-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I/MUjcF/6Yd+Errd4UjsiU54B0V9dD2LzNa5umB6eMGH1EHN5ZIk5qNtCNSd1z+0 RJlXOMkpIBwx/eYSLI9gRA== 0000950170-98-002299.txt : 19981208 0000950170-98-002299.hdr.sgml : 19981208 ACCESSION NUMBER: 0000950170-98-002299 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981120 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYBEAR INC CENTRAL INDEX KEY: 0001036824 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 133936988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-24671 FILM NUMBER: 98765074 BUSINESS ADDRESS: STREET 1: 5000 BLUE LAKE DRIVE CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 561-994-1270 MAIL ADDRESS: STREET 1: 407 E GRAND RIVER CITY: BRIGHTON STATE: MI ZIP: 48116 FORMER COMPANY: FORMER CONFORMED NAME: 1997 CORP DATE OF NAME CHANGE: 19970331 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 20, 1998 CYBEAR, INC. ------------ (Exact name of registrant as specified in its charter) DELAWARE 333-24671 13-3936988 ---------- ----------- ----------- State or other (Commission (IRS Employer jurisdiction of File Number Identification No.) incorporation 5000 BLUE LAKE DRIVE, BOCA RATON, FLORIDA 33431 ------------------------------------------ --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (561) 994-1270 --------------- 1997 CORP. 315 WEST 106TH STREET, NEW YORK, NEW YORK 10025 ------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 1. CHANGES IN CONTROL OF REGISTRANT. At a Special Meeting of the Stockholders of 1997 Corp. (the "Registrant") held on November 19,1998, the Stockholders of the Registrant approved and adopted the Merger Agreement and Plan of Reorganization, dated as of July 15, 1998 (the "Merger Agreement"), among the Registrant, CyBear, Inc., a Florida corporation ("CyBear"), Andrx Corporation ("Andrx"), and CyBear Capital Corp. On November 20, 1998 pursuant to the Merger Agreement, a newly formed subsidiary of the Registrant, CyBear Capital Corp., ("Mergerco") was merged with and into CyBear (the "Merger") and the Registrant acquired from the current shareholders of CyBear all of the outstanding capital stock of CyBear. As a result of the Merger, the separate existence and corporate organization of Mergerco ceased and CyBear became a wholly owned subsidiary of the Registrant There was no change in the ownership of the 270,000 shares of the Registrant Common Stock outstanding immediately prior to the Acquisition (after giving effect to a five-for-one Common Stock dividend payable on each of the 45,000 currently outstanding shares of the Registrant). As required by Rule 419 promulgated pursuant to the Securities Act of 1933, as amended, stockholders of the Registrant were required to reconfirm their purchase of the Registrant's shares and each stockholder who rejected or failed to approve the Merger Agreement was paid his or her pro rata share of the funds deposited in the Rule 419 escrow account at Continental Stock Transfer and Trust Company, or approximately $5.10 per share. Funds were returned for a total of 100 shares. All outstanding CyBear Common Shares were cancelled and were converted by virtue of the Merger into a total of 13,000,000 the Registrant Shares. All presently outstanding employee stock options of CyBear were assumed by the Registrant. The result of the Merger was that the holders of CyBear's Common Stock immediately prior to the consummation of the Merger Transaction own approximately 98% of the Registrant's Common Stock and the Registrant's original shareholders own 2% of the Registrant's Common Stock. Anda Generics, Inc., a subsidiary of Andrx, owns 12,536,667 shares of the Registrant and John Klein, Chairman of the Registrant, owns 333,333 shares of the Registrant's Common Stock. Pursuant to the Merger Agreement, effective upon the Merger, the directors and officers of CyBear became directors and officers of the Registrant and the former officers of the Registrant resigned. The current officers and directors of CyBear are: Alan P. Cohen Director John H. Klein Chairman and Director Edward E. Goldman, M.D. President, Chief Executive Officer and Director Debra s. Richman Executive Vice President--Business Development Scott Lodin Vice President, General Counsel, Secretary and Director Angelo C. Malahias Vice President and Chief Financial Officer Upon consummation of the Merger the name of the Registrant was changed to "CyBear Inc." and the name of CyBear was changed to "CyBear Inc. (FL)". The Acquisition was effected pursuant to the Florida Business Corporation Law and is intended to be a tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. There are no arrangements known to the Registrant that may result in a subsequent change of control of the Registrant. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED Financial Statements of CyBear, Inc. Report of Independent Accountants * Balance Sheet as of December 31, 1997* Statement of Operations for the period from February 5, 1997 (inception) to December 31, 1997* Statement of Shareholders' Deficit for the period from February 5, 1997 (inception) to December 31, 1997* Statement of Cash Flows for the period from February 5, 1997 (inception) to December 31, 1997* Notes to Financial Statements* Balance Sheet as of September 30, 1998 Statement of Operations for the nine months ended September 30, 1998 Statement of Shareholders' Deficit for the nine months ended September 30, 1998 Statement of Cash Flows for the nine months ended September 30, 1998 (b) PRO FORMA FINANCIAL INFORMATION Pro Forma Statement of Operations for the year ended December 31, 1997 Pro Forma Balance Sheet as of September 30, 1998 Pro Forma Statement of Operations for the nine months ended September 30, 1998 (c) Exhibits. 2 Merger Agreement and Plan of Reorganization dated as of July 15, 1998 among 1997 Corp.,CyBear, Inc. and CyBear Capital Corp.** - ------------------- * Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form SB-2 filed on October 20, 1998 ** Incorporated by reference to Post-Effective Amendment No. 2 to Registrant's Registration Statement on Form SB-2 filed on July 28, 1998 2 SIGNATURES Pursuant to 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 hereunto duly authorized. CYBEAR, INC. By:/s/ EDWARD E. GOLDMAN -------------------------------------------- Edward E. Goldman President, Chief Executive Officer and Director Dated: December 7, 1998 3
