U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] 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
CYBERCARE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0158479
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2500 QUANTUM LAKES DRIVE, SUITE 1000, BOYNTON BEACH, FLORIDA 33426-8308
(Address of principal executive offices)
(561) 742-5000
(Registrant's telephone number)
CYBER-CARE, INC.
(Former name, changed since last report.)
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
65,766,207 shares were outstanding as of July 31, 2001.
CYBERCARE, INC.
10-Q QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of
Operations for the Three and Six Months Ended
June 30, 2001 and 2000 4
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 2001 and 2000 5
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
CYBERCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited) (Audited)
June 30, December 31,
2001 2000
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 11,942 $ 15,231
Cash - restricted 365 --
Marketable securities 1,000 1,500
Trade accounts receivable, less allowance for doubtful
accounts of $1,557 (2001) and $1,496 (2000) 4,154 2,572
Net assets of discontinued operations 8,088 8,687
Inventories, net 6,665 5,242
Notes receivable - related parties 537 2,280
Notes receivable and other current assets 1,388 1,663
--------- ---------
Total current assets 34,139 37,175
Property and equipment, net 2,697 2,072
Intangible assets, net 15,853 17,042
Notes receivable - related parties 416 --
Notes receivable and other assets 3,874 3,444
--------- ---------
Total assets $ 56,979 $ 59,733
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,288 $ 2,933
Accrued liabilities 4,186 3,859
Lines of credit 2,155 1,993
Net liabilities of discontinued operations 845 1,250
Other current liabilities 317 186
--------- ---------
Total current liabilities 9,791 10,221
Convertible subordinated debentures, net of $2,521 discount 7,479 --
Other liabilities 448 178
--------- ---------
Total liabilities 17,718 10,399
--------- ---------
Commitments and contingencies
Stockholders' 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;
65,700,859 and 64,775,282 shares issued and outstanding at
June 30, 2001 and December 31, 2000, respectively 164 162
Capital in excess of par 123,916 120,224
Stock subscription receivable (4,740) (3,903)
Accumulated other comprehensive income -- 1
Accumulated deficit (80,079) (67,150)
--------- ---------
Total stockholders' equity 39,261 49,334
--------- ---------
Total liabilities and stockholders' equity $ 56,979 $ 59,733
========= =========
See Notes to Condensed Consolidated Financial Statements.
3
CYBERCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net revenues $ 4,704 $ 4,705 $ 8,948 $ 9,595
------------ ------------ ------------ ------------
Costs and expenses:
Cost of services 3,383 3,090 6,579 6,212
Selling, general and administrative 3,550 3,631 6,391 5,860
Research, development and engineering 4,314 2,054 7,731 3,197
Depreciation and amortization 555 461 1,109 904
Gain on sale of subsidiary -- -- (92) --
------------ ------------ ------------ ------------
Total costs and expenses 11,802 9,236 21,718 16,173
------------ ------------ ------------ ------------
Operating loss (7,098) (4,531) (12,770) (6,578)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 272 521 916 733
Interest expense (132) (20) (185) (494)
Interest - beneficial conversion feature -- (155) -- (657)
Write-off of investment in equity securities -- (2,424) -- (2,424)
Other income 4 5 60 13
------------ ------------ ------------ ------------
Total other income (expense) 144 (2,073) 791 (2,829)
------------ ------------ ------------ ------------
Loss from continuing operations (6,954) (6,604) (11,979) (9,407)
Loss from operations of discontinued businesses -- (697) -- (682)
Estimated loss on disposal of discontinued business (950) -- (950) --
------------ ------------ ------------ ------------
Net loss $ (7,904) $ (7,301) $ (12,929) $ (10,089)
============ ============ ============ ============
Loss per common share - basic and diluted:
Loss from continuing operations $ (0.11) $ (0.11) $ (0.18) $ (0.17)
Discontinued operations (0.01) (0.01) (0.02) (0.01)
------------ ------------ ------------ ------------
Net loss $ (0.12) $ (0.12) $ (0.20) $ (0.18)
============ ============ ============ ============
Weighted average shares outstanding 64,894,503 61,861,894 64,849,475 57,492,735
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
4
CYBERCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
------------------------
2001 2000
-------- --------
Cash Flows from Operating Activities:
Net loss $(12,929) $(10,089)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 325 143
Amortization 784 761
Write-off of investment in securities -- 2,424
Provision for doubtful accounts 546 608
Interest - accreted discount and beneficial conversion 108 657
Common stock issued for services 53 91
Net liabilities of discontinued operations (405) (625)
Net assets of discontinued operations (351) (1,449)
Gain on sale of subsidiary (92) --
Estimated loss on disposal of discontinued business 950 --
Changes in operating assets and liabilities, net of
effects from dispositions:
Trade accounts receivable (2,324) (2,242)
Inventories (1,423) (2,234)
Notes receivable and other current assets (348) 1,145
Accounts payable (601) 1
Accrued and other current liabilities 923 530
-------- --------
Net cash used in operating activities (14,784) (10,279)
-------- --------
Cash Flows from Investing Activities:
Purchase of marketable securities (511) (12,654)
Sale of marketable securities 1,011 --
Cash - restricted (365) --
Capital expenditures (159) (555)
Repayment from (advances to) related parties, net 1,144 (4,236)
Change in intangible and other assets 270 (440)
-------- --------
Net cash provided by (used in) investing activities 1,390 (17,885)
-------- --------
Cash Flows from Financing Activities:
Payments of other liabilities (151) (96)
Net borrowings (repayments) under lines of credit 162 (931)
Proceeds from exercise of stock options and warrants 94 3,767
Proceeds from sale of common stock -- 27,494
Proceeds from sale of convertible subordinated debentures 10,000 4,667
Repayment from subordinated debentures -- (368)
-------- --------
Net cash provided by financing activities 10,105 34,533
-------- --------
Net (decrease) increase in cash and cash equivalents (3,289) 6,369
Cash and cash equivalents at the beginning of period 15,231 11,699
-------- --------
Cash and cash equivalents at the end of period $ 11,942 $ 18,068
======== ========
See Notes to Condensed Consolidated Financial Statements.
