation
subsidiary as further discussed in Note 11.
Note 8 - Investment in Equity Securities
During the nine months ended September 30, 2000, the Company determined
that its investment in Westmark Group Holdings was permanently impaired and, as
a result, has reflected the entire $2,423,629 write-off in the accompanying
condensed consolidated statements of operations.
Note 9 - Litigation and Contingencies
The Company is engaged in litigation with various parties regarding
matters of dispute, which have arisen in the normal course of business. In most
cases where there is a material amount in dispute, the Company has the benefit
of indemnification from a third party. The Company anticipates that there will
not be a material impact on its financial condition or results of operations
from these matters.
As of November 10, 2000, the Company is aware of 14 purported class action
lawsuits that have been filed against Cyber-Care and certain of its executive
officers alleging violations of federal securities laws. The Complaints allege
that the Company made misrepresentations or omissions regarding the development
and future sales forecasts of its Electronic HouseCall System products. All of
the actions were filed in the United States District Court for the Southern
District of Florida and are in the process of being consolidated into one
action. The complaints seek unspecified damages and costs. The Company and the
executives believe the claims lack merit and they intend to vigorously defend
these lawsuits. However, the Company cannot predict the outcome of this
litigation or the impact that these lawsuits or any other suits, claims, or
investigations relating to the same subject matter may have on the Company's
liquidity or financial condition. In light of the foregoing, the liability, if
any, of the Company in relation to such possible claims cannot be estimated at
this time.
13
<PAGE>
Note 10 - Segment and Related Information
The Company's reportable segments are technology assisted disease
management, physical, occupational and speech therapy services and institutional
pharmacy services. As discussed in Note 2, the Company entered into an agreement
to sell its international air ambulance transport segment during September 2000.
TECHNOLOGY ASSISTED DISEASE MANAGEMENT offers the Electronic HouseCall(TM)
system, and other hardware and software products for use in disease management
services, data gathering and research. This segment is creating an Internet
technology-based telehealth network worldwide.
PHYSICAL, OCCUPATIONAL AND SPEECH THERAPY SERVICES provides physical,
occupational and speech therapy and pain rehabilitation services.
INSTITUTIONAL PHARMACY SERVICES is an institutional pharmacy located in
Lakeland, Florida, which provides unit-dosed medications to over 5,600 residents
in assisted-living facilities in Florida. Institutional Pharmacy Services
delivers medications to the facilities.
The Company evaluates the performance of its operating segments based
primarily on revenue from operations and income from continuing operations
before special costs and charges, such as beneficial conversion feature. Segment
information for the nine months ended September 30, 2000 and 1999 was as
follows:
For the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
PHYSICAL,
TECHNOLOGY OCCUPATIONAL AND
ASSISTED DISEASE SPEECH THERAPY INSTITUTIONAL
MANAGEMENT SERVICES PHARMACY SERVICES TOTAL
---------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenue from operations .......... $ 641,285 $ 8,774,553 $ 4,714,152 $ 14,129,990
(Loss) income from continuing
operations .................. (12,596,513) 1,007,595 (76,325) (11,665,243)
Depreciation and amortization .... 919,124 189,861 64,370 1,173,355
Total assets ..................... $ 17,970,495 $ 10,510,246 $ 2,683,029 $ 31,163,770
</TABLE>
For the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
PHYSICAL,
TECHNOLOGY OCCUPATIONAL AND
ASSISTED DISEASE SPEECH THERAPY INSTITUTIONAL
MANAGEMENT SERVICES PHARMACY SERVICES TOTAL
---------------- ---------------- ----------------- -----------
<S> <C> <C> <C> <C>
Revenue from operations........... $ 348,322 $ 6,630,157 $ 3,560,519 $10,538,998
(Loss) income from continuing
operations .................. (856,652) 745,857 272,423 161,628
Depreciation and amortization .... 12,401 334,981 70,709 418,091
Total assets ..................... $ 11,757,330 $ 8,217,367 $ 2,194,594 $22,169,291
</TABLE>
14
<PAGE>
Reconciliation to consolidated amounts:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Revenue:
Total revenue for reportable segments ................. $ 14,129,990 $ 10,538,998
Other revenues ........................................ - 1,200,000
---------------- ----------------
Total revenues from operations .................... $ 14,129,990 $ 11,738,998
================ ================
(Loss) income from continuing operations:
Segments .............................................. $ (11,665,243) $ 161,628
Unallocated amounts:
Interest-beneficial conversion feature .............. (657,321) (884,289)