CYBEAR, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ----------------- (Unaudited) ASSETS Current assets: Cash $ 1,000 $ 1,000 Prepaid expenses 134,570 30,707 Deferred merger costs 31,709 -- --------------- -------------- Total current assets 167,279 31,707 Property and equipment, net 308,133 189,065 Software license, net 159,897 160,000 Software development costs, net 70,000 -- Other assets 4,415 14,684 --------------- --------------- Total assets $ 709,724 $ 395,456 =============== =============== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable $ 238,306 $ 64,813 Accrued payroll and employee benefits 162,243 76,533 Due to Andrx Corporation 3,779,178 1,268,773 --------------- -------------- Total current liabilities 4,179,727 1,410,119 --------------- -------------- Commitments and contingencies (Notes 5 and 9) Shareholders' deficit: Convertible preferred stock, $.001 par value; 1,000,000 shares authorized, none issued and outstanding -- -- Common stock, $.001 par value; 25,000,000 shares authorized, 13,000,000 shares issued and outstanding 13,000 13,000 Additional paid-in capital 543,226 530,906 Accumulated deficit (4,026,229) (1,558,569) --------------- -------------- Total shareholders' deficit (3,470,003) (1,014,663) --------------- -------------- Total liabilities and shareholders' deficit $ 709,724 $ 395,456 =============== ===============
The accompanying notes to financial statements are an integral part of these balance sheets. F-1
CYBEAR, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS CUMULATIVE FROM FOR THE PERIOD FROM FOR THE PERIOD FROM FEBRUARY 5, 1997 FEBRUARY 5, 1997 FEBRUARY 5, 1997 (INCEPTION) TO (INCEPTION) TO FOR THE NINE MONTHS (INCEPTION) TO SEPTEMBER 30, 1998 DECEMBER 31, 1997 ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------- ------------------------ ------------------ (Unaudited) (Unaudited) (Unaudited) Revenues: Software development services to Andrx Corporation $ 95,927 $ 95,927 $ -- $ 95,927 ---------------- ------------------- ------------------------ ------------------ Operating expenses: Software development 2,866,377 1,502,370 1,364,007 1,019,197 General and administrative 1,082,300 123,906 958,394 89,713 ---------------- ------------------- ------------------------ ------------------ Total operating expenses 3,948,677 1,626,276 2,322,401 1,108,910 ---------------- ------------------- ------------------------ ------------------ Loss from operations (3,852,750) (1,530,349) (2,322,401) (1,012,983) Interest expense on due to Andrx Corporation (173,479) (28,220) (145,259) (8,629) ---------------- ------------------- ------------------------ ------------------ Net loss $ (4,026,229) $ (1,558,569) $ (2,467,660) (1,021,612) ================ =================== ======================== ================== Basic and diluted net loss per share $ (0.31) $ (0.12) $ (0.19) $ (0.08) ================ =================== ======================== ================== Basic and diluted weighted average shares of common stock outstanding 12,873,201 12,768,303 13,000,000 12,720,252 ================ =================== ======================== ==================
The accompanying notes to financial statements are an integral part of these statements these statements. F-2
CYBEAR, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF SHAREHOLDERS' DEFICIT CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL --------------- ------------- PAID-IN ACCUMULATED SHAREHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT ------ ------ ------ ------ ---------- ----------- ------------- FEBRUARY 5, 1997 (INCEPTION) -- $ -- -- $ -- $ -- $ -- $ -- Issuance of shares of common stock to Andrx Corporation as promoter -- -- 12,870,000 12,870 487,130 -- 500,000 Issuance of shares of convertible preferred stock 130,000 130 -- -- 29,870 -- 30,000 Shares of common stock issued in connection with conversion of shares of convertible preferred stock (130,000) (130) 130,000 130 -- -- -- Options granted to consultants -- -- -- -- 13,906 -- 13,906 Net loss -- -- -- -- -- (1,558,569) (1,558,569) ---------- --------- ------------ --------- ----------- ---------- ----------- BALANCE, DECEMBER 31, 1997 -- -- 13,000,000 13,000 530,906 (1,558,569) (1,014,663) Options granted to consultants (unaudited) -- -- -- -- 12,320 -- 12,320 Net loss (unaudited) -- -- -- -- -- (2,467,660) (2,467,660) ---------- --------- ------------ --------- ----------- ---------- ----------- BALANCE, SEPTEMBER 30, 1998 (unaudited) -- $ -- 13,000,000 $ 13,000 $ 543,226 $(4,026,229) $(3,470,003) ========== ========= ============ ========= =========== ========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-3