5
CYBERCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands)
(Unaudited)
Supplemental disclosures of non-cash activities:
FOR THE SIX MONTHS ENDED
-------------------------
June 30, June 30,
2001 2000
----------- ----------
Conversion of debentures to common stock $ -- $ 16,174
Reclass of deferred financing costs upon conversion of debentures -- (6,174)
Fair market value of warrants issued for accrued consulting -- 368
Common stock issued for services rendered -- 91
Common stock matching contribution issued to retirement plan 61 --
Common stock issued for payment of accrued interest 366 --
Common stock issued under Employee Stock Purchase Plan 40 --
Common stock received as consideration for sale of subsidiary (692) --
Common stock issued for accrued settlement of a lawsuit 125 --
Common stock received in repayment of stock subscription
receivable and accrued interest (65) --
Common stock received in repayment of notes receivable (183) (1,175)
Common stock issued to purchase domain name 8 --
Fair market value of detachable warrants issued with
convertible subordinated debentures 2,618 --
Common stock issued for stock subscription receivable 900 --
Common stock issued under earn-out arrangement -- 21
Common stock issued for payment of long-term debt -- 607
Common stock issued under limited liability company agreement -- 1,631
Property and equipment purchases financed by other liabilities 568 --
The following is a summary of the significant non-cash amounts that resulted
from the Company's disposition:
FOR THE SIX MONTHS ENDED
------------------------
June 30, June 30,
2001 2000
---------- ----------
Assets disposed:
Accounts receivable $(196) $ --
Property and equipment (76) --
Goodwill (412) --
----- ------
Assets disposed (684) --
----- ------
Liabilities transferred:
Accounts payable (64) --
Accrued expenses and short-term debt (20) --
----- ------
Liabilities transferred (84) --
----- ------
Common stock (600) --
----- ------
Cash received from disposition $ -- $ --
===== ======
See Notes to Condensed Consolidated Financial Statements.
6
CYBERCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
CyberCare, Inc. ("CyberCare" or the "Company") is a network-based
telehealth solutions company utilizing patented internet-based technology to
provide a system for remote monitoring of individuals. The Company is developing
the CyberCare SystemTM, which consists of the Electronic HouseCall(R) (EHCTM)
family of products, the CyberCare 24 NetworkTM and the Cyber HealthManagerTM, to
enable communications between chronically ill patients and a network of
healthcare providers using transfers of voice, video and medical data. The
CyberCare SystemTM, which has been cleared by the United States Food and Drug
Administration ("FDA"), collects patient vital signs using devices such as an
electronic stethoscope, thermometer, blood pressure cuff, pulse oximeter, weight
scale and glucometer. The results are available for review by the care provider
and are stored in a central database for retrieval. The care provider may
measure results against a patient's historic data enabling the delivery of
improved patient care and more effective disease management. The Company also
has a physical, occupational and speech therapy business and an institutional
pharmacy business, which have historically provided the majority of the
Company's net revenues.
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 year's results of operations. Certain reclassifications have been made to
the prior period financial statements to conform to the June 30, 2001
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, 2000.
The Company's condensed consolidated financial statements include the
activity of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
7
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 currently recorded to equity (e.g.
foreign currency items and unrealized gains and losses on certain investments in
debt and equity securities) are part of comprehensive income (loss). For the
three months ended June 30, 2001, the Company had a $4,000 after-tax realized
gain on marketable securities. For the three months ended June 30, 2000, the
Company had a $12,000 after-tax unrealized loss on marketable securities and a
$1,821,000 realized loss on an investment in securities. For the six months
ended June 30, 2001 and 2000, the Company had a $1,000 after-tax realized gain
and a $1,756,000 realized loss, respectively, on marketable and equity
securities.
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
income (loss). Realized gains and losses from the sale of marketable securities
are based on the specific identification method.
Note 2 - Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Finished goods and work-in-process
inventories include material, labor and manufacturing overhead costs.
