U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-QSB
Quarterly Report under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For quarterly period ended December 31, 1996
Commission file number 10039
DYNAMICWEB ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2267658
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
271 Route 46 West, Building F
Suite 209, Fairfield, New Jersey 07004
(Address of Principal Executive Offices)
(973) 244-1000
(Registrant's telephone number, including area code)
_________________________
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 reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]
As of December 31, 1996, there were 7,658,511 shares of Common
Stock, $0.0001 par value, of the registrant outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as at
December 31, 1996 (unaudited) and
September 30, 1996
Condensed Consolidated Statements of Operations
for the three months ended December 31,
1996 and 1995 (unaudited)
Condensed Consolidated Statements of Cash Flows
for the three months ended December 31,
1996 and 1995 (unaudited)
Notes to Condensed Financial Statements
<PAGE>
DYNAMICWEB ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
A S S E T S 1996 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . $ 189,650 $ 174,403
Accounts receivable, less allowance for
doubtful accounts. . . . . . . . . . . . 167,000 70,518
Prepaid and other current assets . . . . . 34,607 32,068
Total current assets . . . . . . . . . . 391,257 276,989
Property and equipment, net. . . . . . . . . 286,800 239,889
Patents and trademarks, net. . . . . . . . . 18,227 19,299
Customer list, net . . . . . . . . . . . . . 98,333
T O T A L. . . . . . . . . . . . . . . . $ 794,617 $ 536,177
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 66,816 $ 34,581
Accrued expenses and other . . . . . . . . 64,260 18,487
Current maturities of long-term debt . . . 14,552 12,434
Loan payable - bank. . . . . . . . . . . . 14,750
Deferred income taxes. . . . . . . . . . . 21,700
Deferred revenue . . . . . . . . . . . . . 15,643 11,330
Total current liabilities. . . . . . . . 197,721 76,832
Long-term debt, less current maturities. . . 195,069 197,661
Total liabilities. . . . . . . . . . . . 392,790 274,493
Stockholders' equity:
Common stock - $.0001 par value; 50,000,000
authorized, 7,658,511 and 6,548,511
issued and outstanding at December 31,
1996 and September 30, 1996. . . . . . . 766 655
Additional paid-in capital . . . . . . . . 1,811,103 676,215
Accumulated deficit. . . . . . . . . . . . (1,410,042) (415,186)
Total stockholders' equity . . . . . . 401,827 261,684
T O T A L. . . . . . . . . . . . . . . $ 794,617 $ 536,177
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
<PAGE>
DYNAMICWEB ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
Net sales:
System sales . . . . . . . . . . . . $ 17,619 $ 53,618
Services . . . . . . . . . . . . . . 77,278 99,491
T o t a l. . . . . . . . . . . . . 94,897 153,109
Cost of sales:
System sales . . . . . . . . . . . . 13,343 29,034
Services . . . . . . . . . . . . . . 24,871 22,348
T o t a l. . . . . . . . . . . . . 38,214 51,382
Gross profit . . . . . . . . . . . . . 56,683 101,727
Expenses:
Selling, general and administrative. 283,317 98,070
Research and development . . . . . . 27,225 3,000
T o t a l. . . . . . . . . . . . . 310,542 101,070
Operating income (loss). . . . . . . . (253,859) 657
Purchased research and development
(Note C) . . . . . . . . . . . . . . (738,710)
Interest expense . . . . . . . . . . . (4,045) (5,307)
Interest income. . . . . . . . . . . . 1,758 416
NET (LOSS) . . . . . . . . . . . . . . $(994,856) $ (4,234)
Net (loss) per common share. . . . . . $ (.14) -
Weighted-average number of shares
outstanding. . . . . . . . . . . . . 6,949,707 6,205,000
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
<PAGE>
DYNAMICWEB ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . . . . . $(994,856) $ (4,234)
Adjustment to reconcile net (loss) to net cash
from operating activities:
Depreciation and amortization. . . . . . . . . . 10,251 2,897
Purchased research and development . . . . . . . 738,710
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . 21,664 (373)
(Increase) in prepaid expenses and other
current assets . . . . . . . . . . . . . . . (2,539) (3,608)
Increase (decrease) in accounts payable. . . . 28,931 (13,029)
Increase (decrease) in accrued expenses. . . . (9,249) 7,372
Increase in deferred revenue . . . . . . . . . 4,313 5
Net cash (used in) operating activities. . (202,775) (10,970)
Cash flows from investing activities:
Acquisition of property and equipment. . . . . . . (49,256) (1,260)
Acquisition of patents and trademarks. . . . . . . (7,708)
Cash acquired upon acquisition . . . . . . . . . . 15,235
Net cash (used in) investing activities. . (34,021) (8,968)
Cash flows from financing activities:
Payment of long-term debt. . . . . . . . . . . . . (2,707) (2,903)
Proceeds from loan - bank. . . . . . . . . . . . . 4,750
Proceeds from issuance of stock. . . . . . . . . . 250,000
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . 252,043 (2,903)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . 15,247 (22,841)
Cash and cash equivalents - beginning of period. . . 174,403 45,164
CASH AND CASH EQUIVALENTS - END OF PERIOD. . . . . . $ 189,650 $ 22,323
Supplemental disclosure of noncash investing and
financing activities:
The Company acquired Software Associates, Inc.