CYBEAR, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS CUMULATIVE FROM FOR THE PERIOD FROM FOR THE PERIOD FROM FEBRUARY 5, 1997 FEBRUARY 5, 1997 FOR THE FEBRUARY 5, 1997 (INCEPTION) TO (INCEPTION) TO NINE MONTHS ENDED (INCEPTION) TO SEPTEMBER 30, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ---------------- ------------------ ------------------ (Unaudited) (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $ (4,026,229) $ (1,558,569) $ (2,467,660) $ (1,021,612) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 128,784 51,470 77,314 36,025 Options granted to consultants 26,226 13,906 12,320 9,713 Change in operating assets and liabilities Prepaid expenses (134,570) (30,707) (103,863) (2,100) Deferred merger costs (31,709) -- (31,709) -- Other assets (4,415) (14,684) 10,269 (11,467) Accounts payable 238,306 64,813 173,493 137,783 Accrued payroll and employee benefits 162,243 76,533 85,710 25,771 ----------------- --------------- ----------------- ------------------ Net cash used in operating activities (3,641,364) (1,397,238) (2,244,126) (825,887) ----------------- --------------- ----------------- ------------------ Cash flows from investing activities: Purchases of property and equipment (436,814) (240,535) (196,279) (224,242) Purchase of software license (160,000) (160,000) -- (160,000) Software development costs (70,000) -- (70,000) -- ----------------- --------------- ----------------- ------------------ Net cash used in investing activities (666,814) (400,535) (266,279) (384,242) ----------------- --------------- ----------------- ------------------ Cash flows from financing activities: Proceeds from issuance of shares of common stock 500,000 500,000 -- 500,000 Proceeds from promissory note issued for purchase of shares of convertible preferred stock 30,000 30,000 -- 15,000 Proceeds from due to Andrx Corporation 3,779,178 1,268,773 2,510,405 701,105 ----------------- --------------- ----------------- ------------------ Net cash provided by financing activities 4,309,178 1,798,773 2,510,405 1,216,105 ----------------- --------------- ----------------- ------------------ Net increase in cash 1,000 1,000 -- 5,976 Cash, beginning of period -- -- 1,000 -- ----------------- --------------- ----------------- ------------------ Cash, end of period $ 1,000 $ 1,000 $ 1,000 $ 5,976 ================= =============== ================= ==================
The accompanying notes to financial statements are an integral part of these statements. F-4 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 (1) GENERAL CyBear, Inc. ("CyBear" or the "Company"), a Florida corporation in the development stage, was incorporated on February 5, 1997. CyBear, Inc. is a 99% owned subsidiary of Andrx Corporation ("Andrx"). CyBear is a healthcare communications technology company developing technology and products that will address communication and information problems within the healthcare community. The Company is developing a suite of Internet-based productivity software applications and communication networks for the healthcare industry. These connectivity products will feature electronic management tools for prescriptions, patient referrals, laboratory test submission and reporting, hospital admissions, and other healthcare related activities. In addition, CyBear will also market a healthcare Internet service provider ("ISP") for the healthcare community. From February 5, 1997 (inception) through December 31, 1997, the Company's principal activities have consisted of developing its products and providing software development services to Andrx. MANAGEMENT'S PLANS From February 5, 1997 (inception) through September 30, 1998, the Company has incurred a net loss of $4,026,229 and has been dependent upon funding from Andrx. Management anticipates incurring additional net losses in the near term, as the focus of the Company's business is to develop its products. Andrx is committed to the required funding of the Company's future operations under a credit agreement with the Company. The Company has not yet completed third-party testing of the basic connectivity product platform or the development or testing of certain system enhancements. The Company will be required to commit considerable time, effort and resources to finalize such development and adapt its software to satisfy specific requirements of potential customers. As of September 30, 1998, CyBear's planned ISP is in development and will require substantial resources prior to its commercial introduction. The likelihood of the success of the Company must be considered in light of the problems, expenses, complications and delays frequently encountered in connection with the development of new business ventures. CyBear's business risks include its limited operating history, the emerging and competitive nature of its markets, the rapid technology change in its industry, changes in government regulations, dependence on network infrastructure and telecommunications carriers, dependence on a limited number of key personnel and market acceptance and profitability of its products. In addition, the Company utilizes software and related technologies throughout its businesses that may be affected by the date change in the year 2000. The Company is in the process of evaluating the full scope and related costs to insure that its systems, third-party software and technologies it utilizes will not be affected by the date change in the year 2000. At this time, the expenses associated with this assessment and potential remediation plan cannot be determined. F-5 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT, NET Property and equipment is recorded at cost less accumulated depreciation or amortization. Depreciation or amortization is provided using the straight-line method over the following estimated useful lives: Computer hardware and software 3 years Furniture and fixtures 5 years Leasehold improvements Lesser of useful life or term of lease Major renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred. SOFTWARE LICENSE CyBear has entered into an agreement with a third party to license the use of their software to be utilized in the Company's Internet-based software applications at a minimum of 600 customer sites for an unlimited period of time. The license is capitalized and will be amortized on a per site basis using the straight-line method over an estimated life of three years from the date of installation of such software applications at customer sites. As of December 31, 1997, there had not been any site installations and, accordingly, no amortization expense was recorded. