SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 20, 1999
CYBEAR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-26389 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) 999-3500
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Financial Statements of the Telegraph Consulting Division of Telegraph
New Technology, Inc. for the year ended December 31, 1998 and 1997 and
for the period from January 1, 1999 to September 17, 1999 and the
nine months ended September 30, 1998.
(b) PRO FORMA FINANCIAL INFORMATION
Pro forma financial statements for the year ended December 31, 1998 and
for the nine months ended September 30, 1999.
(c) Exhibits.
2. Agreement and Plan of Merger dated as of July 17, 1999 among
Cybear, Inc., TN Acquisition Corporation, Telegraph New
Technology, Inc. and Telegraph Consulting Corporation
(previously filed).
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, M.D.
----------------------------------------
Name: Edward E. Goldman, M.D.,
Title: President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 22, 1999
2
Item 7(a). FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Telegraph Consulting Division of
Telegraph New Technology, Inc.:
We have audited the accompanying balance sheets of The Telegraph Consulting
Division of Telegraph New Technology, Inc., as of December 31, 1998 and 1997,
and the related statements of operations and division equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Telegraph Consulting
Division of Telegraph New Technology, Inc. as of December 31, 1998 and 1997, and
the results of its operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 29, 1999.
THE TELEGRAPH CONSULTING DIVISION OF
TELEGRAPH NEW TECHNOLOGY, INC.
BALANCE SHEETS
DECEMBER 31,
-----------------------------------
1998 1997
----------- -----------
ASSETS
CASH $ 3,000 $ -
ACCOUNTS RECEIVABLE 126,000 42,000
----------- -----------
Current assets 129,000 42,000
GOODWILL, net 42,000 -
EQUIPMENT, net 3,000 -
----------- -----------
Total assets $ 174,000 $ 42,000
=========== ===========
LIABILITIES AND DIVISION EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 26,000 $ 36,000
DIVISION EQUITY 148,000 6,000
----------- -----------
Total liabilities and division equity $ 174,000 $ 42,000
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
THE TELEGRAPH CONSULTING DIVISION OF
TELEGRAPH NEW TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS AND DIVISION EQUITY
YEAR ENDED PERIOD FROM NINE MONTHS
DECEMBER 31, JANUARY 1, 1999 ENDED
----------------------------- TO SEPTEMBER 17, SEPTEMBER 30,
1998 1997 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUE $ 1,146,000 $ 455,000 $ 1,126,000 $ 832,000
----------- ----------- ----------- -----------
EXPENSES:
Salary and payroll related 543,000 208,000 610,000 427,000
Other 498,000 251,000 494,000 318,000
----------- ----------- ----------- -----------
Total expenses 1,041,000 459,000 1,104,000 745,000
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 105,000 (4,000) 22,000 87,000
INCOME TAX PROVISION -- -- (8,000) --
----------- ----------- ----------- -----------
Net income (loss) 105,000 (4,000) 14,000 87,000
DIVISION EQUITY, beginning of period 6,000 14,000 148,000 6,000
Net contributions (distributions) of
Division equity 37,000 (4,000) (121,000) (8,000)
----------- ----------- ----------- -----------
DIVISION EQUITY, end of period $ 148,000 $ 6,000 $ 41,000 $ 85,000
=========== =========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
THE TELEGRAPH CONSULTING DIVISION OF
TELEGRAPH NEW TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED PERIOD FROM NINE MONTHS
DECEMBER 31, JANUARY 1, 1999 ENDED
-------------------------- TO SEPTEMBER 17, SEPTEMBER 30,
1998 1997 1999 1998
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 105,000 $ (4,000) $ 14,000 $ 87,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization 3,000 -- 14,000 2,000
Changes in operating assets and liabilities:
Accounts receivable (84,000) 10,000 70,000 (8,000)
Accounts payable and accrued liabilities (10,000) (3,000) 18,000 (7,000)
--------- --------- --------- ---------
Net cash provided by operating
activities 14,000 3,000 116,000 74,000
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (3,000) -- (134,000) --
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash distributions of Division equity (8,000) (4,000) (121,000) (53,000)
Proceeds from borrowings -- -- 136,000 --
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities (8,000) (4,000) 15,000 (53,000)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 3,000 (1,000) (3,000) 21,000
CASH, beginning of period -- 1,000 3,000 --
--------- --------- --------- ---------
CASH, end of period $ 3,000 $ -- $ -- $ 21,000
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Purchase of companies for equity $ 45,000 $ -- $ -- $ 45,000
========= ========= ========= =========
The accompanying notes to financial statements
are an integral part of these statements.