Inventories consist of the following:
JUNE 30, 2001 DECEMBER 31, 2000
--------------- -----------------
Component parts $2,611,000 $1,790,000
Work-in-process 271,000 541,000
Finished goods 3,783,000 2,911,000
---------- ----------
$6,665,000 $5,242,000
========== ==========
Note 3 - Dispositions
AIR AMBULANCE TRANSPORT DISPOSITION - Effective September 2, 2000, the
Company entered into an agreement (the "Air Agreement") to sell the subsidiaries
(which includes Air Response North, Inc., Global Air Charter, Inc. and Global
Air Rescue, Inc.) that comprise its international air ambulance transport
segment ("Air") 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 Air's operations. Under the terms of the Air Agreement, the
Purchasers paid $2,400,000 in CyberCare common stock and issued $6,100,000 in
short-term notes bearing interest at 10% (the "Note"), which are collateralized
by substantially all of the Air assets and 301,787 shares of the Company's
common stock held in escrow. The Purchasers have notified us that they were
unable to repay the Note in accordance with its terms. We have, however, agreed
to provide a payment extension until October 2001. In the event that the
Purchasers are unable to repay or refinance the Note at such time, we may take
the Note back and reassume the assets of the air ambulance transport business.
8
The Company is accounting for the Air segment as a discontinued operation
until the Purchasers repay the notes or otherwise fulfill all of their
obligations under the Air Agreement. Accordingly, amounts owed, net of a
$3,728,398 accrual for future losses of Air, as part of the Air Agreement have
been classified as "Net assets of discontinued operations," in the accompanying
condensed consolidated balance sheets. In addition, the operating results of
this segment for the three and six month periods ended June 30, 2000 have been
reported as "Loss from operations of discontinued businesses" in the
accompanying condensed consolidated statements of operations. Also, this segment
reported a $950,000 "Estimated loss on disposal of discontinued businesses" for
the three and six month periods ended June 30, 2001 in the accompanying
condensed consolidated statements of operations.
CAROLINA DISPOSITION - Effective October 31, 2000, the Company entered
into a comprehensive settlement agreement to sell one of its rehabilitation
subsidiaries ("Carolina Rehab"), to the former owner for $3,600,000. The Company
received $375,000 in cash and a $3,225,000 note which bears interest at 8.0% and
is payable over four years ("8% note"). The Company received a $500,000 payment
on the 8% note in April 2001. The note is collateralized by the stock of the
former subsidiary and any related entities of the former owner.
PHYSICIAN PRACTICE DISPOSITION - Effective January 26, 2001, the Company
sold certain assets and related liabilities of its physician practice to a
related party in exchange for the return of 140,000 common shares of the Company
owned by the related party valued at $691,000. The Company recognized a gain in
the amount of $92,000 on this transaction.
The following unaudited pro forma financial data is presented to
illustrate the estimated effects on the condensed consolidated results of
operations as if the Company's dispositions 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.
SIX MONTHS ENDED JUNE 30,
2001 2000
------------ -------------
Net revenues $ 8,847,000 $ 6,989,000
Loss from continuing operations $(12,117,000) $ (9,867,000)
Net loss $(12,117,000) $ (9,867,000)
Net loss per common share (basic and diluted) $ (0.19) $ (0.17)
9
Note 4 - Convertible Subordinated Debentures
In May 2001, the Company sold an aggregate of $10,000,000 in convertible
subordinated debentures to three accredited investors ("May 2001 Debentures")
exempt from registration under Section 4(2) and Regulation D of the Securities
Act of 1933, as amended. The convertible subordinated debentures have a three
year term and pay interest quarterly beginning on August 1, 2001, ranging from
12.75% to 13.75% per annum, in the aggregate, depending on whether interest is
payable in stock or cash. Beginning in November 2001, these subordinated
debentures are convertible into Common Stock at a conversion price equal to 90%
of the average closing price for the twenty trading days immediately prior to
the date of conversion notice, but in no event shall the conversion price be
less than $3.25 per share. In addition, the Company issued warrants to purchase
up to 2,500,000 shares of Common Stock at exercise prices ranging from $3.00 to
$5.00. All of the underlying shares, whether through exercise, conversion of the
debt or by way of interest payments, have registration rights.
The fair value allocated to these warrants was $2,421,600, or $0.97 per
share, and was recorded as a discount to the May 2001 Debentures. The discount
is being accreted through interest expense over the 36 month life of the
underlying debentures. Also, as noted above, the May 2001 Debentures are
convertible at exercise prices of no less than $3.25 per share. The adjusted
conversion price (calculated as proceeds received less the value allocated to
the warrants divided by $3.25) was less than the trading price of the stock on
the commitment date. As a result, the Company recorded a beneficial conversion
that is being accreted through interest expense over the 36 month life of the
underlying debentures. Accreted discount and beneficial conversion for the three
and six months ended June 30, 2001 aggregated $108,000 and were recognized in
"Interest expense" in the accompanying condensed consolidated statements of
operations.
Note 5 - Litigation and Contingencies
LITIGATION - The Company is engaged in litigation with various parties
regarding matters of dispute that 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 insurance coverage, although there is no assurance that, with respect
to any particular dispute for which insurance coverage may be applicable, the
insurer will not assert that a defense or exemption to coverage applies, or that
the amount of coverage will be sufficient. In those cases where a material
amount is in dispute and in which either insurance is not available or in which
an insurer asserts a defense or exemption to coverage, the Company cannot
presently predict the outcome of such litigation, estimate the liability or
predict the impact, if any, that any such litigation may have on the Company's
liquidity or financial condition. The Company anticipates that there will not be
a material impact on its financial condition or results of operations from the
outcomes of these legal actions, except as discussed in the following
paragraphs.