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company utilizes the provisions of Financial Accounting Standards Board ("FASB") Statement on Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. To determine a loss, if any, to be F-6 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 recognized, the book value of the asset would be compared to the market value or expected future cash flow value. Such provisions had no impact on the Company's financial position or results of operations as of or for the period from February 5, 1997 (inception) to December 31, 1997. REVENUE RECOGNITION Software development service revenues which to date have been rendered to Andrx are recognized at the time the services are rendered. SOFTWARE DEVELOPMENT COSTS SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed", requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's product development process, technological feasibility is established upon completion of a working model. As of December 31, 1997, the Company has not yet achieved technological feasibility for its products and as such, all costs related to software development were expensed as incurred. START-UP COSTS All costs to organize the Company and start up its operations are expensed as incurred. STOCK-BASED COMPENSATION Under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", companies can either measure the compensation cost of equity instruments issued to employees under employee compensation plans using a fair value based method, or can continue to recognize compensation cost using the intrinsic value method under the provisions of Accounting Principles Board Opinion ("APB") No. 25. However, if the provisions of APB No. 25 are applied, pro forma disclosures of net income or loss and earnings or loss per share must be presented in the financial statements as if the fair value method had been applied. For the period from February 5, 1997 (inception) to December 31, 1997, the Company recognized compensation costs for options granted to non-employees under the provisions of APB No. 25, and the Company has provided the expanded disclosure required by SFAS No. 123 (See Note 8). INCOME TAXES The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". The provisions of SFAS No. 109 require, among other things, recognition of future tax benefits measured at enacted rates attributable to the deductible temporary differences between the financial statement and income tax bases of assets and liabilities and to tax net operating loss carryforwards to the extent that the realization of said benefits is "more likely than F-7 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 not". The Company's taxable results are included in the consolidated income tax return of Andrx (see Note 4). NET LOSS PER SHARE In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 supersedes APB No. 15, "Earnings Per Share", and specifies the computation, presentation and disclosure requirements for earnings or loss per share. The provisions of SFAS No. 128 are effective for financial statements for periods ended after December 15, 1997. The Company has adopted the provisions of SFAS No. 128. For the period from February 5, 1997 (inception) to December 31, 1997, basic and diluted net loss per share is based on the weighted average number of shares of common stock outstanding. Since the effect of common stock equivalents was antidilutive, all such equivalents were excluded in diluted loss per share. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of due to Andrx approximates fair value due to the short maturity of this instrument. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income", was issued by the FASB in June 1997. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company has adopted the provisions of SFAS No. 130 as of January 1, 1998. The adoption of the provisions of this standard did not have a material impact on the Company's existing report disclosures. CyBear's comprehensive losses and net losses are the same for all periods presented. BUSINESS SEGMENTS SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", was issued by the FASB in June 1997. This Statement establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company will adopt the provisions of SFAS No. 131 for the year ending December 31, 1998. The adoption of the provisions of this standard will not have a material impact on the Company's existing reporting disclosures. F-8 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 DERIVATIVES SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued by the FASB in June 1998. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the provision of the SFAS No. 133 Statement as of the beginning of any fiscal quarter after issuance. SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). The Company has not yet quantified the impacts of adopting SFAS No. 133 on its financial statements and has not determined the timing of or method of its adoption of SFAS No. 133. UNAUDITED FINANCIAL STATEMENTS The interim financial statements as of September 30, 1998, for the nine months ended September 30, 1998, for the period from February 5, 1997 (inception) to September 30, 1997 and for the cumulative period from February 5, 1997 (inception) to September 30, 1998 and all related footnote information are unaudited. In the opinion of management, such unaudited financial statements have been prepared by CyBear pursuant to the rules and regulations of the Securities and Exchange Commission. The unaudited financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position and results of operations. The results of operations and cash flows for the nine months ended September 30, 1998, are not necessarily indicative of the results of operations or cash flows which may be expected for the remainder of 1998. F-9 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 (3) PROPERTY AND EQUIPMENT, NET Property and equipment is summarized as follows:
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------ ------------- (Unaudited) Computer hardware and software $ 330,286 $ 164,410 Furniture and fixtures 97,725 73,408 Leasehold improvements 8,803 2,717 ------------ ------------- 436,814 240,535 Less: accumulated depreciation and amortization (128,681) (51,470) ------------ ------------- Property and equipment, net $ 308,133 $ 189,065 ============ =============
(4) INCOME TAXES For the period from February 5, 1997 (inception) to December 31, 1997, the Company was not required to provide for federal or state income taxes due to its net loss. Under the provisions of SFAS No. 109, the Company has provided a valuation allowance to reserve against 100% of its net operating loss carryforwards. The Company's taxable results are included in the consolidated income tax return of Andrx. The Company and Andrx have a tax allocation agreement that provides, among other things, for the allocation of federal income tax liabilities to the Company at the approximate amounts which would have been computed as if the Company had filed separate tax returns. As of December 31, 1997, for financial reporting purposes and federal income tax purposes, the Company has net operating loss carryforwards of approximately $1 million, which if not utilized, will expire in 2012. Net operating loss carryforwards are subject to review and possible adjustments by the Internal Revenue Service and may be limited in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%. (5) COMMITMENTS SOFTWARE LICENSE AGREEMENT In July 1997, the Company entered into a one-year semi-exclusive license agreement with the owner of a software application whereby the Company has agreed to pay the owner an initial up front fee of $100,000 and sliding fees per site ranging from $40 to $500 based on the number of sites and software version installed. Such sliding fees are subject to a minimum disbursement of $5,000 per month. As of December 31, 1997, there were no site installations. For the period from February 5, 1997 (inception) to December 31, 1997, the Company has capitalized $160,000 under this agreement of which $130,000 was paid. F-10 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 EMPLOYMENT CONTRACT The Company has entered into an employment contract with the Company's Vice President of Technical Development. The contract provides for an annual base salary, plus stock options, plus a royalty equal to 2% of the net revenue derived by the Company from the sale, lease or licensing of its software applications, payable quarterly, provided that the Vice President of Technical Development remains an employee at the time each such royalty payment is due. PRODUCT LIABILITY Software products such as those to be offered by the Company frequently contain undetected errors or failures when first introduced or as new versions are released. Testing of the Company's products is particularly challenging because it is difficult to simulate the wide variety of computing environments in which the Company's potential customers may deploy these products. There can be no assurance that defects, errors or difficulties will not cause delays in product introductions, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or customer satisfaction with the Company's products. In addition, there can be no assurance that, despite testing by the Company and by potential customers, errors will not be found after commencement of commercial introduction, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, operating results and financial condition. OPERATING LEASE In September 1998, CyBear entered into a lease for 18,400 square feet of space in Boca Raton, Florida to house its corporate headquarters and network systems. The lease provides for annual rent of $230,000 and has a five-year term commencing at the earlier of the completion of improvements to the space or January 1, 1999 with one five-year renewal option at market rates. Until the space is completed, CyBear will temporarily occupy 2,750 square feet of space at the same facility at a monthly rate of $1,250. CyBear will vacate both the temporary space and the Andrx space when the new space is ready for occupancy. PREFERRED VENDOR AGREEMENT In September 1998, CyBear has entered into a three-year strategic alliance with The IPA Association of America ("TIPAAA"), the nation's leading trade association focused on physician independent practice associations ("IPA's") whereby CyBear will become the preferred ISP and Internet business applications