Gain on sale of subsidiary .......................... - 1,255,959
Write-off of investment in equity securities ........ (2,423,629) -
Interest income ..................................... 1,606,701 60,581
Interest expense .................................... (483,208) (536,789)
Other income ........................................ 203,253 1,131,855
Loss from discontinued operations ................... (1,626,503) (330,516)
---------------- ----------------
Net (loss) income ....................................... $ (15,045,950) $ 858,429
================ ================
Total assets:
Total assets for reportable segments .................. $ 31,163,770 $ 22,169,291
Net assets of discontinued operations ................. 8,868,236 9,777,532
Corporate and other assets ............................ 30,799,696 5,402,032
---------------- ----------------
Total assets .......................................... $ 70,831,702 $ 37,348,855
================ ================
</TABLE>
Note 11- Subsequent Events
In October 2000, the Company entered in to a comprehensive settlement
agreement to sell one of its rehabilitation subsidiaries to the former owner.
The agreement calls for the Company to sell 100% of the stock in the subsidiary
in exchange for $3,600,000. The Company received $375,000 in cash and a note in
the amount of $3,225,000 bearing interest at 8.0% and payable over a four year
period. The note is secured by the stock of the former subsidiary and any
related entity of the former owner, as well as limited guarantees of the
principals. The terms of the agreement also call for the waiver of the Company's
shares or other contingent consideration, which would have been due to the
former owner under the terms of the original purchase agreement between the
Company and former owner of the rehabilitation subsidiary. Such shares on an
amortized basis could have aggregated approximately 2,000,000 shares. The
Company now anticipates a loss of approximately $1,200,000 from this
transaction, whereas it had anticipated a loss of approximately $2,800,000 as of
June 30, 2000.
In October 2000, the Company settled a contract dispute with a former
consultant for 75,000 shares of Company common stock valued at $377,340. This
amount was accrued as of September 30, 2000, and is included in selling, general
and administrative expenses in the accompanying condensed consolidated
statements of operations.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENT
This Quarterly Report on Form 10-QSB contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements involve risks and uncertainties, and the Company's
actual experience may differ materially from that anticipated in such
statements. Factors that might cause the Company's actual results to differ
materially from those indicated by such forward-looking statements include,
without limitation, changes in the regulation of the healthcare industry at
either the federal or state levels, changes in reimbursement for services by
government or private payors, competitive pressures in the healthcare industry
and the Company's response thereto, delays or inefficiencies in the introduction
of new products, the Company's dealings with customers and partners, on-going
capital expenditures, the Company's ability to obtain capital in favorable terms
and conditions, and general conditions in this economy.
The following discussion and analysis addresses the Company's results of
operations and financial condition and should be read in conjunction with the
Company's condensed consolidated unaudited Financial Statements listed in Part
I, Item I and the Notes thereto appearing elsewhere in this Form 10-QSB, and the
Company's audited Consolidated Financial Statements listed in Part II, Item 7
and the Notes thereto appearing in the Company's 1999 Annual Report on Form
10-KSB.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2000 AND 1999
Total revenue from operations decreased 9.9% to $4,534,746 for the three
months ended September 30, 2000 from $5,035,371 for the three months ended
September 30, 1999 because the Company had no management services revenue during
the three months ended September 30, 2000, but did have $1,200,000 in the prior
period. Net patient revenue increased 18.2% to $4,534,746 for the three months
ended September 30, 2000 from $3,835,371 for the three months ended September
30, 1999, due to increases in revenue in the physical, occupational and speech
therapy and institutional pharmacy segments. Physical, occupational and speech
therapy segment revenue increased due to two rehabilitation acquisitions in late
1999 and several new location openings. Institutional Pharmacy Services has
continued to grow as a result of adding additional adult living facility
customers. Cybercare Technologies, which was purchased by the Company in
September 1999 and is in the process of developing, producing and distributing
its Internet technology-based telehealth network and Electronic HouseCall(TM)
(EHC) system, generated only nominal revenues during the quarter ended September
30, 2000.