10
The Company has previously disclosed the 14 purported class action
lawsuits that were filed against CyberCare and certain of its executive officers
alleging violations of federal securities laws. These lawsuits were consolidated
into a single class action lawsuit by the United States District Court for the
Southern District of Florida on November 4, 2000. The Consolidated Amended
Complaint ("Complaint") alleges that the Company made misrepresentations or
omissions regarding the development and future sales forecasts of its Electronic
HouseCall(R) system products and revenues of its pharmacy division. The
Complaint seeks unspecified damages and costs. The Company filed a motion to
dismiss on April 11, 2001. The Company and its management believe the Complaint
lacks merit and they intend to vigorously defend against the complaint. However,
the Company and its management cannot predict the outcome of this litigation or
the impact that this class action lawsuit, 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 Company's
liability, if any, in relation to such possible claims cannot be estimated at
this time.
Our physical therapy and rehabilitation subsidiary ("PT&R") received a
letter from the Center for Medicare and Medicaid Services ("CMS") and its
intermediary in April 2001 notifying it of the suspension of Medicare payments.
CMS alleged that certain patient complaints, which constitute less than 1% of
PT&R's Medicare patients, and other alleged regulatory non-compliance, justify
the payment suspension. During the suspension, the Medicare program continued to
process PT&R's claims, but held payment in escrow. In August, the suspension was
lifted although a portion of the reimbursement amounts for processed claims
remains held in escrow, pending further review. The Company is working
cooperatively with CMS to resolve any outstanding issues and effectuate release
of the amount held in escrow.
FUTURE CAPITAL NEEDS - The capital requirements needed to fund the
Company's operations, as well as to continue developing its EHCTM family of
products and system and any other new services may be significant. The Company
may need to raise additional funds through public or private offerings, equity
or debt financings or sale of assets in order to fund its losses, continue to
develop its CyberCare SystemTM and any other services.
Note 6 - Operating Segments
The Company's operating groups have been aggregated into three reportable
operating segments: network-based telehealth solutions, physical, occupational
and speech therapy services and institutional pharmacy services. The "Other"
category presented below includes the corporate office and elimination of
intercompany activities, neither of which meet the requirements of being
classified as an operating segment. As discussed in Note 3, the Company entered
into an agreement to sell its international air ambulance transport ("Air")
segment during September 2000. Accordingly, the Air segment is not separately
presented below for any of the three or six month periods ended June 30, 2001 or
2000, but rather is included as part of the Other category because the Company
is accounting for this disposition as a discontinued operation.
11
The Company evaluates the performance of its reportable operating segments
based primarily on net revenues, (loss) income from continuing operations and
working capital. Segment information for the three and six month periods ended
June 30, 2001 and 2000 is as follows:
NETWORK-BASED PHYSICAL,
FOR THE THREE MONTHS TELEHEALTH OCCUPATIONAL AND INSTITUTIONAL
ENDED JUNE 30, SOLUTIONS SPEECH THERAPY PHARMACY OTHER CONSOLIDATED
---------------------------- ---------------- ---------------- -------------- -------------- ---------------
2001
Net revenues $ 370,000 $ 2,645,000 $ 1,689,000 $ -- $ 4,704,000
Loss from continuing
operations (6,157,000) (30,000) (56,000) (711,000) (6,954,000)
Working capital 3,085,000 1,085,000 (555,000) 20,733,000 24,348,000
Total assets 20,199,000 5,948,000 2,423,000 28,409,000 56,979,000
2000
Net revenues 290,000 2,884,000 1,526,000 5,000 4,705,000
(Loss) income from continuing
operations (4,674,000) 163,000 62,000 (2,155,000) (6,604,000)
Working capital (5,394,000) (571,000) 519,000 42,972,000 37,526,000
Total assets 17,119,000 10,027,000 2,555,000 42,846,000 72,547,000
NETWORK-BASED PHYSICAL,
FOR THE SIX MONTHS TELEHEALTH OCCUPATIONAL AND INSTITUTIONAL
ENDED JUNE 30, SOLUTIONS SPEECH THERAPY PHARMACY OTHER CONSOLIDATED
---------------------------- ---------------- ---------------- -------------- -------------- ---------------
2001
Net revenues $ 616,000 $ 5,312,000 $ 3,020,000 $ -- $ 8,948,000
(Loss) income from continuing
operations (11,515,000) 533,000 (218,000) (779,000) (11,979,000)
2000
Net revenues 463,000 6,064,000 3,064,000 4,000 9,595,000
(Loss) income from continuing
operations (8,111,000) 680,000 53,000 (2,029,000) (9,407,000)
Note 7 - Related Party Transactions
During the six months ended June 30, 2001, certain officers and former
employees satisfied all or a portion of amounts under notes issued to the
Company evidencing debt for amounts previously advanced to them. The total
amount received in cash by the Company during the six months ended June 30, 2001
was approximately $1,600,000, plus accrued interest. Also, in March 2001, two
directors returned to the Company 107,048 shares of the Company's common stock
owned by the directors and valued at approximately $248,000 for repayment of a
stock subscription receivable balance and a portion of a loan. In April 2001,
the Board of Directors approved loans to certain officers totaling approximately
$386,000. The loans call for interest at the applicable federal rate ("AFR"),
adjusted monthly. The outstanding principal and all unpaid accrued interest is
due on or before March 31, 2003. These loans are collateralized by shares of the
Company's common stock owned by the officers.