THE TELEGRAPH CONSULTING DIVISION OF
TELEGRAPH NEW TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts for the Period from January 1, 1999 to
September 17, 1999 and for the Nine Months
Ended September 30, 1998 are unaudited)
1. GENERAL
Telegraph New Technology, Inc. ("Telegraph"), a Florida corporation, was
incorporated on June 27, 1994. Telegraph is an information technology company,
which began operations as a consultant to a single customer, evolved into an
Internet service provider ("ISP") in 1996 and began to focus on the consulting,
programming and digital art production necessary to create Web sites and the
servicing of such sites for their customer base in 1998. In 1999, in conjunction
with the proposed purchase of The Telegraph Consulting Division (the
"Division"), Telegraph transferred certain assets and liabilities of the
Division relating to the consulting, programming and digital art production
necessary to create Web sites and service these sites to Telegraph Consulting
Corporation, a newly created wholly owned subsidiary of Telegraph, which was
incorporated in August 1999. Telegraph retained all assets relating to ISP
networking and product development. The accompanying financial statements
include the financial position and results of operations of the Division.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. BASIS OF PRESENTATION
The accompanying financial statements include only the activities of The
Telegraph Consulting Division of Telegraph New Technology, Inc. These division
financial statements were carved out of the financial statements of Telegraph
using the specific identification basis.
b. 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 recorded amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
c. ACCOUNTS RECEIVABLE
Based on subsequent cash receipts management does not believe an accounts
receivable allowance is necessary.
- 2 -
d. EQUIPMENT
Equipment is recorded at cost and depreciated over its estimated useful lives
using the straight-line method. Accumulated depreciation was not significant at
December 31, 1998. The range of useful lives estimated by management is three to
five years.
e. GOODWILL
Goodwill resulted from the acquisition of two small companies in exchange for
Telegraph equity in 1998. Goodwill is being amortized over its estimated useful
life of 15 years.
f. DIVISION EQUITY
Division equity represents the difference between division assets and division
liabilities. Changes in division equity result from operating results of the
Division and any net transfers from or net distributions to Telegraph. These
transfers consist primarily of transfers of certain equipment, accounts
receivable and of cash from the Division to Telegraph.
g. REVENUE RECOGNITION
Revenue is recognized at the time the services are rendered.
h. INCOME TAXES
Prior to 1999, Telegraph was an S Corporation and any taxable income or loss was
directly recognized by its shareholders and, accordingly, no income taxes were
recorded by Telegraph or the Division. In 1999, Telegraph converted to a C
corporation resulting in a corporate income tax obligation for such period.
Income taxes are allocated to the Division as if it was a separate taxable
entity.
i. INTERIM FINANCIAL INFORMATION
In the opinion of management, the unaudited interim financial information for
the period from January 1, 1999 to September 17, 1999 and for the nine months
ended September 30, 1998 furnished herein reflect all adjustments that are
necessary for a fair presentation of the results for the interim period. The
results of operations for the 1999 interim period is not necessarily indicative
of the results to be expected for the entire year.
3. SIGNIFICANT CUSTOMERS AND
RELATED PARTY TRANSACTIONS
An unrelated customer generated revenue of approximately $362,000, $75,000 and
$266,000 (unaudited) for the year ended December 31, 1998 and 1997 and for the
nine months ended September 30, 1998, respectively. Another unrelated customer
generated revenue of $49,000 for the year ended December 31, 1997.
The Company recorded revenue of approximately $284,000 (unaudited) from Cybear,
Inc. (see Note 4) in the period from January 1, 1999 to September 17, 1999.
4. SUBSEQUENT EVENT
The stock of Telegraph Consulting Corporation (i.e., the "Division") was
acquired by Cybear, Inc. on September 17, 1999.
- 3 -
Item 7(b). PRO FORMA FINANCIAL INFORMATION
CYBEAR, INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Financial Information gives effect to
the acquisition of The Telegraph Consulting Division of Telegraph New
Technology, Inc. ("Telegraph") by Cybear, Inc. ("Cybear") on September 17, 1999,
in a transaction accounted for as a purchase in accordance with APB Opinion No.
16 (the "Acquisition").
The following Unaudited Consolidated Pro Forma Statements of Operations
for the nine months ended September 30, 1999 and for the year ended December 31,
1998 present the consolidated pro forma results of Cybear and Telegraph as if
the Acquisition had been consummated at the beginning of each period presented.
The Unaudited Consolidated Pro Forma Statement of Operations for the nine months
ended September 30, 1999 was derived by combining the historical results of
operations of Telegraph for the period from January 1, 1999 to September 17,
1999 and the historical results of operations of Cybear for the nine months
ended September 30, 1999. The historical results of operations of Cybear for the
nine months ended September 30, 1999 include the results of operations of
Telegraph for the period from September 18, 1999 to September 30, 1999.
The unaudited pro forma basic and diluted net loss per share and the
basic and diluted weighted average shares of common stock outstanding of the
consolidated Cybear and Telegraph are determined based on the number of common
shares of Cybear issued in the Acquisition and as if the transaction had been
consummated at the beginning of each period presented.
An Unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1999 is not included in the following Unaudited Pro Forma Financial Information
as the Acquisition is reflected in Cybear's Unaudited Consolidated Balance Sheet
as of September 30, 1999 included in Cybear's Form 10-Q for the quarterly period
ended September 30, 1999.
