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 SEPTEMBER 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)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such 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
66,464,892 shares were outstanding as of October 31, 2001.
1
CYBERCARE, INC.
10-Q QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements(Unaudited)
Condensed Consolidated Balance Sheets
as of September 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of
Operations for the Three and Nine Months Ended
September 30, 2001 and 2000 4
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 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 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
2
CYBERCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(UNAUDITED) (AUDITED)
ASSETS SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Current Assets:
Cash and cash equivalents $ 4,697 $ 15,231
Cash - restricted 369 --
Marketable securities 1,000 1,500
Trade accounts receivable, less allowance for doubtful
accounts of $1,597 (2001) and $1,496 (2000) 5,445 2,572
Net assets of discontinued operations 6,747 8,687
Inventories, net 6,506 5,242
Notes receivable - related parties 555 2,280
Notes receivable and other current assets 1,937 1,663
--------- ---------
Total current assets 27,256 37,175
Property and equipment, net 2,563 2,072
Intangible assets, net 15,721 17,042
Notes receivable - related parties 386 --
Notes receivable and other assets 3,757 3,444
--------- ---------
Total assets $ 49,683 $ 59,733
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,607 $ 2,933
Accrued liabilities 3,965 3,859
Lines of credit 2,138 1,993
Net liabilities of discontinued operations 653 1,250
Other current liabilities 361 186
--------- ---------
Total current liabilities 9,724 10,221
Convertible subordinated debentures, net of $2,128 discount 7,872 --
Other liabilities 415 178
--------- ---------
Total liabilities 18,011 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;
65,924,203 and 64,775,282 shares issued and outstanding at
September 30, 2001 and December 31, 2000, respectively 165 162
Capital in excess of par 124,625 120,224
Stock subscription receivable (4,740) (3,903)
Accumulated other comprehensive income -- 1
Accumulated deficit (88,378) (67,150)
--------- ---------
Total stockholders' equity 31,672 49,334
--------- ---------
Total liabilities and stockholders' equity $ 49,683 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net revenues $ 5,195 $ 4,535 $ 14,143 $ 14,130
------------ ------------ ------------ ------------
Costs and expenses:
Cost of services 3,732 2,778 10,311 8,990
Selling, general and administrative 4,403 4,113 10,794 9,973
Research, development and engineering 2,513 1,838 10,244 5,035
Depreciation and amortization 579 312 1,688 1,216
Gain on sale of subsidiary -- -- (92) --
------------ ------------ ------------ ------------
Total costs and expenses 11,227 9,041 32,945 25,214
------------ ------------ ------------ ------------
Operating loss (6,032) (4,506) (18,802) (11,084)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 263 489 1,179 1,220
Interest expense (515) -- (592) (492)
Interest - accreted and beneficial conversion feature (215) -- (323) (657)
Write-off of investment in equity securities -- -- -- (2,424)
Other income 94 5 154 18
------------ ------------ ------------ ------------
Total other (expense) income (373) 494 418 (2,335)
------------ ------------ ------------ ------------
Loss from continuing operations (6,405) (4,012) (18,384) (13,419)
Loss from operations of discontinued businesses -- (945) -- (1,627)
Estimated loss on disposal of discontinued business (1,894) -- (2,844) --
------------ ------------ ------------ ------------
Net loss $ (8,299) $ (4,957) $ (21,228) $ (15,046)
============ ============ ============ ============
Loss per common share - basic and diluted:
Loss from continuing operations $ (0.10) $ (0.06) $ (0.28) $ (0.22)
Discontinued operations (0.03) (0.02) (0.05) (0.03)
------------ ------------ ------------ ------------
Net loss $ (0.13) $ (0.08) $ (0.33) $ (0.25)
============ ============ ============ ============
Weighted average shares outstanding 65,823,776 64,706,447 65,177,811 59,924,005
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
4
CYBERCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2001 2000
-------- --------
Cash Flows from Operating Activities:
Net loss $(21,228) $(15,046)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 512 190
Amortization 1,176 1,026
Write-off of investment in securities -- 2,424
Provision for doubtful accounts 932 877
Interest - accreted discount and beneficial conversion 323 657
Common stock issued for services and interest 390 141
Warrants issued for services 780 --
Net liabilities of discontinued operations (597) (774)
Net assets of discontinued operations (1,017) (1,040)
Gain on sale of subsidiary (92) --
Estimated loss on disposal of discontinued business 2,844 --
Changes in operating assets and liabilities, net of effects
from dispositions:
Trade accounts receivable (4,001) (2,318)
Inventories (1,264) (3,153)