provider for TIPAAA. In consideration of its preferred vendor status, CyBear agreed to make to TIPAAA three $100,000 annual payments and to grant TIPAAA an option to purchase 100,000 shares of its common stock at an exercise price of $3.00 per share. The stock options have a five-year term and vest at the rate of one share for every two TIPAAA physicians that become and remain a CyBear user for a minimum of three months. The Company will record charges to earnings for the options that vest. (6) RELATED PARTY TRANSACTIONS The Company and Andrx have a corporate services agreement whereby Andrx provides the Company with various services of its management such as executive management, accounting and finance, legal, payroll and human resources. For the period from February 5, 1997 (inception) to December 31, 1997, the Company incurred amounts for these services based upon mutually agreed upon allocation methods. Management believes that the amounts incurred for these services approximate fair market value. Costs for such services were $110,000 for the period from February 5, 1997 (inception) to December 31, 1997 and $90,000 for the nine months ended September 30, 1998. From February 5, 1997 (inception) to December 31, 1997, the Company provided Andrx with software development services. The Company charged Andrx based on mutually agreed upon allocation methods. Software development services charged to Andrx were $95,927 for the period from February 5, 1997 (inception) to December 31, 1997. In February 1997, Andrx entered into an agreement with Group One Enterprises, Inc. ("Group One"), a shareholder of the Company, whereby Group One agreed to provide certain consulting services to the Company. The agreement with Group One was terminated in 1997. F-11 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 Costs incurred for services provided by Group One were $68,000 for the period from February 5, 1997 (inception) to December 31, 1997. Due to Andrx on the accompanying balance sheets represents advances from Andrx to fund the Company's operations and the related accrued interest. Such advances bear interest at prime (8.5% at December 31, 1997) plus 1/2% and will be contributed as additional paid-in capital to the Company upon the consummation of certain transactions, including but not limited to, a merger. The Company recorded $28,220 in interest expense on these advances for the period from February 5, 1997 (inception) to December 31, 1997. As of December 31, 1997, the Company has not paid any interest expense on the "Due to Andrx". The Company and Andrx have a tax allocation agreement that provides, among other things, for the allocation of federal income tax liabilities to the Company at the approximate amounts which would have been computed as if the Company had filed separate tax returns. (7) CONVERTIBLE PREFERRED STOCK In February 1997, the Company issued 130,000 shares of convertible preferred stock to Group One for a promissory note of $30,000. The fair value of the convertible preferred stock was $0.23 per share as determined by the Company's Board of Directors. As of December 31, 1997, the promissory note was paid in full. The preferred stock issued had the same voting and dividend rights as the common stock but had a liquidation preference and was convertible into common stock of the Company on a one-fo one basis if the consulting agreement with Group One was terminated before an initial public offering. The agreement with Group One was terminated in 1997 and the 130,000 shares of preferred stock were converted into 130,000 shares of common stock. (8) STOCK INCENTIVE PLAN The Company has reserved 1,000,000 shares of its common stock for issuance under its 1997 Stock Option Plan (the "Plan"). Under the Plan, incentive and nonqualified stock options are available to directors, officers, employees or consultants to the Company. The terms of each option agreement are determined by the Company's Board of Directors or its compensation committee (the "Committee"). The terms for, and exercise price at which any stock option may be awarded is to be determined by the Committee. Options granted under the Plan must be exercised within ten years of the date of grant, unless a shorter period is designated at the time of grant. Options granted in 1997 vest ratably over a four year period. The Company accounts for options granted to employees under the Plan in accordance with the provisions of APB No. 25. Each stock option has an exercise price equal to the market price on the date of grant and, accordingly, no compensation expense has been recorded for any stock option grants to employees. Had compensation cost for the Company's stock options been F-12 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 based on fair value at the grant dates consistent with the methodologies of SFAS No. 123, the Company's pro forma basic and diluted net loss and basic and diluted net loss per share would have been $1,590,717 and $0.12, respectively for the period from February 5, 1997 (inception) to December 31, 1997. A summary of the Plan's activity is as follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER EXERCISE EXERCISE REMAINING OF SHARES PRICE PRICE LIFE --------- -------- -------- --------- Options outstanding, February 5, 1997 (inception) -- -- -- -- Granted 350,000 $1.00 $1.00 9.24 -------- Options outstanding, December 31, 1997 350,000 $1.00 $1.00 9.24 Options exercisable, December 31, 1997 -- -- -- --