on November 30, 1996 for 860,000 shares of
the Company's stock in exchange for all of
the stock issued and outstanding of Software
Associates, Inc. (Note C)
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
<PAGE>
DYNAMICWEB ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(NOTE A) - Basis of Presentation and the Company:
Basis of presentation:
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB and Article 3 of Regulations S-B.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included.
Operating results for the three-month period ended December 31,
1996 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997.
The balance sheet at September 30, 1996 has been derived
from the audited financial statements at that date but does not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
For further information, refer to the audited financial
statements and footnotes thereto included in the annual report on
Form 10-KSB.
The accompanying financial statements include the accounts
of DynamicWeb Enterprises, Inc. ("DWE") and its wholly owned
subsidiaries, Megascore, Inc., DynamicWeb Transaction Systems,
Inc. ("DWTS") and Software Associates, Inc. (collectively the
"Company"). All significant intercompany balances and
transactions have been eliminated.
The Company:
DWE is in the business of facilitating electronic commerce
transactions between business entities, developing, marketing and
supporting software products and other services that enable
businesses to engage in electronic commerce utilizing the
Internet and traditional Electronic Data Interchange ("EDI").
DWE offers electronic commerce solutions in EDI and Internet-
based transactions processing.
Megascore, Inc. is a full-service systems integrator
specializing in distribution, accounting and point-of-sale
computer software consulting services for suppliers and
retailers.
DWTS, formerly a division of Megascore, Inc. was established
as a separate legal entity on October 31, 1995. On February 7,
1996 DWTS issued all of its shares of its common stock to
Megascore, Inc. On September 30, 1996, DynamicWeb Enterprises,
Inc. acquired all the common stock of Megascore, Inc. for
50,000 shares of its common stock. The transaction was accounted
as a combination of entities under common control. The
accompanying financial statements retain the historical
accounting basis for the net assets of Megascore, Inc. and gives
effect to the operations of Megascore, Inc. for all periods
presented.
On March 26, 1996 DWTS was acquired by Seahawk Capital
Corporation ("Seahawk"), a publicly held corporation which had
431,369 shares of common stock outstanding and no assets. Prior
to the acquisition, Seahawk distributed all of its assets to its
shareholders. In the acquisition, the shareholders of DWTS
received 4,913,631 shares of Seahawk's common stock. The
acquisition is being accounted for as if DWTS were the acquiring
entity. The shares of Seahawk are accounted for as being
outstanding for all periods presented. In connection with the
acquisition, 735,000 shares were issued to a finder and
75,000 shares were issued for legal fees. At the conclusion of
this transaction, there were 6,155,000 shares outstanding.
On May 14, 1996, Seahawk changed its name to DynamicWeb
Enterprises, Inc. and concurrently increased the authorized
number of shares of its common stock to 50,000,000 at a
$.0001 par value. The accompanying financial statements give
retroactive effect to the above transaction.
On November 30, 1996, the Company acquired Software
Associates, Inc. (Note C).
