U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 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
CYBER-CARE, 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 33426-8330
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(Address of principal executive offices)
(561) 742-5000
--------------
(Registrant'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 64,862,738 shares were outstanding as of April 30, 2001.
CYBER-CARE, INC.
10-Q QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 2001 and 2000 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 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 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports Form 8-K 17
Signatures 18
2
CYBER-CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited) (Audited)
March 31, December 31,
2001 2000
---------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,904 $ 15,231
Cash - restricted 315 -
Marketable securities 1,514 1,500
Trade accounts receivable, less allowance for doubtful
accounts of $1,467 (2001) and $1,496 (2000) 2,912 2,572
Net assets of discontinued operations 8,946 8,687
Inventories, net 6,510 5,242
Notes receivable - related parties 997 2,280
Notes receivable and other current assets 2,084 1,663
-------- --------
Total current assets 32,182 37,175
Property and equipment, net 2,490 2,072
Intangible assets, net 16,236 17,042
Notes receivable and other assets 3,264 3,444
-------- --------
Total assets $ 54,172 $ 59,733
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,299 $ 2,933
Accrued liabilities 3,640 3,859
Lines of credit 2,299 1,993
Net liabilities of discontinued operations 1,068 1,250
Other current liabilities 290 186
-------- --------
Total current liabilities 9,596 10,221
Other liabilities 455 178
-------- --------
Total liabilities 10,051 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;
64,862,738 and 64,775,282 shares issued and outstanding at
March 31, 2001 and December 31, 2000, respectively 162 162
Capital in excess of par 119,970 120,224
Stock subscription receivable (3,840) (3,903)
Accumulated other comprehensive income 4 1
Accumulated deficit (72,175) (67,150)
-------- --------
Total stockholders' equity 44,121 49,334
-------- --------
Total liabilities and stockholders' equity $ 54,172 $ 59,733
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
Net revenues $ 4,244 $ 4,890
Costs and expenses:
Costs of services 3,196 3,122
Selling, general and administrative 2,841 2,229
Research, development and engineering 3,417 1,143
Depreciation and amortization 554 443
Gain on sale of subsidiary (92) 0
----------- -----------
Total costs and expenses 9,916 6,937
----------- -----------
Operating loss (5,672) (2,047)
----------- -----------
Other income (expense):
Interest income 644 212
Interest expense (53) (474)
Interest - beneficial conversion feature - (502)
Other income 56 8
----------- -----------
Total other income (expense) 647 (756)
----------- -----------
Loss from continuing operations (5,025) (2,803)
Income from operations of discontinued business - 15
----------- -----------
Net loss $ (5,025) $ (2,788)
=========== ===========
Loss per common share - basic and diluted:
Loss from continuing operations $ (.08) $ (.05)
Discontinued operations - -
----------- -----------
Net loss $ (.08) $ (.05)
=========== ===========
Weighted average shares outstanding 64,803,947 53,074,384
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------
2001 2000
---------- ----------
Cash Flows from Operating Activities:
Net loss $ (5,025) $ (2,788)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 160 64
Amortization 394 379
Provision for doubtful accounts 267 84
Interest - beneficial conversion feature - 502
Common stock issued for services - 13
Net liabilities of discontinued operations (182) (343)
Net assets of discontinued operations (259) 315
Gain on sale of subsidiary (92) -
Changes in operating assets and liabilities, net of effects from
dispositions:
Trade accounts receivable (804) (1,817)
Inventories (1,268) (628)
Notes receivable and other current assets (422) 117
Accounts payable (571) (168)
Accrued and other current liabilities 499 919
---------- ----------
Net cash used in operating activities (7,303) (3,351)
---------- ----------
Cash Flows from Investing Activities:
Purchase of marketable securities (511) -
Sale of marketable securities 500 -
Cash restricted as to use (315) -
Repayment from (advances to) related parties, net 1,100 (400)
Capital expenditures (185) (144)
Change in intangible and other assets 180 (2,063)
---------- ----------
Net cash provided by (used in) investing activities 769 (2,607)
---------- ----------
Cash Flows from Financing Activities:
Payments of other liabilities (193) (85)
Net borrowings (repayments) under lines of credit 306 (3,505)
Proceeds from exercise of stock options and warrants 94 2,152
Proceeds from sale of common stock - 9,897
Proceeds from subordinated debentures - 4,667
---------- ----------
Net cash provided by financing activities 207 13,126
---------- ----------
Net (decrease) increase in cash and cash equivalents (6,327) 7,168
Cash and cash equivalents at the beginning of period 15,231 11,699
---------- ----------
Cash and cash equivalents at the end of period $ 8,904 $ 18,867
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 53 $ 495
========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
CYBER-CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands)
(Unaudited)
Supplemental disclosures of non-cash investing and financing activities:
For the Three Months Ended
March 31, March 31,
--------------------------
2001 2000
---------- ----------
Conversion of debentures to common stock $ - $ 9,475
Reclass of deferred financing costs upon conversion of debentures - 3,798
