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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 1999
CLEARWORKS.NET, INC.
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(Exact name of registrant as specified in its charter)
Delaware 000-26547 76-0576542
---------------------------- ---------------- ----------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
2450 Fondren, Suite 200, Houston, Texas 77063
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 334-2595
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS
UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP, INC.
Combined Financial Statements
December 30, 1999 and December 31, 1998
(With Independent Auditors'
Report Thereon)
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
United Computing Group, Inc. and United Consulting Group, Inc.:
We have audited the accompanying combined balance sheets of United Computing
Group, Inc. and United Consulting Group, Inc. (collectively, the Companies)
as of December 30, 1999 and December 31, 1998, and the related combined
statements of operations, stockholders' equity (deficit) and cash flows for
the period from January 1, 1999 to December 30, 1999 and the period from
inception (September 14, 1998) to December 31, 1998. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined 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 audits 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of United Computing
Group, Inc. and United Consulting Group, Inc. as of December 30, 1999 and
December 31, 1998, and the results of their operations and their cash flows
for the period from January 1, 1999 to December 30, 1999 and the period from
inception (September 14, 1998) to December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
- -------------
Houston, Texas
February 25, 2000
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP, INC.
Combined Balance Sheets
December 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 76,351 -
Accounts receivable, net of allowance for doubtful
accounts of $6,341 and $-0-, respectively 2,448,104 201,598
Inventory 191,117 44,757
Other current assets 131,153 950
---------------- ----------------
Total current assets 2,846,725 247,305
Equipment, net 90,810 23,150
Other assets 17,700 28,451
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$ 2,955,235 298,906
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,250,007 169,541
Notes payable to related party 500,000 -
Notes payable 44,535 -
Accrued expenses and other current liabilities 283,000 61,971
---------------- ----------------
Total current liabilities 3,077,542 231,512
Notes payable to related party - 95,338
---------------- ----------------
Total liabilities 3,077,542 326,850
Stockholders' equity (deficit):
Common stock, $.01 par value. Authorized 1,000,000 shares;
issued and outstanding 1,800 and 1,000 shares, respectively 18 10
Common stock, $1.00 par value. Authorized 100,000 shares;
issued and outstanding 1,286 shares 1,286 1,286
Additional paid-in capital 180,169 990
Accumulated deficit (303,780) (30,230)
---------------- ----------------
Total stockholders' equity (deficit) (122,307) (27,944)
---------------- ----------------
$ 2,955,235 298,906
================ ================
</TABLE>
See accompanying notes to financial statements.
2
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP, INC.
Combined Statements of Operations
Period from January 1, 1999 to December 30, 1999 and the
period from inception (September 14, 1998) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Revenues $ 9,999,564 609,630
Cost of goods sold 8,862,035 511,061
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Gross margin 1,137,529 98,569
Operating expenses:
Selling, general and administrative expenses 1,214,951 109,015
Depreciation expense 22,602 3,840
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Total operating expenses 1,237,553 112,855
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Operating loss (100,024) (14,286)
Interest expense, net (36,712) (15,944)
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Loss before income taxes (136,736) (30,230)
Income tax expense (136,814) -
---------------- ----------------
Net loss $ (273,550) (30,230)
================ ================
</TABLE>
See accompanying notes to financial statements.
3
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP, INC.
Combined Statements of Stockholders' Equity (Deficit)
Period from January 1, 1999 to December 30, 1999 and the
period from inception (September 14, 1998) to December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
-------------- ------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Initial capitalization,
September 14, 1998 2,286 $ 1,296 990 - 2,286
Net loss - - - (30,230) (30,230)
-------------- ------------- ------------- ---------------- ----------------
Balance, December 31, 1998 2,286 1,296 990 (30,230) (27,944)
Net loss - - - (273,550) (273,550)
Issuance of stock for
compensation 800 8 525,115 - 525,123
Dividends - - (345,936) - (345,936)
-------------- ------------- ------------- ---------------- ----------------
Balance, December 30, 1999 3,086 $ 1,304 180,169 (303,780) (122,307)
============== ============= ============= ================ ================
</TABLE>
See accompanying notes to financial statements.
4
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP INC.
Combined Statements of Cash Flows
Period from January 1, 1999 to December 30, 1999 and the
period from inception (September 14, 1998) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (273,550) (30,230)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash compensation expense 525,123 -
Depreciation expense 22,602 3,840
Changes in assets and liabilities:
Accounts receivable, net (2,246,506) (201,598)
Inventory (146,360) (44,757)
Other assets (119,452) (29,401)
Accounts payable 2,080,466 169,541
Accrued expenses and other current liabilities 221,029 61,971
---------------- ----------------
Net cash provided by (used in) operating activities 63,352 (70,634)
---------------- ----------------
Cash flows from investing activities -
payments for purchases of equipment (45,727) (26,990)
---------------- ----------------
Cash flows from financing activities:
Proceeds from notes payable to related party 500,000 95,338
Payments of notes payable to related party (95,338) -
Payments of dividends (345,936) -
Capital contributions - 2,286
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Net cash provided by financing activities 58,726 97,624
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Increase in cash and cash equivalents 76,351 -
Cash and cash equivalents at beginning of period - -
---------------- ----------------
Cash and cash equivalents at end of period $ 76,351 -
================ ================
Supplemental disclosure of cash flow information -- cash paid
during the period for interest $ 23,231 2,377
================ ================
Noncash financing activities -- notes payable issued for equipment $ 44,535 -
================ ================
</TABLE>
See accompanying notes to financial statements.