Notes receivable and other current assets (730) 76
Accounts payable (262) 865
Accrued and other current liabilities 833 981
-------- --------
Net cash used in operating activities (21,401) (15,094)
-------- --------
Cash Flows from Investing Activities:
Purchase of marketable securities (511) (15,211)
Sale of marketable securities 1,011 --
Cash - restricted (369) --
Capital expenditures (204) (619)
Repayment from (advances to) related parties, net 1,156 (3,757)
Change in intangible and other assets (215) (170)
-------- --------
Net cash provided by (used in) investing activities 868 (19,757)
-------- --------
Cash Flows from Financing Activities:
Payments of other liabilities (240) (133)
Net borrowings (repayments) under lines of credit 145 (2,477)
Proceeds from exercise of stock options and warrants 94 4,623
Proceeds from sale of common stock -- 27,565
Proceeds from sale of convertible subordinated debentures 10,000 5,143
Repayment of subordinated debentures -- (368)
-------- --------
Net cash provided by financing activities 9,999 34,353
-------- --------
Net decrease in cash and cash equivalents (10,534) (498)
Cash and cash equivalents at the beginning of period 15,231 11,758
-------- --------
Cash and cash equivalents at the end of period $ 4,697 $ 11,260
======== ========
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:
Nine Months Ended
September 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 matching contribution issued to retirement plan 61 --
Common stock issued for payment of accrued interest 366 --
Common stock issued under Employee Stock Purchase Plan 79 79
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) --
Common stock issued to purchase domain name 16 101
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 -- 331
Common stock issued for payment of long-term debt -- 607
Common stock issued under limited liability company agreement -- 2,384
Property and equipment purchases financed by other liabilities 568 --
Common stock received upon uncured breach of contract (114) --
The following is a summary of the significant non-cash amounts that resulted
from the Company's disposition of Carolina Rehab :
For the Nine Months Ended
September 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
SEPTEMBER 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 September 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 September 30, 2001 and 2000, the Company had a $0 and $10,000
after-tax realized loss on marketable securities, respectively. For the nine
months ended September 30, 2001, the Company had a $1,000 after-tax realized
gain on marketable securities. For the nine months ended September 30, 2000, the
Company had a $2,000 after-tax unrealized loss and a $1,768,000 realized loss 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.
Recently Issues Accounting Pronouncements
In June 2001, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets." Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company will apply the new accounting rules
beginning January 1, 2002. The Company is currently assessing the financial
impact SFAS No. 141 and No. 142 will have on its consolidated financial
statements.
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:
SEPTEMBER 30, 2001 DECEMBER 31, 2000
-------------------- --------------------
Component parts $2,833,000 $1,790,000
Work-in-process 271,000 541,000
Finished goods 3,402,000 2,911,000
---------- ----------
$6,506,000 $5,242,000
========== ==========
8
Note 3 - Discontinued Operations and Dispositions
AIR AMBULANCE TRANSPORT - In October 2001, the Company regained ownership
of the air ambulance business ("Air") it had previously agreed to sell in
September 2000 from the buyer in that transaction, following the buyer's uncured
breach of its payment obligations. The Company simultaneously entered into an
agreement (the "Purchase Agreement") to sell the air ambulance business in a
transaction in which all of the stock of one operating subsidiary and certain
assets of the other two operating subsidiaries were sold to an unrelated third
party ("New Buyer") for a $5,000,000 convertible promissory note (the "Note").
Completion of this Purchase Agreement is contingent on the release of a
guarantee relating to the financing of the aircrafts and the unconditional
approval of the leases from the aircraft lender (the Company has received
conditional approvals subject to the agreements being prepared). The New Buyer
purchased all the issued and outstanding stock of Global Air Charter, Inc.
("GAC"), and certain assets of each of Air Response North, Inc. ("ARN") and
Global Air Rescue, Inc. ("GAR"), in exchange for the Note, which earns interest
at 6% per annum and matures in 10 years. The debt service payments under the
Note are based on distributable net profits and available cash of the buyer, as
those terms are defined in the Note and the Purchase Agreement. The Note may be
converted by the Company into a 19 percent non-voting equity interest in the New
Buyer, subject to reduction based on debt service payments and dilution in the
event the New Buyer issues additional equity securities.