The weighted average fair market value per share as of the grant date was $0.70 for stock options granted during 1997. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following assumptions: expected volatility of 75%; risk-free interest rate of 5.3%; no expected dividends; and expected lives of options of 6.0 years. (9) LITIGATION On March 18, 1998, Andrx received a letter from counsel for Medix Resources, Inc. ("Medix") and its subsidiary, Cymedix Lynx Corporation ("Cymedix") alleging the theft and unlawful appropriation by Andrx, the Company, and certain directors, officers and employees of the Company and Andrx of certain computer medical software and internet medical communications technology allegedly owned by Cymedix. The letter demands trebled damages totaling $396.6 million pursuant to the civil theft provisions of Florida law, and also alleges claims under Florida's Racketeer Influenced and Corrupt Organization Act and certain other provisions of federal and state law. The Company and Andrx believe that Medix's and Cymedix's accusations and threatened claims have no basis in substantial fact or legal support and on March 23, 1998, the Company and Andrx filed a complaint against Medix and Cymedix for libel and slander arising from the improper public dissemination of the contents of the aforesaid demand letter with respect to each of the matters set forth in that letter. The Company and Andrx intend to vigorously prosecute their complaints, which seek damages, costs, interest and attorneys' fees. On June 2, 1998 Medix, on behalf of Cymedix, filed a complaint against the Company , Andrx and certain Company and CyBear directors, officers and employees alleging the theft and unlawful appropriation of Cymedix' computer medical software for remote online healthcare Providers and Cymedix' Internet medical communications technology allegedly owned by Cymedix. Medix is seeking treble damages totaling $396 million. The Company and F-13 CYBEAR, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 Andrx believe that Medix's suit has no basis in substantial fact or legal support and is without merit, and intend to vigorously defend these claims. Accordingly, the Company and Andrx believe that the outcome of this lawsuit will not be material to their results of operations and financial positions. However, there can be no assurance that CyBear will prevail in this litigation or that an adverse outcome would not have a material adverse effect on CyBear. From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business. Except for the matter disclosed above, the Company is not currently a party to any other legal proceeding, the adverse outcome of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company's business, operating results and financial condition. F-14 CYBEAR, INC. INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION The following Unaudited Pro Forma Financial Information includes the accounts of 1997 Corp. and CyBear, Inc. assuming that all of the 1997 Corp. stockholders accept the Acquisition Offer. The transaction between 1997 Corp. and CyBear Inc. is accounted for as a purchase in accordance with accounting principles generally accepted in the United States. The following Unaudited Pro Forma Balance Sheet presents the pro forma combined financial position of CyBear, Inc. as of September 30, 1998 as if the pending transaction between 1997 Corp. and CyBear, Inc. had been consummated as of September 30, 1998. The following Unaudited Pro Forma Statements of Operations for the nine months ended September 30, 1998 and for the period from February 5, 1997 (inception) for CyBear, Inc. and March 17, 1997 (inception) for 1997 Corp. to December 31, 1997 present the pro forma results of the combined company as if the transaction between 1997 Corp. and CyBear, Inc. had been consummated at the beginning of the period presented. The unaudited pro forma basic and diluted net loss per share and the basic and diluted weighted average shares of common stock outstanding of CyBear, Inc. are determined based on the number of common shares of 1997 Corp. issued in the Merger Agreement between 1997 Corp. and CyBear, Inc. as if the transaction had been consummated at the beginning of the period presented. This Unaudited Pro Forma Financial Information and notes thereto should be read in conjunction with the respective historical financial statements and notes thereto of 1997 Corp. and CyBear, Inc. The pro forma information presented is for informational purposes only and may not necessarily reflect future results of operations. F-15 CYBEAR, INC. UNAUDITED PRO FORMA BALANCE SHEET SEPTEMBER 30, 1998
PRO FORMA 1997 CORP. CYBEAR, INC. ADJUSTMENT CYBEAR, INC. ---------- ------------ ---------- ------------ ASSETS Current assets: Cash $ 1,028 $ 1,000 $ 153,998 (b) $ 156,026 Prepaid expenses -- 134,570 -- 134,570 Deferred merger costs -- 31,709 (31.709)(g) -- ---------- ------------ ---------- ---------- Total current assets 1,028 167,279 122,289 290,596 Shareholders escrowed funds 153,998 -- (153,998)(b) -- Property and equipment, net -- 308,133 -- 308,133 Software license, net -- 159,897 -- 159,897 Software development costs, net -- 70,000 -- 70,000 Other assets -- 4,415 -- 4,415 ---------- ------------ ---------- ---------- Total assets 155,026 $ 709,724 $ (31,709) $ 833,041 ========== ============ ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 58,641 $ 238,306 $ 10,000 (h) $ 425,238 118,291 (i) Accrued payroll and employee benefits -- 162,243 -- 162,243 Due to Andrx Corporation -- 3,779,178 (3,779,178)(a) -- ---------- ------------ ---------- ---------- Total current liabilities 58,641 4,179,727 (3,650,887) 587,481 ---------- ------------ ---------- ---------- Notes payable to directors 3,000 -- -- 3,000 Commitments and contingencies Shareholders' equity (deficit)(1): Convertible preferred stock -- -- -- -- Common stock 45 13,000 225 (c) 13,270 13,000 (d) (13,000)(e) Additional paid-in capital 210,005 543,226 3,779,178 (a) 4,322,134 (225)(c) (13,000)(d) 13,000 (e) (116,665)(f) (31,709)(g) (10,000)(h) (51,676)(i) Accumulated deficit (116,665) (4,026,229) 116,665 (f) (4,092,844) (66,615)(i) ---------- ------------ ---------- ---------- Total shareholders' equity (deficit) 93,385 (3,470,003) 3,619,178 242,560 ---------- ------------ ---------- ---------- Total liabilities and shareholders' equity (deficit) $ 155,026 $ 709,724 $ (31,709) $ 833,041 ========== ============ ========== ==========