16
<PAGE>
Cost of services, which includes payroll, materials and other expenses
directly associated with our services, increased 50.0% from $1,851,668 for the
three months ended September 30, 1999 to $2,777,610 for the three months ended
September 30, 2000. The increase is due to incremental expenses resulting from
the rehabilitation business acquisitions and new facility openings and expansion
of the institutional pharmacy business. In addition, the technology segment has
incurred implementation costs related to operations infrastructure associated
with the development of the telehealth network and EHC system.
Selling, general and administrative expenses increased 146.2%, to
$4,113,406, for the three months ended September 30, 2000 from $1,670,577 for
the three months ended September 30, 1999. The increase was primarily due to
increased costs associated with the development of the technology segment
domestically and internationally. Additionally, legal fees increased by
approximately $600,000, of which approximately $425,000 was for the
establishment of international entities and pending patent and FDA developments,
over the same quarter last year.
Research, development and engineering expenses aggregated $1,838,234 for
the three months ended September 30, 2000 as a result of the expanded efforts to
develop and implement the Company's telehealth network and EHC system.
Management expects that costs of services, selling, general and
administrative expenses and research, development and engineering expenses will
continue to increase as the Company continues to develop the telehealth network
and EHC system.
We had an operating loss of $4,507,060 for the three months ended
September 30, 2000 as compared to operating income of $1,289,829 for the three
months ended September 30, 1999. A significant portion of this increase,
$4,484,181, was due to expenses incurred by the technology segment as it
continues to develop and implement the telehealth network and EHC system.
As a result of the Company entering into an agreement to sell its
international air ambulance transportation segment, the Company recorded a
$943,662 loss from discontinued operations for the quarter ended September 30,
2000. The Company accounted for this transaction as a discontinued operation and
has therefore presented both the current and prior period as a single line item
within the accompanying condensed consolidated statement of operations.
We had a net loss of $4,956,536 for the three months ended September 30,
2000 in comparison to a net income of $235,100 for the three months ended
September 30, 1999 primarily as a result of costs incurred from the expanded
development of the telehealth network and EHC system in the Company's technology
segment, offset by $712,472 of interest income from returns on invested balances
generated by the private placements that occurred in February 2000 and April
2000.
17
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND 1999.
Total revenue from operations increased 20.4% to $14,129,990 for the nine
months ended September 30, 2000 from $11,738,998 for the nine months ended
September 30, 1999 due to increases in revenue in the physical, occupational and
speech therapy and institutional pharmacy segments. Physical, occupational and
speech therapy segment revenue increased due to two rehabilitation acquisitions
in late 1999 and several new location openings. Institutional Pharmacy Services
has continued to grow significantly as a result of adding additional adult
living facility customers. Cybercare Technologies, which was purchased by the
Company in September 1999 and is in the process of developing, producing and
distributing its telehealth network and EHC system, generated only nominal
revenues during the nine months ended September 30, 2000.
Cost of services, which includes payroll, materials and other expenses
directly associated with our services, increased 100.7% from $4,479,206 for the
nine months ended September 30, 1999 to $8,989,724 for the nine months ended
September 30, 2000. The increase was due to incremental expenses resulting from
the rehabilitation business acquisitions and new facility openings and expansion
of the institutional pharmacy business. In addition, the technology segment is
incurring implementation costs related to operations infrastructure associated
with the telehealth network and EHC system.