12
Note 8 - Issuances of Common Stock
In June 2001, the Company sold 825,000 shares of the Company's common
stock valued at $900,000 in exchange for an interest-bearing note at 10%,
maturing on June 29, 2004 and collateralized by shares of the Company's common
stock. This note is included in stockholders' equity as part of stock
subscription receivable in the accompanying June 30, 2001 balance sheet.
Note 9 - Agreement to Acquire Certain Home Workstation Technology
The Company entered into an agreement on April 5, 2001 to acquire certain
home workstation technology in exchange for $250,000 in cash and 1,500,000
restricted voting common shares ("shares") valued at $2,900,000. The Company has
also agreed to provide $200,000 to the seller, which the seller will use to
adapt its home workstation to meet all of the Company's specifications. The
closing of the transaction is subject to the execution and performance of
certain final terms and conditions and approval by the Board of Directors.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 "could," "may," "will," "believes," "anticipates,"
"plans," "expects," "projects," "estimates," "intends," "continues," "seeks,"
"predicts," "expectations," variations of such words and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions ("Future Factors") that are difficult to predict.
As a result, because these statements are based on expectations as to future
performance and events and are not statements of fact, actual events or results
may differ materially from those expressed or forecast in such forward-looking
statements. Factors that might cause the Company's actual results to differ
materially from those indicated by such forward-looking statements include,
without limitation, those discussed in our filings with the Securities and
Exchange Commission, including but not limited to our most recent proxy
statement and "Risk Factors" in our most recent Form 10-KSB as well as Future
Factors that may have the effect of reducing our available operating income and
cash balances.
Future Factors include risks associated with the uncertainty of future
financial results; government approval processes; changes in the regulation of
the healthcare and technology industries at either the federal or state levels;
changes in reimbursement for services by government or private payors;
competitive pressures in the healthcare and technology industries and the
Company's response thereto; delays or inefficiencies in the introduction,
acceptance or effectiveness of new products; the impact of competitive products
or pricing; the Company's dealings with customers and partners; cash
expenditures related to possible future acquisitions and expansions; on-going
capital expenditures; the Company's ability to obtain capital in favorable terms
and conditions; increasing price, products and services; competition by U.S. and
non-U.S. competitors, including new entrants; rapid technological developments
and changes and the Company's ability to continue to introduce competitive new
products and services on a timely, cost-effective basis; the mix of products and
services; the availability of manufacturing capacity, components and materials;
the ability to recruit and retain talent; the achievement of lower costs and
expenses; credit concerns in the emerging service provider market; customer
demand for the Company's products and services; U.S. and non-U.S. government and
public policy changes that may affect the level of new investments and purchases
made by customers; changes in environmental and other U.S. and non-U.S.
governmental regulations; protection and validity of patent and other
intellectual property rights; reliance on large customers and significant
suppliers; the ability to supply customer financing; technological
implementation, and cost/financial risks in the use of large, multiyear
contracts; the Company's credit ratings; the outcome of pending and future
litigation; continued availability of financing, financial instruments and
financial resources in the amounts, at the times and on the terms required to
support the Company's future business; general industry and market conditions
and growth rates; general U.S. and non-U.S. economic conditions, including
interest rate and currency exchange rate fluctuations.
14
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented herein. These statements should be
considered only after carefully reading this entire Form 10-Q and the documents
incorporated herein by reference.
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 unaudited Condensed Consolidated Financial Statements and Notes
thereto appearing in Part I, Item 1 in this Form 10-Q, and the Company's audited
Consolidated Financial Statements listed in Part II, Item 7 and the Notes
thereto appearing in the Company's 2000 Annual Report on Form 10-KSB.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001
AND 2000
Net revenues for the quarter ended June 30, 2001 of $4,704,000 were
consistent with the prior year's quarter of $4,705,000. Quarterly net revenues
increased from internal growth in the network-based telehealth solutions
segment, physical, occupational and speech therapy segment and growth in new
product lines and assisted living facilities served by the institutional
pharmacy segment. These volume increases were offset by decreases resulting from
the October 31, 2000 sale of Carolina Rehab and January 26, 2001 sale of the
Company's physician practice (which together aggregated $1,250,000 net revenues
for the 2000 second quarter). Revenues from our network-based telehealth
solutions segment primarily consisted of revenue from our sleep monitoring
facility.
Cost of services for the quarter ended June 30, 2001 increased 9.5% to
$3,383,000 compared with $3,090,000 for the prior year's comparable quarter. The
increase was substantially due to significantly higher technology start-up costs
resulting from continued implementation of demonstration and pilot programs,
related connectivity costs and expansion of the number of facilities serviced by
the physical, occupational and speech therapy segment which required hiring
additional personnel and increased rent expense, offset by $761,000 of costs
relating to the rehab subsidiary sold in 2000 and physician practice sold in
January 2001.