(1) 1997 Corp.'s shareholders' equity is redeemable. The accompanying notes to unaudited pro forma financial statements are an integral part of this balance sheet. F-16 CYBEAR, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) FOR CYBEAR, INC. AND MARCH 17, 1997 (INCEPTION) FOR 1997 CORP. TO DECEMBER 31, 1997
1997 CORP. CYBEAR, INC. PRO FORMA CYBEAR, INC. FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM MARCH 17, 1997 FEBRUARY 5, 1997 FEBRUARY 5, 1997 (INCEPTION) TO (INCEPTION) TO (INCEPTION) TO DECEMBER 31, 1997 DECEMBER 31, 1997 ADJUSTMENT DECEMBER 31, 1997 ------------------- ------------------- ---------- --------------------- Revenues: Software development services to Andrx corporation $ -- $ 95,927 $ -- $ 95,927 ------------------- ------------------- ---------- -------------------- Operating expenses: Software development -- 1,502,370 -- 1,502,370 General and administrative 59,393 123,906 -- 183,299 ------------------- ------------------- ---------- -------------------- Total operating expenses 59,393 1,626,276 -- 1,685,669 ------------------- ------------------- ---------- -------------------- Loss from operations (59,393) (1,530,349) -- (1,589,742) Interest income 1,362 -- -- 1,362 Interest expense on due to Andrx corporation -- (28,220) -- (28,220) ------------------- ------------------- ---------- -------------------- Net loss $ (58,031) $ (1,558,569) $ -- $ (1,616,600) =================== =================== ========== ==================== Basic and diluted net loss per share $ (0.35) $ (0.12) $ (0.12)(j) =================== =================== ==================== Basic and diluted weighted average shares of common stock outstanding 167,043 12,768,303 13,265,306 (j) =================== =================== ====================
The accompanying notes to unaudited pro forma financial statements are an integral part of these statements. F-17 CYBEAR, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
PRO FORMA 1997 CORP. CYBEAR, INC. ADJUSTMENT CYBEAR, INC. ---------- ------------ ---------- ------------ Revenues: Software development services to Andrx Corporation $ -- $ -- $ -- $ -- ---------- ------------ ---------- ------------ Operating expenses: Software development -- 1,364,007 -- 1,364,007 General and administrative 61,270 958,394 ( 45,000)(j) 974,664 ---------- ------------ ---------- ------------ Total operating expenses 61,270 2,322,401 (45,000) 2,338,671 ---------- ------------ ---------- ------------ Loss from operations (61,270) (2,322,401) 45,000 (2,338,671) Interest income 2,636 -- -- 2,636 Interest expense on due to Andrx Corporation -- (145,259) -- (145,259) ---------- ------------ ---------- ------------ Net loss $ (58,634) $ (2,467,660) $ 45,000 $ (2,481,294) ========== ============ ========== ============ Basic and diluted net loss per share $ (0.22) $ (0.19) $ (0.19)(k) ========== ============ ============ Basic and diluted weighted average shares of common stock outstanding 270,000 13,000,000 13,270,000 (k) ========== ============ ============
The accompanying notes to unaudited pro forma financial statements are an integral part of these statements. F-18 CYBEAR, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (a) Represents CyBear, Inc.'s capital contribution from Andrx Corporation resulting from the conversion of the due to Andrx Corporation immediately prior to the consummation of the Merger Agreement. (b) Represents the release of 1997 Corp.'s shareholders escrowed funds as a result of the consummation of the Merger Agreement. (c) Represents the stock split of 1997 Corp.'s 45,000 common shares outstanding into 270,000 common shares immediately prior to the consummation of the Merger Agreement. The 6:1 stock split for 1997 Corp. is reflected retroactively for all periods reflected. (d) Represents the issuance of 13,000,000 common shares of 1997 Corp. to acquire all the outstanding capital stock of CyBear, Inc. upon consummation of the Merger. (e) Represents the elimination of CyBear, Inc.'s common stock. (f) Represents the elimination of 1997 Corp.'s accumulated deficit. (g) Represents the reclassification to additional paid-in capital of $31,709 of transaction costs incurred by CyBear Inc., prior to September 30, 1998, in connection with the Merger. (h) Represents an additional $10,000 of transaction costs incurred by 1997 Corp. in connection with the Merger. (i) Represents an additional $118,291 of transaction costs incurred by CyBear, Inc. in connection with the Merger. (j) Represents the reversal of $45,000 of transaction costs expensed by 1997 Corp. in connection with the Merger. (k) Basic and diluted net loss per share and the basic and diluted weighted average shares of common stock outstanding of 1997 Corp. are determined based as if the stock split of 1997 Corp. and the issuance of 13,000,000 common shares of 1997 Corp. had occurred at the beginning of all periods presented. F-19 -----END PRIVACY-ENHANCED MESSAGE-----