Fair market value of warrants issued for consulting fees - 368
Common stock issued for Employee Stock Purchase Plan 40 -
Common stock issued for accrued contribution to retirement plan 61 -
Common stock issued for accrued settlement of a lawsuit 125 -
Common stock issued under earn-out arrangement - 21
Common stock received as consideration for sale of subsidiary (692) -
Common stock issued for payment of accrued interest 366 -
Common stock issued for payment on long-term debt - 607
Common stock received in repayment of note receivable (183) (1,175)
Common stock received in repayment of stock subscription receivable (65) -
Property and equipment included in other liabilities 470 -
The following is a summary of the significant non-cash amounts that resulted
from the Company's disposition:
For the Three Months Ended
March 31, March 31,
--------------------------
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 $ - $ -
========== ==========
6
CYBER-CARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Cyber-Care, Inc. ("Cyber-Care" 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 a family of Electronic HouseCall(R)
("EHC") system products utilizing patented technology to enable
communications between chronically ill patients and a network of healthcare
providers using transfers of voice, video and medical diagnostic data. The
EHC monitoring system, which has been cleared by the United States Food and
Drug Administration, collects patient vital signs using devices such as an
electronic stethoscope, thermometer, blood pressure cuff, pulse oximeter 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 March 31, 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 are part of comprehensive income (loss). At March 31, 2001, the
Company had a $4,000 after-tax unrealized gain on marketable securities and
at March 31, 2000, the Company had a $53,000 after-tax unrealized loss on
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:
March 31, 2001 December 31, 2000
-------------- -----------------
Component parts $ 2,184,000 $ 1,790,000
Work-in-process 281,000 541,000
Finished goods 4,045,000 2,911,000
----------- -----------
$ 6,510,000 $ 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 the subsidiaries' operations. Under
the terms of the Air Agreement, the Purchasers paid $2,400,000 in Cyber-Care
common stock and issued $6,100,000 in short-term notes bearing interest at
10%, 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
also assumed all of the segment's debt, which aggregated approximately
$18,400,000 on September 2, 2000, in accordance with the Air Agreement. The
Company expects that the satisfaction of Air debt will be completed by
September 2001.
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 $2,778,000 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. Any potential gain that
may result from this transaction has been offset by an accrual for estimated
future operating losses, which
8
is also included in "Net Assets of Discontinued Operations." In addition,
the operating results of this segment for three months ended March 31, 2000
have been reported as income from discontinued operations 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. The terms of the agreement also call for the
waiver of any contingent consideration that would have been due under the
terms of the original purchase agreement between the Company and former
owner.
PHYSICIAN PRACTICE - 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.
Three months ended March 31,
2001 2000
------------ ------------
Revenue $ 4,244,000 $ 3,834,000
Loss from continuing operations $ (5,025,000) $ (2,982,000)
Net loss $ (5,025,000) $ (2,982,000)
Net loss per common share (basic and diluted) $ (0.08) $ (0.06)
Note 4 - 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 indemnification from a third party or insurance
coverage. 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 paragraph.
The Company has previously disclosed the 14 purported class action
lawsuits that were filed against Cyber-Care 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
9
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
executives believe the Complaint lacks merit and they intend to vigorously
defend against the complaint. However, the Company 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.
FUTURE CAPITAL NEEDS - The capital requirements needed to fund the
Company's operations, as well as to continue developing its EHC 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 EHC products and system and any other
services.
Note 5 - Changes in Stockholders' Equity
During the three months ended March 31, 2001, the Company issued
157,431 shares of its common stock, valued at $94,000 upon exercise of a
warrant by a former debenture holder and a stock option by a director.
During the three months ended March 31, 2001, the Company issued
22,256 shares of its common stock, valued at $40,000 under the employee stock
purchase plan.
In January 2001, the Company received 140,000 shares of its common
stock valued at $691,000 as consideration for the sale of a subsidiary.
During the three months ended March 31, 2001, the Company issued
33,060 shares of its common stock, valued at $125,000 as partial
consideration to settle a lawsuit.
During the three months ended March 31, 2001, two directors repaid
their notes to the Company by returning 107,048 shares of the Company's
common stock valued at $248,000.
During the three months ended March 31, 2001, the Company issued
29,301 shares of its common stock, for its contribution to the Company's
retirement plan valued at $61,000.
During the three months ended March 31, 2001, the Company issued
92,456 shares of its common stock to ten debenture holders to pay off accrued
interest in the amount of $366,000.