Selling, general and administrative expenses decreased $81,000 or 2.2% to
$3,550,000 for the quarter ended June 30, 2001, compared with $3,631,000 for the
quarter ended June 30, 2000. The net decrease is primarily attributable to costs
relating to the rehab subsidiary sold in 2000 and physician practice sold in
January 2001.
Research, development and engineering expenses for the quarter ended June
30, 2001 increased to $4,314,000 or 110.0% compared to $2,054,000 for the prior
year's comparable quarter. The significant increase was due to the Company's
acceleration of expenditures for the development of the CyberCare 24 NetworkTM,
Cyber HealthManagerTM and Electronic Housecall(R) (EHCTM) family of products
that are now able to connect via both broadband and plain old telephone service
("POTS"). All such expenditures are being expensed as incurred.
15
The Company's current cost management program, completed in August,
resulted in the reduction of expenses incurred in the 2001 second quarter
over $1,000,000 in salaries, benefits and consulting costs and approximately
$870,000 of outside contractor research and development activities, for a
total of $1,870,000 in cost reductions and should aggregate over $6,000,000
on an annual basis. In addition, the Company accrued $175,000 for a physical,
occupational and speech therapy segment cost report final settlement during
the current quarter.
The Company had an operating loss of $7,098,000 for the three months ended
June 30, 2001 as compared to an operating loss of $4,531,000 for the three
months ended June 30, 2000. A significant portion of this increase was due to
costs incurred for the development of the CyberCare SystemTM.
For the quarter ended June 30, 2001, interest income decreased to
$272,000, compared with $521,000 for the prior year's comparable period,
primarily as a result of greater cash, cash equivalent and marketable security
balances invested at higher interest rates in the prior period. For the quarter
ended June 30, 2001, interest expense included $108,000 of accreted discount and
beneficial conversion resulting from the May 2001 Debentures.
The Company's net loss for the three months ended June 30, 2001 was
$7,904,000 in comparison to a net loss of $7,301,000 for the three months ended
June 30, 2000, primarily as a result of costs incurred for the development of
the CyberCare SystemTM. In addition, the current quarter included a $950,000
accrual for the estimated disposal of the Company's international air ambulance
transport segment, while the prior year's comparable period included both a
$697,000 loss from discontinued operations of its Air segment and a one-time
$2,424,000 investment write-off.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
AND 2000
Net revenues for the six months ended June 30, 2001 decreased 6.7%, or
$647,000, to $8,948,000 compared with the prior year's comparable period of
$9,595,000. Net revenues increased from internal growth in the network-based
telehealth solutions segment, physical, occupational and speech therapy segment
and growth in new product lines and assisted living facilities served by the
institutional pharmacy segment. These volume increases were offset by decreases
resulting from the October 31, 2000 sale of Carolina Rehab and January 26, 2001
sale of the Company's physician practice (together aggregated $2,606,000 net
revenues for the six months ended June 30, 2000). Revenues from our
network-based telehealth solutions segment primarily consisted of revenue from
our sleep monitoring facility.
Cost of services for the six months ended June 30, 2001 increased 5.9% to
$6,579,000 compared with $6,212,000 for the prior year's comparable quarter. The
increase was substantially due to significantly higher technology start-up costs
resulting from continued implementation of demonstration and pilot programs and
related connectivity costs and expansion of the number of facilities serviced by
the physical, occupational and speech therapy segment which required hiring
additional personnel and increased rent expense, offset by $1,668,000 of net
costs relating to the rehab subsidiary sold in 2000 and physician practice sold
in January 2001.
16
Selling, general and administrative expenses increased $531,000 or 9.1% to
$6,391,000 for the six months ended June 30, 2001, compared with $5,860,000 for
the six months ended June 30, 2000. The increase is principally attributable to
the increase in staff and organizational costs to support continued domestic and
international (Asia and Europe) development and sales and marketing costs, as
the Company continues to develop its network-based telehealth solutions segment,
offset by $325,000 of net costs relating to the rehab subsidiary sold in 2000
and physician practice sold in January 2001.
Research, development and engineering expenses for the six months ended
June 30, 2001 increased to $7,731,000 compared to $3,197,000 for the prior
year's comparable period. The significant increase was due to the Company's
acceleration of expenditures for the development of the CyberCare 24 NetworkTM,
Cyber HealthManagerTM and Electronic Housecall(R) (EHCTM) family of products
that are now able to connect via both broadband and plain old telephone service
("POTS"), including the development of additional products, software and
peripheral monitoring equipment. All such expenditures are being expensed as
incurred.
The Company had an operating loss of $12,770,000 for the six months ended
June 30, 2001 as compared to an operating loss of $6,578,000 for the six months
ended June 30, 2000. A significant portion of this increase was due to costs
incurred for the development of the CyberCare SystemTM, which includes the EHCTM
family of products, the CyberCare 24 NetworkTM and the Cyber HealthManagerTM.
For the six months ended June 30, 2001, interest income increased to
$916,000, compared with $733,000 for the prior year's comparable period,
primarily as a result of 2001 interest received under the Air Agreement, which
is being recognized as received until the Purchasers repay the notes or
otherwise fulfill all of their obligations.
During the six months ended June 30, 2001, interest expense decreased to
$185,000 compared with $494,000 for the six months ended June 30, 2000 primarily
as a result of the Company's conversion of $16,174,000 of debentures to common
stock during the first half of 2000.