On March 7, 1997, the Board of Directors, approved a reverse
stock split for each share of common stock to be converted into
.2608491 of one share and authorized 5,000,000 shares of
preferred stock to be effected when a public offering occurs.
Cash is to be issued to the stockholders for any fractional
shares. The stockholders approved these transactions on June 12,
1997 and the accompanying financial statements do not give
retroactive effect to the above transactions.
(NOTE B) - Summary of Significant Accounting Policies:
Net loss per share of common stock:
Net loss per share of common stock is based upon the
weighted average number of shares outstanding.
(NOTE C) - Acquisition:
On November 30, 1996, the Company entered into a stock
purchase agreement with Software Associates, Inc. and its sole
shareholder (the "SA Agreement") whereby the Company acquired all
the issued and outstanding common stock of Software Associates,
Inc. Software Associates, Inc. is an EDI service bureau engaged
in the business of helping companies realize the benefits of
expanding their data processing and electronic communications
infrastructures through the use of EDI. The Company exchanged
860,000 shares of its common stock for all of the issued and
outstanding shares of Software Associates, Inc. The Company
further agreed to issue up to 1,140,000 additional shares of its
common stock in the event that the average closing bid price of
the Company's common stock does not equal $3.375 per share for
the five trading days immediately prior to January 30, 1999. In
connection with this transaction, the Company incurred
approximately $25,000 of professional fees. The results of
operations includes Software Associates, Inc. from December 1,
1996 through December 31, 1996.
The SA Agreement also requires that the Company issue
options for the purchase of 25,000 shares of its common stock to
employees of Software Associates, Inc.
In connection with the acquisition, the Company entered into
a five year employment contract with the sole shareholder/
President of Software Associates, Inc. The agreement provides
for an annual salary of approximately $136,000 and includes a
discretionary bonus as determined by the Company's Board of
Directors.
Software Associates, Inc. leases its office space from a
partnership whose partner is the Executive Vice President of the
Company. Annual rental payments are approximately $38,000 and
the lease expires on June 30, 2018. Software Associates, Inc.
has guaranteed the debt (United States Small Business
Administration guaranteed loan) of the condominium office space
which was approximately $249,000 as at November 30, 1996; the
debt matures in August 2019.
The purchase price was recorded as follows:
Current assets . . . . . . . . . $133,381
Fixed assets . . . . . . . . . . 5,167
Purchased research and
development. . . . . . . . . . 738,710
Customer list. . . . . . . . . . 100,000
Current liabilities. . . . . . . (92,258)
Total . . . . . . . . . . . $885,000
The purchased research and development was charged to
operations upon acquisition. The acquisition was accounted for
as a purchase.
The condensed unaudited pro forma information of the Company
for the three months ended and Software Associates, Inc. for the
one month ended December 31, 1996 is as follows as if the
acquisition of Software Associates, Inc. occurred on October 1,
1996. In addition, the pro forma adjustments are computed
assuming the transaction was consummated at the beginning of the
fiscal period presented giving effect to events directly
attributable to the transaction and expected to have continuing
impact. A material nonrecurring charge representing purchased
research and development in the amount of $738,710 will be
charged to operations but has been omitted from the pro forma
results. The pro forma information is not necessarily indicative
of the results that would have been reported had the acquisition
occurred September 30, 1996, nor is it indicative of the
Company's future results:
<TABLE>
<CAPTION>
Historical - December 31, 1996
Three One
Months Ended Month Ended
DynamicWeb Software
Enterprises, Associates, Pro Forma Pro Forma
Inc. Inc. Adjustments Results
<S> <C> <C> <C> <C>
Net sales. . . . . . . $ 80,572 $ 14,325 $ 94,897
Cost of sales. . . . . 28,696 9,518 38,214
Gross profit . . . . . 51,876 4,807 56,683
Expenses:
Selling, general and
administrative . . (263,042) (20,275) $(8,000) (291,317)
Research and
development. . . . (21,687) ( 5,538) (27,225)
Total 284,729 (25,813) (8,000) (318,542)
Operating (loss) . . . (232,853) (21,006) (8,000) (261,859)
Interest income. . . . 1,758 1,758
Interest expense . . . (3,947) (98) (4,045)
Net (loss) before
nonrecurring charge. $(235,042) $(21,104) $(8,000) $(264,146)
Per share data:
(Loss) before
nonrecurring
charge . . . . . . $ (.04)
Weighted average
common shares
outstanding. . . . 6,659,924 860,000 7,519,924
</TABLE>
(NOTE D) - Subsequent Events:
[1] In February and March 1997, the Company received a loan
from the President of $50,000. The Company subsequently paid
back $40,000 to its President.