The New Buyer has also agreed to pay, out of available cash, up to
$1,000,000 of accounts payable of ARN incurred prior to the effective date, for
a six month period following the closing, and has agreed to purchase or lease a
Lear 31 aircraft or equivalent within six months following the closing, for use
in the business.
As part of the purchase, GAC (as owned by the New Buyer) entered into
aircraft lease agreements with ARN and GAR, as lessors, for use of the air
ambulance fleet for a term of 30 months. The leases for the Lear 35 and 36
aircrafts provide for rental payments equal to the monthly amount due the
finance company for such aircraft and require GAC to be responsible for major
structural repair and maintenance (except for one aircraft, for which lessor
will remain responsible for major structural repair and maintenance). The master
lease for the Lear 25 aircraft provide for hourly based rental payments, with
minimum use obligations, and requires the lessors to maintain and insure these
aircrafts. Under the leases, GAC has the right to purchase the aircraft for an
amount equal to the payoff amount due the finance company. The lessors, however,
have the right to sell the leased aircraft to a third party; however, GAC has a
thirty day first right of refusal to purchase the aircraft at the same price
that was offered by the third party, which shall be at least equal to the amount
due the finance company.
9
The Company is not recognizing any gain or loss from this disposition and
is accounting for the air ambulance business as a discontinued operation until
the subsequent sale is completed and all of the aircraft have been sold or
disposed of. Accordingly, amounts owed, net of an approximately $666,000 accrual
for future losses of Air, have been classified as "Net assets of discontinued
operations," in the accompanying condensed consolidated balance sheets. In
addition, the operating results of Air for the three and nine month periods
ended September 30, 2000 have been reported as "Loss from operations of
discontinued businesses" in the accompanying condensed consolidated statements
of operations. Also, this business reported a $1,894,000 and 2,844,000
"Estimated loss on disposal of discontinued business" for the three and nine
month periods ended September 30, 2001, respectively, in the accompanying
condensed consolidated statements of operations. The loss for the current three
month period was significantly greater than management's estimated loss,
partially due to a decrease in revenue as a result of the September 11, 2001
terrorist attack, which caused all flights the Company was servicing to be
grounded for several days and apprehension on the part of patients to fly.
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 total of $750,000
in payments in 2001 on the 8% note. 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 discontinued operations and 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.
NINE MONTHS ENDED SEPTEMBER 30,
2001 2000
------------ ------------
Net revenues $ 14,043,000 $ 10,498,000
Loss from continuing operations $(18,523,000) $(14,166,000)
Net loss $(18,523,000) $(14,166,000)
Net loss per common share (basic and diluted) $ (0.28) $ (0.24)
10
Note 4- Equity Line of Credit
The Company entered into a Private Equity Line Agreement ("Agreement")
dated September 14, 2001 with Strategic Investment Management SA, an entity
organized under the laws of the British Virgin Islands ("SIM"). Under the
Agreement, the Company has the right to require SIM to purchase, from time to
time, the Company's common stock (a "Put"), not to exceed, in the aggregate,
$15,000,000 of the Company's common stock. The price for each share purchased
pursuant to a Put is 85% of the lower of the closing bid price or the lowest
trading price for the Company's common stock (as reported by Bloomberg, L.P.) on
the trading day on which a Put notification is delivered by the Company to SIM.
The Company is required to consummate a minimum Put of $1 million of the
Company's common stock during the term of the Agreement. The Agreement will
terminate at the earlier of twenty-four months after the commencement of the
commitment period or the date on which the Company has made Puts with an
aggregate investment amount equal to $15,000,000.
The maximum number of shares of common stock the Company is permitted to
Put to SIM in any seven-day period is based on 17.5% of the average trading
volume (measured over the 10-day period prior to the Put notification)
multiplied by a factor of five. Each Put must be for at least 10,000 shares of
common stock. The total number of shares of common stock which may be sold to
SIM under the Agreement may not exceed 19.9% of the total outstanding common
shares of the Company. Prior to the first Put, but not later than 120 days
following the date of the Agreement, the Company must file a registration
statement with the Securities and Exchange Commission for the registration and
resale of the common stock being sold under the Agreement. As of September 30,
2001, the Company has not made any Puts to SIM.
Note 5- 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.
11
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 nine months ended September 30, 2001 were $215,000 and $323,000,
respectively, and were recognized in "Interest - accreted and beneficial
conversion feature" in the accompanying condensed consolidated statements of
operations.