This Unaudited Pro Forma Financial Information and notes thereto should
be read in conjunction with the historical financial statements and notes
thereto of Telegraph contained elsewhere in this Form 8-K and with the
historical financial statements and notes thereto of CyBear, previously filed.
The pro forma information presented has been prepared for comparative
purposes only and is not necessarily indicative of what the consolidated results
of operations of Cybear and Telegraph would have been had the acquisition been
made at the beginning of the periods presented, nor is it necessarily indicative
of the consolidated results of Cybear and Telegraph subsequent to the
acquisition.
CYBEAR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
PRO FORMA
CYBEAR TELEGRAPH ADJUSTMENTS CYBEAR
------------ ------------ ------------ ------------
Revenues $ 118,540 $ 1,126,000 $ (283,925)(1) $ 960,615
------------ ------------ ------------ ------------
Operating expenses:
Network operations and operations support 2,198,031 -- -- 2,198,031
Product development 2,184,628 1,104,000 (182,148)(1) 3,106,480
Sales and marketing 2,767,673 -- -- 2,767,673
General and administrative 1,917,158 -- -- 1,917,158
Depreciation and amortization 850,710 -- 280,818 (2) 1,131,528
------------ ------------ ------------ ------------
Total operating expenses 9,918,200 1,104,000 98,670 11,120,870
------------ ------------ ------------ ------------
(Loss) income from operations (9,799,660) 22,000 (382,595) (10,160,255)
Other income (expense):
Interest expense on due to Andrx Corporation (216,182) -- (72,791)(3) (288,973)
Interest income 683,593 -- -- 683,593
------------ ------------ ------------ ------------
(Loss) income before income taxes (9,332,249) 22,000 (455,386) (9,765,635)
Income tax benefit (provision) 2,824,069 (8,000) 8,000 (4) 2,824,069
------------ ------------ ------------ ------------
Net (loss) income $ (6,508,180) $ 14,000 $ (447,386) $ (6,941,566)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.44) $ (0.46)
============ ============
Basic and diluted weighted average shares
of common stock outstanding 14,734,744 303,590 (5) 15,038,334
============ ============ ============
The accompanying notes to unaudited pro forma financial statements are an
integral part of these statements.
CYBEAR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
PRO FORMA
CYBEAR TELEGRAPH ADJUSTMENTS CYBEAR
------------ ------------ ------------ ------------
Revenues $ -- $ 1,146,000 $ -- $ 1,146,000
------------ ------------ ------------ ------------
Operating expenses:
Network operations and operations support 643,309 -- -- 643,309
Product development 1,556,557 1,041,000 -- 2,597,557
Sales and marketing 482,418 -- -- 482,418
General and administrative 1,064,122 -- -- 1,064,122
Depreciation and amortization 139,268 -- 394,713 (2) 533,981
Write-off of software license 159,897 -- -- 159,897
Litigation settlement charge 125,000 -- -- 125,000
------------ ------------ ------------ ------------
Total operating expenses 4,170,571 1,041,000 394,713 5,606,284
------------ ------------ ------------ ------------
(Loss) income from operations (4,170,571) 105,000 (394,713) (4,460,284)
Other income (expense):
Interest expense on due to Andrx Corporation (210,441) -- (105,878)(3) (316,319)
------------ ------------ ------------ ------------
(Loss) income before income taxes (4,381,012) 105,000 (500,591) (4,776,603)
Income tax benefit 1,900,000 -- -- 1,900,000
------------ ------------ ------------ ------------
Net (loss) income $ (2,481,012) $ 105,000 $ (500,591) $ (2,876,603)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.19) $ (0.22)
============ ============
Basic and diluted weighted average shares
of common stock outstanding 13,030,999 320,000 (5) 13,350,999
============ ============ ============
The accompanying notes to unaudited pro forma financial statements are an
integral part of these statements.
CYBEAR, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(1) Represents the reversal of product development fees charged to Cybear by
Telegraph and the reversal of the corresponding expense recorded by Cybear
net of the capitalized product development cost portion.
(2) Represents the amortization of goodwill for the period presented net of the
amortization already recorded by Cybear from the date of the Acquisition.
(3) Represents the additional interest expense on the Due to Andrx Corporation
resulting from the borrowing of $1,176,424 to pay for the acquisition of
Telegraph.
(4) Represents the reversal of the income tax provision recorded by Telegraph.
The consolidated pro forma results of operations of Cybear and Telegraph
generate operating loss carryforwards. Under the provisions of Financial
Accounting Standards Board Statement on Financial Accounting Standards No.
109, "Accounting for Income Taxes", Cybear is providing a valuation
allowance to reserve against 100% of its net operating loss carryforwards
due to its history of net losses.
(5) Represents the issuance of 320,000 additional shares of common stock by
Cybear to acquire Telegraph net of its effect on the historical weighted
average shares calculation of Cybear for the nine months ended September
30, 1999.