[2] On February 1, 1997, the Company signed a letter of
intent with an underwriter with respect to a proposed public
offering of the Company's securities. The Company expects to
incur significant additional costs in this connection therewith.
In the event that the offering is not successfully completed,
such costs will be charged to expense.
[3] On April 28, 1997, the Board of Directors adopted and
on June 12, 1997 the stockholders approved a stock option plan
for outside directors (the "Director Plan") under which
nonqualified stock options may be granted to its outside
directors to purchase up to 300,000 shares of the Company's
common stock. Directors will be granted an option to purchase
15,000 of the Company's common stock at fair market value at the
earlier of the public offering or September 30, 1997 and at each
subsequent annual meeting of shareholders at which directors are
elected. Options may be exercised for ten years and one month
after the date of grant and may not be exercised during an
eleven-month period following the date of grant unless there is a
change in control, as defined in the Director Plan or the
compensation committee waives the eleven-month continuous service
requirement.
[4] On March 7, 1997 the Board of Directors adopted and on
June 12, 1997 the stockholders approved the Company's 1997
employee stock option plan (the "Plan"), amended by the Board of
Directors on April 29, 1997, under which incentive stock option
and nonqualified stock options may be granted to purchase up to
900,000 shares of the Company's common stock. Grants to any one
employee shall not exceed 250,000 options during any twelve-month
period. Incentive stock options are to be granted at a price not
less than the fair market value, or 110% of fair market value to
an individual who owns more than ten percent of the voting power
of the outstanding stock. Nonqualified stock options are to be
granted at a price determined by the Company's compensation
committee.
[5] On April 30, 1997, pursuant to Regulation D, the
Company completed a private placement whereby it sold 24 units
for an aggregate amount of $600,000. The placement agent is
entitled to a fee and nonaccountable expense allowance
aggregating $78,000 or 13% of the private placement offering.
The Company incurred $30,000 of deferred financing cost. Each
unit consists of a $25,000 promissory note bearing interest at 8%
and 11,943 shares of the Company's common stock. The notes are
due at the earlier of the closing of the proposed public offering
as described in Note D[2] or when the Company obtains an
aggregate financing of $2,000,000 excluding expenses or March 31,
1999. The number of shares of common stock will increase or
decrease not less than 3,115 shares in the event that the
offering price of the proposed public offering is not $6.00 per
common share.
The value assigned to the notes is $313,000 and
$287,000 representing debt discount. The debt discount and
deferred financing cost will be amortized and charged to
operations over the life of the note. The effective interest
rate is approximately 37%.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in
conjunction with the financial statements included in this report
and in conjunction with the description of the Company's Business
included in the Company's Form 10-KSB for the year ended
September 30, 1996. It is intended to assist the reader in
understanding and evaluating the financial position of the
Company.
This discussion contains, in addition to historical
information, forward looking statements that involve risks and
uncertainty. The Company's actual results could differ
materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such
differences include those discussed in the Company's Form 10-KSB
for the year ended September 30, 1996.
The financial statements included in this report are the
Company's consolidated results of operations for the Company and
its three subsidiaries, DynamicWeb Transaction Services Inc.
(DWTS), Megascore, Inc. (Megascore) and Software Associates, Inc.
(Software Associates).
Results of Operations
Acquisition of Software Associates
On November 30, 1996 the Company completed the acquisition
of Software Associates, Inc., an electronic services company that
provides EDI out-sourcing services to businesses. The
acquisition has been included in the Company's consolidated
results of operations from the date of the acquisition.
Financial Condition
As of December 31, 1996, the Company had cash of $189,650
and total current assets of $391,257.