Note 6- 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 where 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, which was denied. Mediation has been ordered by the court. The Company
and its management believe the Complaint lacks merit and they intend to
vigorously defend against the Complaint. The Company and its management cannot
predict the outcome of this litigation or the impact that the Complaint, 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.
12
The Company's 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 2001, the suspension was lifted and payment for processed claims was
released although $1,114,000 of the reimbursement 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 CyberCare SystemTM
family of products, systems and any other new services will be significant. The
Company will 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 7- 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
inter-company 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 Air segment during September 2000. On October 1,
2001, the Company reacquired the Air segment and simultaneously entered into an
agreement to sell the business to a third party (see Note 3). Accordingly, the
Air segment is not separately presented below for any of the three or nine month
periods ended September 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.
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 nine month periods ended
September 30, 2001 and 2000 are as follows:
13
NETWORK-BASED PHYSICAL,
FOR THE THREE MONTHS ENDED TELEHEALTH OCCUPATIONAL AND INSTITUTIONAL
SEPTEMBER 30, SOLUTIONS SPEECH THERAPY PHARMACY OTHER CONSOLIDATED
--------------------------- --------------- ---------------- --------------- ------------- --------------
2001
Net revenues $ 1,030,000 $ 2,579,000 $ 1,586,000 $ -- $ 5,195,000
(Loss) income from
continuing operations (4,925,000) 150,000 (226,000) (1,404,000) (6,405,000)
Working capital (deficit) 3,960,000 2,164,000 (894,000) 12,302,000 17,532,000
Total assets 20,921,000 6,501,000 2,361,000 19,900,000 49,683,000
2000
Net revenues 178,000 2,707,000 1,650,000 -- 4,535,000
(Loss) income from continuing
operations (4,485,000) 327,000 (129,000) 275,000 (4,012,000)
Working capital (deficit) (6,146,000) 725,000 292,000 46,204,000 41,075,000
Total assets 17,970,000 10,510,000 2,683,000 39,669,000 70,832,000
NETWORK-BASED PHYSICAL,
FOR THE NINE MONTHS ENDED TELEHEALTH OCCUPATIONAL AND INSTITUTIONAL
SEPTEMBER 30, SOLUTIONS SPEECH THERAPY PHARMACY OTHER CONSOLIDATED
------------------------- --------------- ----------------- --------------- ------------- --------------
2001
Net revenues $ 1,646,000 $ 7,891,000 $ 4,606,000 $ -- $ 14,143,000
(Loss) income from continuing
operations (16,440,000) 683,000 (444,000) (2,183,000) (18,384,000)
2000
Net revenues 641,000 8,775,000 4,714,000 -- 14,130,000
(Loss) income from continuing
operations (12,597,000) 1,008,000 (76,000) (1,754,000) (13,419,000)
Note 8- Related Party Transactions
During the nine months ended September 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 nine months ended September
30, 2001 was approximately $1,500,000, 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, a portion of a loan and
accrued interest. 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.
Note 9- 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 September 30, 2001 balance sheet.
14
Note 10- 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 valued at $2,900,000, which was subject to the
execution and performance of certain final terms and conditions and approval by
the Board of Directors (the "Agreement"). The parties subsequently mutually
agreed to abandon the transaction and terminate the Agreement pursuant to a
settlement agreement under which the seller is entitled to receive $125,000 in
cash and 125,000 shares of restricted company stock (entitled to registration).
In addition, as part of the settlement, the Seller is to receive a license to
utilize certain software components of the Company's CyberCare System(TM) in
connection with the home workstation technology in exchange for a license fee.
The Company also agreed to provide 25,000 shares of Company common stock in
settlement of any "finder's fee" arising under the Agreement.
Note 11- Strategic Alliances
On October 11, 2001, the Company entered into a Marketing, Distribution
and License Agreement ("Agreement") with CyberAmeriCare, Inc., a Delaware
corporation ("AmeriCare"), which grants to AmeriCare the exclusive geographic
rights (subject to minimum unit sales requirements), to use, market, distribute,
install, support and maintain the Company's CyberCare SystemTM within North,
South and Central America, subject to certain retained rights, and further
subject to initial capitalization of AmeriCare of at least $30,000,000 which is
to take place within ninety days following execution of the Agreement. Within
fifteen days of the initial capitalization or promptly upon AmeriCare's first
commercial operation of the services in the defined territory, which ever is
earlier, AmeriCare will be obligated to pay the Company $15,000,000 as a fee for
the exclusive geographic rights described above. Neither the Company nor any of
its subsidiaries are responsible for any of AmeriCare's capitalization; however,
the Company shall receive, as additional consideration for the exclusive
geographic rights, a twenty-five percent equity interest in AmeriCare. Based on
AmeriCare's performance, the Company is expected to generate revenue from sales
of its Electronic HouseCall(R) (EHCTM) System units to AmeriCare and ongoing
revenue for network services provided after deployment of the units.