Selling, general and administrative expenses increased 81.2% to $9,972,930
for the nine months ended September 30, 2000 from $5,502,583 for the nine months
ended September 30, 1999. The increase was principally due to increased costs
associated with the development and growth of the technology segment
domestically and internationally.
Research, development and engineering expenses aggregated $5,035,377 for
the nine months ended September 30, 2000 as a result of continuing to incur
costs to develop the Company's telehealth network and EHC system.
Management expects that costs of services, selling, general and
administrative expenses and research development and engineering expenses will
continue to increase as the Company continues to develop the telehealth network
and EHC system.
We had an operating loss of $11,084,162 for the nine months ended
September 30, 2000 as compared to operating income of $1,233,385 for the nine
months ended September 30, 1999. A significant portion of this increase in loss,
$12,596,513, was due to expenses incurred by the technology segment as it
continues to develop and expand the telehealth network and EHC system.
As a result of the Company's entering into an agreement to sell its
international air ambulance transportation segment, the Company recorded a
$1,626,503 loss from discontinued operations for the nine months ended September
30, 2000. The Company accounted for this transaction as a discontinued operation
and has therefore presented both the current and prior period as a single line
item within the accompanying condensed consolidated statement of operations.
18
<PAGE>
We had a net loss of $15,045,950 for the nine months ended September 30,
2000 in comparison to a net profit of $858,429 for the nine months ended
September 30, 1999 primarily as a result of our continued increase efforts in
the development and expansion of the technology segment, the $1,626,503 loss
from discontinued operations of the international air ambulance transport
segment and the one-time $2,423,629 write-off of the investment in Westmark
Group Holdings, offset by $1,613,973 of interest income from returns on invested
balances generated by the private placements that occurred in February 2000 and
April 2000.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our growth from the issuance of common
stock and convertible debentures. For the nine months ended September 30, 2000,
we raised approximately $27,500,000 through equity offerings, which we are using
for general working capital purposes and for development of EHC systems and the
telehealth network. Our capital requirements will continue to be significant
through fiscal 2001. We had working capital of $41,075,081 and cash and cash
equivalents and marketable securities of $26,469,196 as of September 30, 2000.
In addition, we have available credit facilities of $5,000,000 as of September
30, 2000.
As of September 30, 2000, our borrowings from our credit facilities
aggregated $1,304,377 and accrued interest at rates between 12.00% and 12.15%.
Also, we will owe minimum payments on operating leases of approximately $213,000
during the remainder of fiscal 2000. As of September 30, 2000, we had long-term
liabilities of $154,608.
Except for borrowings available under our lines of credit, we have no
commitment for additional financings or borrowings. We can provide no assurance
that additional debt or equity financing will be undertaken, and, if undertaken,
will be successful. Lower than expected earnings resulting from adverse
conditions or otherwise, could restrict our ability to expand our operations, or
otherwise fully execute our business plan.
We anticipate that our current working capital and available borrowings
will provide sufficient liquidity to fund the Company's operations through 2001.
However, we can provide no assurance that our ability to fund operations through
2001 will not be shortened due to factors beyond our control, such as lower than
expected revenues or increased expenses.
Our net cash flow used in operating activities was $15,094,458 and
$2,149,118 for the nine months ended September 30, 2000 and 1999, respectively.
The increase was due to expenses incurred by the technology segment as it
continues to develop the EHC system and telehealth network.
Our net cash used in investing activities was $19,757,338 and $443,798 for
the nine months ended September 30, 2000, and 1999, respectively. This increase
was primarily due to the purchase of marketable securities and advances to
related parties during the current period.
Our net cash flows provided by financing activities was $34,353,435 and
$2,679,046 for the nine months ended September 30, 2000 and 1999, respectively.
The increase was primarily due to private placement proceeds received during the
nine months ended September 30, 2000.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in litigation with various parties regarding
matters of dispute, which have arisen in the normal course of business. In most
cases where there is a material amount at dispute, the Company has the benefit
of indemnification from a third party. The Company anticipates that there will
not be a material impact on its financial condition or results of operations
from these matters.