The Company's net loss for the six months ended June 30, 2001 was
$12,929,000 in comparison to a net loss of $10,089,000 for the six months ended
June 30, 2000, primarily as a result of costs incurred for the development of
the CyberCare SystemTM. In addition, the current year's period included a
$950,000 accrual for the estimated disposal of the Company's international air
ambulance transport segment while the prior year's comparable period included
both a $682,000 loss from discontinued operations of its Air segment and a
one-time $2,424,000 investment write-off.
17
LIQUIDITY AND CAPITAL RESOURCES
CyberCare has historically funded its growth from the sale of equity
securities and convertible debentures. Through June 30, 2001 and in 2000,
CyberCare raised, net of expenses, approximately $10,000,000 and $27,000,000,
respectively, through private debt and equity offerings, which is being used for
research, development, engineering, marketing and working capital purposes.
CyberCare's cash requirements will be significant through 2001. We had working
capital of approximately $24,348,000 as of June 30, 2001.
Since we do not generate sufficient revenues to fund our operations, we
anticipate that our current working capital will provide sufficient liquidity to
fund 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.
As of June 30, 2001, we had current liabilities of approximately
$9,791,000, which includes accounts payable, accrued expenses and approximately
$2,155,000 of borrowings under two lines of credit, with interest rates ranging
from 9.4% to 9.5% at June 30, 2001. We had the ability to borrow up to an
aggregate of $2,627,000 under the lines of credit at June 30, 2001. In January
2001, the Company entered into a $500,000 financing arrangement to lease certain
furniture and equipment. The lease is collateralized by a certificate of deposit
reflected as "Cash - restricted" in the condensed consolidated balance sheet as
of June 30, 2001. The lease calls for interest at 12.4% and matures in February
2004.
In May 2001, the Company sold an aggregate of $10,000,000 in convertible
subordinated debentures to three accredited investors ("May 2001 Debentures")
exempt from registration under Section 4(2) and Regulation D of the Securities
Act of 1933, as amended. The convertible subordinated debentures have a three
year term and pay interest quarterly beginning on August 1, 2001, ranging from
12.75% to 13.75%per annum, in the aggregate, depending on whether interest is
payable in stock or cash. Beginning in November 2001, these subordinated
debentures are convertible into Common Stock at a conversion price equal to 90%
of the average closing price for the twenty trading days immediately prior to
the date of conversion notice, but in no event shall the conversion price be
less than $3.25 per share. In addition, the Company issued warrants to purchase
up to 2,500,000 shares of Common Stock at exercise prices ranging from $3.00 to
$5.00. All of the underlying shares, whether through exercise, conversion of the
debt or by way of interest payments, have registration rights.
Cash used in operating activities was $14,784,000 and $10,279,000 for the
six months ended June 30, 2001 and 2000, respectively. The increase was
primarily a result of increased net loss due to costs to develop, implement and
market our CyberCare SystemTM, which includes the CyberCare 24 NetworkTM, Cyber
HealthManagerTM and Electronic Housecall(R) (EHCTM) family of products. In
addition, the increase was also due to payments for discontinued operations, an
increase in accounts receivable, purchase of additional inventory and payments
on accounts payable.
18
Cash provided by investing activities was $1,390,000 for the six months
ended June 30, 2001 compared to cash used in investing activities of $17,885,000
for six months ended June 30, 2000. The increase primarily resulted from
repayments by various officers and directors of amounts loaned in previous
quarters and greatly reduced marketable security purchases in the first half of
2001.
Cash provided by financing activities was $10,105,000 and $34,533,000 for
the six months ended June 30, 2001 and 2000, respectively. The decrease was
primarily due to funds received in 2000 from direct sales of the Company's
common stock, reduction in proceeds from the exercise of stock options and
warrants and 2000 proceeds resulting from the December 1999 issuance of
debentures, offset by the May 2001 sale of convertible subordinated debentures.
Except for our lines of credit, convertible subordinated debentures and
the financing arrangement discussed above, we have no commitments for additional
financings or borrowings. We can provide no assurance that additional debt or
equity financing will not be undertaken, and if undertaken, whether it will be
successful. Lower than expected earnings resulting from adverse conditions or
otherwise, could restrict our ability to expand our operations, or otherwise to
fully execute our business plan.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - None.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in litigation with various parties regarding
matters of dispute that 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 insurance coverage, although there is no assurance that, with respect to any
particular dispute for which insurance coverage may be applicable, the insurer
will not assert that a defense or exemption to coverage applies, or that the
amount of coverage will be sufficient. In those cases where a material amount is
in dispute and in which either insurance is not available or in which an insurer
asserts a defense or exemption to coverage, the Company cannot presently predict
the outcome of such litigation, estimate the liability or predict the impact, if
any, that any such litigation may have on the Company's liquidity or financial
condition. The Company anticipates that there will not be a material impact on
its financial condition or results of operations from the outcomes of these
legal actions, except as discussed in the following paragraphs.