The Company had a net loss of $994,856 for the quarter ended
December 31, 1996 (which includes a one time, non-recurring
charge of $738,710 for the purchase of Software Associates'
research and development), and negative operating cashflow of
$202,775 that was funded by a private sale of 250,000 shares of
common stock for $250,000 on November 21, 1996. (The "$250,000
Private Offering"). The remaining proceeds and cash from the
acquisition of Software Associates provided funds for working
capital and the purchase of property and equipment.
Results of Operation for the three months ending
December 31, 1996
For the quarter ending December 31, 1996 ("1996"), the
Company recognized net sales of $94,897 compared to $153,109 for
the same period in the prior fiscal period ("1995"). The
decrease in sales of $58,212 was attributable to ongoing efforts
to migrate away from some of the Company's historical products
and to focus on the Company's core business, and the subsequent
need to market the new products and services.
For example, System sales declined to $17,619 in 1996 from
53,618 in 1995 due to the Company's focus on its new core
business and the need to market its EDI/Internet services.
System sales include sales of hardware and software to customers.
Service sales declined to $77,278 in 1996 from $99,491 in 1995
due largely to the shift from programming consulting services to
EDI/Internet services, and the need to market EDI/Internet
services. Programmers from the Company's consulting services
activity were deployed to research and development of EDI/
Internet services.
Cost of system sales (sale of hardware and customized
software) was $13,343 in 1996 or a gross profit of 24.3% percent
as compared to $29,034 or 45.8% in 1995. The decline is
attributable to lower sales of high margin customized software, a
direct result of the shift from customized software to
development and sale of the Company's EDI/Internet products and
services. Further, lower margin hardware sales in 1996 had
become a larger component of system sales.
Cost of services was $24,871 in 1996 or a gross profit of
67.8% as compared to $22,348 or a gross profit of 77.5% in 1995.
The decrease is attributable to the deployment of employees to
support the company's shift to EDI/Internet services.
Selling, general and administrative expenses increased to
283,317 in 1996 from $98,070 in 1995. The increase is
attributable to the higher marketing expenses, salaries and
office expenses associated with the Company's increased effort to
market its EDI/Internet services and to implement an outreach
program directed at the electronic commerce community.
Management believes the outreach program will provide the Company
with an electronic commerce network to support all aspects of the
Company's operations. There is no assurance that the outreach
program will be successful.
Research and development expenses increased by $24,225 from
$3,000 in 1995 to $27,225 in 1996. The increase is attributable
to expanded development of existing services, development of new
services (ED Integrator and Ship Trac), and integrating the
research and development operations of Software Associates into
the Company.
The increase in interest income is as a result of investing
excess cash from the $250,000 Private Offering until required for
operating funds.
Liquidity and Capital Resources
The capital resources available to the Company are not
believed to be adequate to finance the Company's activities for
the full year ended September 30, 1997 and the Company will
require substantial additional financing in order to continue its
operations.
Subsequent Events
In April 1997, the Company received $600,000 from a private
placement of units consisting of promissory notes and common
stock.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities
Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the
Securities and Exchange on November 30, 1996, as
amended by Form 8-K/A filed July 21, 1997,
relating to the acquisitions of Software
Associates, Inc. and Megascore, Inc., including
the necessary separate financial statements of
Software Associates, Inc. and pro forma financial
information.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Exchange of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
DynamicWeb Enterprises, Inc.
(Registrant)
July , 1997 By: /s/ Steve Vanechanos, Jr.
(Date) Steve Vanechanos, Jr.
President and Chief Executive
Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 189,650
<SECURITIES> 0
<RECEIVABLES> 227,927
<ALLOWANCES> (60,927)
<INVENTORY> 0
<CURRENT-ASSETS> 391,257
<PP&E> 388,297
<DEPRECIATION> (101,497)
<TOTAL-ASSETS> 794,617
<CURRENT-LIABILITIES> 197,721
<BONDS> 0
0
0
<COMMON> 766
<OTHER-SE> 401,061
<TOTAL-LIABILITY-AND-EQUITY> 794,617
<SALES> 94,897
<TOTAL-REVENUES> 94,897
<CGS> 38,214
<TOTAL-COSTS> 310,542
<OTHER-EXPENSES> 738,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,045
<INCOME-PRETAX> (994,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (994,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (994,856)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