15
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.
16
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 SEPTEMBER
30, 2001 AND 2000
Net revenues for the quarter ended September 30, 2001 increased 14.6%
to $5,195,000 compared with $4,535,000 for the prior year's comparable
quarter. Quarterly net revenues increased from internal growth in the
network-based telehealth solutions segment and physical, occupational and
speech therapy segment. The increase was offset by a decrease in the net
revenues of the institutional pharmacy segment and resulting from the
October 31, 2000 sale of Carolina Rehab and January 26, 2001 sale of the
Company's physician practice (which together aggregated $1,026,000 net
revenues for the 2000 third quarter).
Cost of services for the quarter ended September 30, 2001 increased
34.3% to $3,732,000 compared with $2,778,000 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 costs relating to the rehab subsidiary sold in 2000 and
physician practice sold in January 2001.
Selling, general and administrative expenses increased 7.1% to $4,403,000
for the quarter ended September 30, 2001, compared with $4,113,000 for the prior
year's comparable quarter. The net increase is primarily attributable to
additional personnel, professional fees and severance costs, offset by 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
September 30, 2001 increased 36.7% to $2,513,000 compared to $1,838,000 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.
17
The Company's on-going cost management program resulted in a reduction of
$1,750,000 in 2001 third quarter operating costs and expenses (compared with
2001 second quarter operating costs and expenses, excluding depreciation and
amortization and certain 2001 third quarter non-cash expenses). The 2001 third
quarter non-cash expenses included $398,000 of severance and related benefit
accruals due to staff reductions and $753,000 of expense resulting from warrants
issued for services related to establishment of certain foreign joint ventures.
The Company had an operating loss of $6,032,000 for the three months ended
September 30, 2001 as compared to an operating loss of $4,506,000 for the prior
year's comparable period. A significant portion of this increase was due to
costs incurred for the development of the CyberCare SystemTM.
For the quarter ended September 30, 2001, interest income decreased to
$263,000, compared with $489,000 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.
The Company's net loss for the three months ended September 30, 2001 was
$8,299,000 in comparison to a net loss of $4,957,000 for the prior year's
comparable period, primarily as a result of costs incurred for the development
of the CyberCare SystemTM. In addition, the current quarter included a
$1,894,000 accrual for the estimated disposal of the Company's air ambulance
transport segment, while the prior year's comparable period included a $945,000
loss from discontinued operations.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2001 AND 2000
Net revenues for the nine months ended September 30, 2001 of
$14,143,000 were consistent with net revenues of $14,130,000 for the prior
year's comparable period. Net revenues increased from internal growth in the
network-based telehealth solutions segment and physical, occupational and
speech therapy segment. The increase was offset by a decrease in the net
revenues of the institutional pharmacy segment and resulting from the October
31, 2000 sale of Carolina Rehab and January 26, 2001 sale of the Company's
physician practice (together aggregated $3,632,000 net revenues for the nine
months ended September 30, 2000).
Cost of services for the nine months ended September 30, 2001 increased
14.7% to $10,311,000 compared with $8,990,000 for the prior year's comparable
period. The increase was substantially due to 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 costs relating to the
rehab subsidiary sold in 2000 and physician practice sold in January 2001.
18
Selling, general and administrative expenses increased 8.2% to $10,794,000
for the nine months ended September 30, 2001, compared with $9,973,000 for the
prior year's comparable period. 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 costs relating to the rehab subsidiary sold in 2000 and physician
practice sold in January 2001.
Research, development and engineering expenses for the nine months ended
September 30, 2001 increased 103.5% to $10,244,000 compared to $5,035,000 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 $18,802,000 for the nine months ended
September 30, 2001 as compared to an operating loss of $11,084,000 for the prior
year's comparable period. 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.
The Company's net loss for the nine months ended September 30, 2001 was
$21,228,000 in comparison to a net loss of $15,046,000 for the prior year's
comparable period, primarily as a result of costs incurred for the development
of the CyberCare SystemTM. In addition, the current year's period included a
$2,844,000 accrual for the estimated disposal of the Company's air ambulance
transport segment while the prior year's comparable period included both a
$1,627,000 loss from discontinued operations of its Air segment and a one-time
$2,424,000 investment write-off.