5
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP INC.
Notes to Financial Statements
December 30, 1999 and December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements includes the accounts of
United Computing Group, Inc. (United Computing) and United Consulting
Group, Inc. (United Consulting) (collectively, the Companies). The
financial statements have been presented as combined because the
Companies are under common control and management.
United Computing is a supplier of computer hardware and other desktop and
networking integration products, primarily to Fortune 1000 and smaller
businesses. United Consulting offers consulting services in technical
solutions and staffing needs to these same customers.
All of the issued and outstanding common stock of the Companies were
acquired by ClearWorks.net, Inc. (ClearWorks) on December 30, 1999.
PRINCIPLES OF COMBINATION
The combined financial statements of the Companies exclude intercompany
balances and transactions which have been eliminated in combination.
CASH EQUIVALENTS
The Companies consider all highly liquid investment instruments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
INVENTORY
Inventories consist primarily of computer hardware and other desktop and
network products purchased for re-sale to the Companies' customers.
Inventories are stated at the lower of cost or market, and cost is
determined using the specific identification method.
EQUIPMENT
Furniture and office equipment are stated at cost. Improvements are
capitalized. Repair and maintenance costs are expensed as incurred. The
cost and related accumulated depreciation of assets retired or disposed
of are removed from the accounts, and any gains or losses are reflected
in results of operations. Depreciation is computed using accelerated
methods over the respective useful lives of the assets ranging from 3 to
7 years. Accumulated depreciation at December 30, 1999 and December 31,
1998 was $26,442 and $3,840, respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured
6 (Continued)
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP INC.
Notes to Financial Statements
December 30, 1999 and December 31, 1998
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized as income in the period that includes the
enactment date.
REVENUE RECOGNITION
Revenues from the sale of computer hardware and other equipment are
recognized at the time they are shipped. Computer hardware and equipment
is sold with warranties that match the original manufacturer's warranty.
Revenues from consulting services are recognized as the services are
performed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments consist of short-term trade
receivables and payables, prepaid expenses and notes payable. Management
believes the carrying amounts of the financial instruments classified as
current assets and liabilities to approximate their fair values because
of their short-term nature. Management believes the carrying value of
notes payable to approximate their fair value as their interest rates
approximate market rates.
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.
(2) MAJOR CUSTOMERS
During the period ended December 30, 1999, the Companies had sales to
three major customers that accounted for 69% of total revenues for the
year. During the period ended December 31, 1998, the Companies had sales
to two major customers that accounted for 78% of total revenues for the
period.
(3) ISSUANCE OF COMMON STOCK
In July 1999, United Computing granted 800 shares of common stock to
certain employees as compensation for services performed. Management
determined the fair value of United Computing's common stock to
approximate $657 per share on the date of grant, and accordingly recorded
compensation expense of $525,000 on the date of issuance.
(4) INCOME TAXES
At December 30, 1999 and December 31, 1998 the Companies' deferred taxes
consist primarily of net operating loss carryforwards that have a 100%
valuation allowance.
7 (Continued)
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UNITED COMPUTING GROUP, INC.
UNITED CONSULTING GROUP INC.
Notes to Financial Statements
December 30, 1999 and December 31, 1998
Income taxes for the period ended December 30, 1999 differed from the
expected benefit computed by applying the U.S. federal income tax rate of
34% to loss before taxes principally because the non-cash compensation
expense of $525,000 (see note 3) is not deductible for tax purposes.
(5) LEASES
Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2002. Leases that expire are
generally renewed or replaced by similar leases depending on business
needs. Rent expense for operating leases for the periods ended December
30, 1999 and December 31, 1998 was approximately $52,000 and $1,500,
respectively.
At December 30, 1999, the Companies' future minimum rental payments due
under noncancelable leases are $99,000 in 2000, $95,000 in 2001 and
$56,000 in 2002.
(6) NOTES PAYABLE TO RELATED PARTY
In connection with the acquisition of the Companies, ClearWorks loaned
$500,000 to the Companies in December 1999. The loan bears interest at 8%
per annum and is payable on December 30, 2000.
During 1998, certain shareholders of the Companies advanced a total of
$95,338 to the Companies. The entire balance outstanding was paid in 1999
in connection with the acquisition of the Companies by ClearWorks.
SIGNATURE
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.
Date: March 16, 2000 CLEARWORKS.NET, INC.
By: /s/ Michael T. McClere
-----------------------------------
Michael T. McClere, Chief Executive
Officer
8 (Continued)