Note 6 - Operating Segments
The Company is organized and determines its segments based on
customer-focused operating groups. Each group reports its results of
operations and makes requests for capital expenditures and acquisition
funding to the Company's chief operating decision-making group. This group
is comprised of the following four individuals: the Chairman and Chief
Executive Officer, President, Cybercare Technologies President and Chief
Operating Officer. Under this organizational structure, the Company's
operating groups have been aggregated
10
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 either March 31, 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.
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 months
ended March 31, 2001 and 2000 is as follows:
Network-based Physical,
Telehealth Occupational and Institutional
Solutions Speech Therapy Pharmacy Other Consolidated
------------- ---------------- ------------- ----- ------------
2001
----
Net revenues $ 246,000 $ 2,667,000 $ 1,331,000 $ - $ 4,244,000
(Loss) income from
continuing operations (5,358,000) 563,000 (162,000) (68,000) (5,025,000)
Working capital 3,256,000 534,000 (305,000) 19,101,000 22,586,000
Total assets $20,488,000 $ 5,038,000 $ 2,285,000 $26,361,000 $54,172,000
2000
----
Net revenues $ 170,000 $ 3,180,000 $ 1,538,000 $ 2,000 $ 4,890,000
(Loss) income from
continuing operations (3,437,000) 517,000 (9,000) 126,000 (2,803,000)
Working capital (5,281,000) 14,000 587,000 31,634,000 26,954,000
Total assets $11,769,000 $ 8,069,000 $ 1,610,000 $ 38,285,000 $59,733,000
Note 7 - Related Party Transactions
During the quarter ended March 31, 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 for the quarter ended March 31, 2001
was $1,100,000, plus accrued interest on the notes.
During the quarter ended March 31, 2001, one director satisfied a
portion of his loan by returning to the Company 85,000 shares of the
Company's common stock which were owned by the director and valued at
$183,000.
In April 2001, the Board of Directors approved loans to certain
officers totaling $386,000. The loans call for interest to be charged at the
federal applicable rate, adjusted monthly. The outstanding principal and all
unpaid accrued interest is due on or before March 31, 2003. These loans are
collateralized by common shares of the Company owned by the officers.
11
Note 8 - Subsequent Event
Effective April 5, 2001, the Company entered into an agreement 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 shares are subject to escrow pending the
completion of the adapted home workstation and are not released until all
requirements of the escrow agreement and purchase agreement have been
satisfied.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENT
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 "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 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 MARCH 31,
2001 AND 2000
NET REVENUES
Net revenues for the quarter ended March 31, 2001 decreased 13.2% to
$4,244,000 compared with $4,890,000 for the quarter ended March 31, 2000 due
primarily to the sale of Carolina Rehab and the elimination of unprofitable
pharmacy customers, and was offset by an increase in revenue from internal
growth in the remaining physical, occupational and speech therapy segment.
Revenues from our network-based telehealth solutions segment remained
relatively immaterial and primarily consisted of revenue from our sleep
monitoring facility.
COST OF SERVICES
Cost of services, for the quarter ended March 31, 2001 increased
2.4% to $3,196,000 compared with $3,122,000 for the quarter ended March 31,
2000. The increase was primarily due to costs incurred regarding technology
start-up costs, expansion of the number of facilities serviced by the
physical, occupational and speech therapy segment which required hiring
additional personnel and increase in rent expense. The increase was offset
by costs relating to the rehab subsidiary that was sold in 2000 in the amount
of $680,000.
13
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense increased $612,000 or
27.5% to $2,841,000 for the quarter ended March 31, 2001, compared with
$2,229,000 for the quarter ended March 31, 2000. The increase is partially
attributable to the increase in the sales and marketing staff including their
travel and marketing costs as the Company continues to develop its
network-based telehealth solutions segment. The increase is also due to
expansion of the finance and legal departments.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for the quarter ended
March 31, 2001 increased to $3,417,000 compared to $1,143,000 for the quarter
ended March 31, 2000. The significant increase in the first quarter of 2001
was primarily due to the Company's acceleration of expenditures for the
development of the family of EHC products, which included the development of
additional products, software and peripheral monitoring equipment, all of
which is being expensed as incurred.
OPERATING LOSS
We had an operating loss of $5,672,000 for the three months ended
March 31, 2001 as compared to an operating loss of $2,047,000 for the three
months ended March 31, 2000. A significant portion of this increase, was due
to costs incurred for the development of the family of EHC system products
and software.
OTHER INCOME (EXPENSE)
During the quarter ended March 31, 2001, interest income increased
to $644,000 compared to $212,000, primarily as a result of the interest
earned on outstanding receivables due from the sale of the various
subsidiaries and from amounts invested.