As of November 10, 2000, the Company is aware of 14 purported class action
lawsuits that have been filed against Cyber-Care and certain of its executive
officers alleging violations of federal securities laws. The Complaints allege
that the Company made misrepresentations or omissions regarding the development
and future sales forecasts of its Electronic HouseCall System products. All of
the actions were filed in the United States District Court for the Southern
District of Florida and are in the process of being consolidated into one
action. The complaints seek unspecified damages and costs. The Company and the
executives believe the claims lack merit and they intend to vigorously defend
these lawsuits. However, the Company cannot predict the outcome of this
litigation or the impact that these lawsuits or any other suits, claims, or
investigations relating to the same subject matter may have on the Company's
liquidity or financial condition. In light of the foregoing, the liability, if
any, of the Company in relation to such possible claims cannot be estimated at
this time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2000, the Company contributed
100,000 common shares, valued at $753,100, to maintain its 18.5% interest in a
limited liability company.
During the quarter ended September 30, 2000, the Company issued 15,000
common shares to an unrelated party in order to purchase an internet domain
name, valued at $101,250.
During the quarter ended September 30, 2000, a related party exercised
options to purchase 60,000 shares of the Company's common stock by issuing a
note to the Company in the amount of $360,000, which bears interest at the
applicable federal rate (AFR). This note is included as a stock subscription
receivable within the stockholders' equity section of the accompanying condensed
consolidated balance sheet.
During the quarter ended September 30, 2000, a director exercised options
to purchase 50,000 shares of the Company's common stock by issuing a note to the
Company in the amount of $62,500, which bears interest at the applicable federal
rate (AFR). This note is included as a stock subscription receivable within the
stockholders' equity section of the accompanying condensed consolidated balance
sheet. Another director repaid his note to the Company by returning to the
Company 70,903 shares, valued at $450,875.
20
<PAGE>
During the three months ended September 30, 2000, a director repaid his
note to the Company by returning to the Company 70,903 shares, valued at
$450,875.
The sales of securities described above and their issuance were made
pursuant to an exemption under Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ANNUAL
MEETING OF SHAREHOLDERS TOOK PLACE ON AUGUST 15, 2000 AT MUVICO
PALACE THEATRE IN BOCA RATON, FLORIDA
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
----- ------- --------
<S> <C> <C> <C>
A. Eight Directors elected for a term of one year, expiring at the next annual
meeting, including:
1. Michael F. Morrell 44,624,390 143,236 400,988
2. Glen Barber 44,670,878 164,179 333,557
3. Rusty Capece 44,675,184 144,936 348,494
4. John Haines 44,748,345 67,400 352,869
5. Terry Lazar 44,694,071 140,079 334,464
6. Ted Orlando 44,668,558 164,179 335,877
7. Paul C. Pershes 44,503,955 166,771 497,888
8. Dana Pusateri 44,672,481 153,111 343,022
B. Ernst & Young LLP approved to serve as the Company's independent
auditors for the 2000 calendar year audit.
44,998,965 99,273 64,940
C. The amendments to the Company's 1999 Directors' and Executive Officers'
Stock Option Plan (as set forth in the Proxy Statement) were adopted.
21,512,580 4,385,039 189,071
D. The amendments to the Company's 1999 Incentive Stock Option Plan (as
set forth in the Proxy Statement) were adopted.
22,973,055 2,787,317 320,119
</TABLE>
ITEM 5. OTHER INFORMATION -- NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a. Exhibits -- Exhibit 27 Financial Data Schedule for the nine
months ended September 30, 2000.
b. Reports on Form 8-K - Disposition of international air
ambulance transport segment, filed October 2, 2000.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CYBER-CARE, INC.
----------------
(Registrant)
NOVEMBER 10, 2000 By: /S/ PAUL C. PERSHES
----------------- ---------------------------------------
(Date) Paul C. Pershes, President
NOVEMBER 10, 2000 By: /S/ ARTHUR KOBRIN
----------------- ---------------------------------------
(Date) Arthur Kobrin, Chief Accounting Officer
22