The Company has previously disclosed the 14 purported class action
lawsuits that were filed against CyberCare and certain of its executive officers
alleging violations of federal securities laws. These lawsuits were consolidated
into a single class action lawsuit by the United States District Court for the
Southern District of Florida on November 4, 2000. The Consolidated Amended
Complaint ("Complaint") alleges that the Company made misrepresentations or
omissions regarding the development and future sales forecasts of its Electronic
HouseCall(R) system products and revenues of its pharmacy division. The
Complaint seeks unspecified damages and costs. The Company filed a motion to
dismiss on April 11, 2001. The Company and its management believe the Complaint
lacks merit and they intend to vigorously defend against the complaint. However,
the Company and its management cannot predict the outcome of this litigation or
the impact that this class action lawsuit, 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 Company's
liability, if any, in relation to such possible claims cannot be estimated at
this time.
Our physical therapy and rehabilitation subsidiary ("PT&R") received a
letter from the Center for Medicare and Medicaid Services ("CMS") and its
intermediary in April 2001 notifying it of the suspension of Medicare payments.
CMS alleged that certain patient complaints, which constitute less than 1% of
PT&R's Medicare patients, and other alleged regulatory non-compliance, justify
the payment suspension. During the suspension, the Medicare program continued to
process PT&R's claims, but held payment in escrow. In August, the suspension was
lifted although a portion of the reimbursement amounts for processed claims
remains held in escrow, pending further review. The Company is working
cooperatively with CMS to resolve any outstanding issues and effectuate release
of the amount held in escrow.
20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following is a summary of the Company's equity transactions for the
three months ended June 30, 2001 that were not registered under the Securities
Act of 1933, as amended:
(1) issuance of 3,120 shares of common stock valued at approximately $8,000 to
purchase a domain name,
(2) issuance of 10,000 shares of common stock valued at approximately $26,000
for members of the Company's Medical Advisory Board, and
(3) issuance of 825,000 shares of common stock valued at $900,000 in exchange
for an interest-bearing note at 10%, maturing on June 29, 2004, collateralized
by shares of the Company's common stock, and included in stockholders' equity as
part of stock subscription receivable in the accompanying June 30, 2001 balance
sheet.
All the issuances were exempt transactions under Section 4(2) and Regulation D
of the Securities Act of 1933, as amended.
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 June 26, 2001 in Boca Raton,
Florida.
VOTES VOTES VOTES
FOR AGAINST WITHHELD
A. The amendment to the Company's Bylaws to elect directors to hold office on
a staggered term basis effective with the 2001 Annual Meeting of
Shareholders was adopted.
21,486,364 4,196,604 110,821
B. Nine Directors were elected.
1. Michael F. Morrell 51,350,296 2,628,931 773,054
2. Paul C. Pershes 44,562,136 9,417,091 773,054
3. Dana J. Pusateri 50,569,295 3,409,932 773,054
4. John E. Haines 47,410,061 6,569,166 773,054
5. Theodore J. Orlando 51,501,111 2,478,116 773,054
6. Terry Lazar 51,307,882 2,671,345 773,054
7. Peter Murphy 53,584,514 394,713 773,054
8. Alan Adelson 53,631,321 347,906 773,054
9. Zachariah P. Zachariah 53,737,608 241,619 773,054
C. The amendment to the Company's Articles of Incorporation to change the
name of the Company from Cyber-Care, Inc. to CyberCare, Inc. was adopted.
54,117,282 541,627 93,372
21
VOTES VOTES VOTES
FOR AGAINST WITHHELD
D. The amendments to the Company's 1999 Amended and Restated Directors' and
Executive Officers' Stock Option Plan (as set forth in the Proxy
Statement) were adopted.
17,542,445 8,062,435 188,909
E. The amendments to the Company's 1999 Incentive Stock Option Plan, as
Amended (as set forth in the Proxy Statement) were adopted.
17,619,406 7,897,285 277,098
F. Ernst & Young LLP approved to serve as the Company's independent auditors
for the 2001 calendar year audit.
54,321,318 270,438 160,525
ITEM 5. OTHER INFORMATION - Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amendment to Company's Articles of Incorporation to change the name
of the Company from Cyber-Care, Inc. to CyberCare, Inc.
3.2 Amendment to Section 1 of Article Three of the Amended and Restated
Bylaws of CyberCare, Inc., dated June 26, 2001
(b) Reports on Form 8-K
1) Resignation of John Haines as a Director and Senior V-P, filed June
28, 2001.
2) A) Sale of $10,000,000 in subordinated convertible debentures to
three accredited investors, B) Patent infringement complaint, C)
Suspension of certain payments to our Physical Therapy and
Rehabilitation Subsidiary by Medicare, and D) Air Ambulance Transport
extension of payment, filed June 1, 2001.
22
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.
CYBERCARE, INC.
(Registrant)
AUGUST 14, 2001 By: /s/ MICHAEL F. MORRELL
-------------- ------------------------------
(Date) Michael F. Morrell, Chairman of the Board &
Chief Executive Officer
AUGUST 14, 2001 By: /s/ ARTHUR KOBRIN
-------------- ------------------------------
(Date) Arthur Kobrin, Treasurer and Chief Accounting Officer
AUGUST 14, 2001 By: /s/ DANA PUSATERI
-------------- ------------------------------
(Date) Dana Pusateri, Chief Operating Officer
AUGUST 14, 2001 By: /s/ LINDA MOORE
-------------- ------------------------------
(Date) Linda Moore, Senior Vice President
23