During the quarter ended March 31, 2001, interest expense decreased
to $53,000 compared with $474,000 for the quarter ended March 31, 2000,
primarily due the Company's conversion of $9,475,000 of debentures during
2000.
NET LOSS
We had a net loss of $5,025,000 for the three months ended March 31,
2001 in comparison to a net loss of $2,788,000 for the three months ended
March 31, 2000, primarily as a result of costs incurred for the development
of the family of EHC system products and software.
14
LIQUIDITY AND CAPITAL RESOURCES
Cyber-Care has historically funded its growth from the sale of
equity securities and convertible debentures. In 2000, Cyber-Care raised,
net of expenses, approximately $27,000,000 through private debt and equity
offerings, which we are using for research, development, engineering,
marketing and working capital purposes. Cyber-Care's cash requirements will
be significant through fiscal 2001. We had working capital of approximately
$22,586,000 as of March 31, 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 fiscal 2001. However, we can provide no
assurance that our ability to fund operations through fiscal 2001 will not be
shortened due to factors beyond our control, such as lower than expected
revenues or increased expenses.
As of March 31, 2001, we had current liabilities of approximately
$9,596,000, which includes accounts payable, accrued expenses and
approximately $2,299,000 of amounts payable under two lines of credit, with
interest rates ranging between 10% and 12%. In January 2001, the Company
entered into a $500,000 financing arrangement to lease certain of the
furniture and equipment located at its corporate facility. The lease is
collateralized by a certificate of deposit reflected as restricted cash in
the condensed consolidated balance sheet as of March 31, 2001. The lease
calls for interest at 12.4% and matures in February 2004.
Except for our line of credit and the new lease 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.
Cash used in operating activities was $7,303,000 and $3,351,000 for
the three months ended March 31, 2001 and 2000, respectively. The increase
was primarily a result of increased net loss due to costs to develop,
implement and market our EHC system products and services. 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 and accrued expenses.
Cash provided by investing activities was $769,000 for the three
months ended March 31, 2001 compared to cash used in investing activities of
$2,607,000 for three months ended March 31, 2000. The increase was primarily a
result of repayments of loaned amounts by various officers and directors
during the first quarter of 2001.
Cash provided by financing activities was $207,000 and $13,126,000
for the three months ended March 31, 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 received for exercise of stock
options and warrants and 2000 proceeds due from issuance of debentures in
December 1999.
15
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
16
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 indemnification from a third party or insurance coverage. 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 paragraph.
The Company has previously disclosed the 14 purported class action
lawsuits that were filed against Cyber-Care 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
executives believe the Complaint lacks merit and they intend to vigorously
defend against the complaint. However, the Company 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2001, the Company issued
157,431 shares of its common stock, valued at $94,000 upon exercise of a
warrant by a former debenture holder and a stock option by a director.
During the three months ended March 31, 2001, the Company issued
22,256 shares of its common stock, valued at $40,000 under the employee stock
purchase plan.
In January 2001, the Company received 140,000 shares of its common
stock valued at $691,000 as consideration for the sale of a subsidiary.
During the three months ended March 31, 2001, the Company issued
33,060 shares of its common stock, valued at $125,000 as partial
consideration to settle a lawsuit.
During the three months ended March 31, 2001, two directors repaid
their notes to the Company by returning 107,048 shares of the Company's
common stock valued at $248,000.
During the three months ended March 31, 2001, the Company issued
29,301 shares of its common stock, for its contribution to the Company's
retirement plan valued at $61,000.
17
During the three months ended March 31, 2001, the Company issued
92,456 shares of its common stock to ten debenture holders to pay accrued
interest in the amount of $366,000.
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
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the first quarter of 2001, covered by this report on Form
10-Q, no matter was submitted to a vote of security holder
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
N/A
18
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)
May 11, 2001 By: /s/ Michael F. Morrell
----------- --------------------------------------------------
(Date) Michael F. Morrell, Chairman of the Board &
Chief Executive Officer
May 11, 2001 By: /s/ Paul C. Pershes
----------- --------------------------------------------------
(Date) Paul C. Pershes, President, and acting Chief
Financial Officer
May 11, 2001 By: /s/ Dana Pusateri
----------- --------------------------------------------------
(Date) Dana Pusateri, Chief Operating Officer
May 11, 2001 By: /s/ Linda Moore
----------- --------------------------------------------------
(Date) Linda Moore, Senior Vice President
May 11, 2001 By: /s/ Arthur Kobrin
----------- --------------------------------------------------
(Date) Arthur Kobrin, Treasurer
May 11, 2001 By: /s/ John Haines
----------- --------------------------------------------------
(Date) John Haines, Senior Vice President
19