19
LIQUIDITY AND CAPITAL RESOURCES
CyberCare has historically funded its growth from the sale of equity
securities and convertible debentures. Through September 30, 2001 and in 2000,
CyberCare raised, net of expenses, approximately $10,000,000 and $27,600,000,
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. The Company had
working capital of approximately $17,532,000 as of September 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 September 30, 2001, we had current liabilities of approximately
$9,724,000, which includes accounts payable, accrued expenses and approximately
$2,138,000 of borrowings under two lines of credit, with interest rates ranging
from 8.50% to 8.65% at September 30, 2001. We had the ability to borrow up to an
aggregate of approximately $5,000,000 under the lines of credit at September
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 September 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.
The Company entered into a Private Equity Line Agreement ("Agreement")
dated September 14, 2001 with Strategic Investment Management SA, an entity
organized under the laws of the British Virgin Islands ("SIM"). Under the
Agreement, the Company has the right to require SIM to purchase, from time to
time, the Company's common stock (a "Put"), not to exceed, in the aggregate,
$15,000,000 of the Company's common stock. The price for each share purchased
pursuant to a Put is 85% of the lower of the closing bid price or the lowest
trading price for the Company's common stock (as reported by Bloomberg, L.P.) on
the trading day on which a Put notification is delivered by the Company to SIM.
The Company is required to consummate a minimum Put of $1 million of the
Company's common stock during the term of the Agreement. The Agreement will
terminate at the earlier of twenty-four months after the commencement of the
commitment period or the date on which the Company has made Puts with an
aggregate investment amount equal to $15,000,000.
20
The maximum number of shares of common stock the Company is permitted to
Put to SIM in any seven-day period is based on 17.5% of the average trading
volume (measured over the 10-day period prior to the Put notification)
multiplied by a factor of five. Each Put must be for at least 10,000 shares of
common stock. The total number of shares of common stock which may be sold to
SIM under the Agreement may not exceed 19.9% of the total outstanding common
shares of the Company. Prior to the first Put, but not later than 120 days
following the date of the Agreement, the Company must file a registration
statement with the Securities and Exchange Commission for the registration and
resale of the common stock being sold under the Agreement. As of September 30,
2001, the Company has not made any Puts to SIM.
Cash used in operating activities was $21,401,000 and $15,094,000 for the
nine months ended September 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 liabilities of discontinued
operations, an increase in accounts receivable and purchase of additional
inventory.
Cash provided by investing activities was $868,000 for the nine months
ended September 30, 2001 compared to cash used in investing activities of
$19,757,000 for the prior year's comparable period. The increase primarily
resulted from repayments from certain officers and directors of amounts loaned
in previous quarters and greatly reduced marketable security purchases during
the current nine month period compared to the prior year's comparable period.
Cash provided by financing activities was $9,999,000 and $34,353,000 for
the nine months ended September 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 and the financing arrangements 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.
21
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 where 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, which was denied. Mediation has been ordered by the court. The Company
and its management believe the Complaint lacks merit and they intend to
vigorously defend against the Complaint. The Company and its management cannot
predict the outcome of this litigation or the impact that the Complaint, 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 and payment for processed claims was released although $1,114,000 of the
reimbursement 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.
22
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 September 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
$7,800 to purchase a domain name,
(2) issuance of 5,000 shares of common stock valued at approximately
$5,500 for a member of the Company's Medical Advisory Board,
(3) issuance of 201,818 shares of common stock valued at $224,000 for
payment of consulting services and
(4) issuance of 71,178 shares of common stock valued at approximately
$135,000 for payment of interest.
All the issuances were exempt transactions under Section 4(2) and 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 - Not
applicable.
ITEM 5. OTHER INFORMATION - Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Resignation of Paul C. Pershes as a Director and President,
appointment of Steven M. Cohen as Chief Financial Officer, and other
senior management reorganizations and promotions, filed September
17, 2001.
23
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)
NOVEMBER 14, 2001 By: /s/ MICHAEL F. MORRELL
----------------- ------------------------------
(Date) Michael F. Morrell, Chairman of the Board & Chief
Executive Officer
NOVEMBER 14, 2001 By: /s/ STEVEN M. COHEN
----------------- ------------------------------
(Date) Steven M. Cohen, Chief Financial Officer
24