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, 1997
Commission file number 10039
DYNAMICWEB ENTERPRISES, INC.
(Exact name of registrant as specified in this 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, 1997, there were 2,141,370 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,
1997 (unaudited) and September 30, 1997 and Pro Forma Balance
Sheet (unaudited) as at December 31, 1997.
Condensed Consolidated Statements of Operations for the
three months ended December 31, 1997 and 1996 (unaudited).
Condensed Consolidated Statement of Cash Flows for the three
months ended December 31, 1997 and 1996 (unaudited).
Notes to Condensed Financial Statements
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
PRO FORMA BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31,
1997
Pro Forma December 31,
(Unaudited) 1997 September 30,
(Note D) (Unaudited) 1997
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,052,862 $ 63,818 $ 188,270
Accounts receivable, less allowance for
doubtful accounts 82,736 82,736 100,425
Prepaid expenses and other current assets 19,170 19,170 20,738
Total Current Assets 2,154,768 165,724 309,433
Property and equipment, less depreciation 280,299 280,299 284,512
Patents and trademarks, less accumulated
amortization 26,160 26,160 21,808
Customer list, less accumulated amortization 78,333 78,333 83,333
Software development cost, less accumulated
amortization 45,993 45,993 0
Deferred financing fees, less accumulated
amortization 51,373
Deferred registration costs 124,129 128,169
Other assets 9,088 9,088 9,088
Total $ 2,594,641 $ 729,726 $ 887,716
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 311,939 $ 311,939 $ 182,340
Accrued expenses 181,586 233,812 165,941
Current maturities of long-term debt 7,720 7,720 7,925
Loan payable - banks 95,996 24,049
Loans from stockholders 207,163 117,163
Deferred revenue 16,910 16,910 15,065
Subordinated loans payable - interim financing,
less unamortized debt discount $259,127
at September 30, 1997 1,000,000 840,873
Total current liabilities 518,155 1,973,540 1,353,356
Long term debt, less current liabilities 184,191 184,191 185,811
Total liabilities 702,346 2,157,731 1,539,167
Commitments, contingencies and other matters
Capital Deficiency
Common stock, $.0001 par value, 50,000,000
shares authorized; 2,141,370 shares
issued and outstanding at December 31,
1997 and September 30, 1997, and 2,874,704
shares outstanding pro forma 287 214 214
Additional paid-in capital 10,457,380 7,137,153 3,530,324
Unearned portion of compensatory stock options (175,250) (175,250) (204,000)
Accumulated deficit (4,383,293) (4,383,293) (3,577,989)
Total 5,899,124 2,578,824 (251,451)
Less treasury stock, at cost 721,257 shares at
December 31, 1997 and September 30, 1997 (4,006,641) (4,006,829) (400,000)
Total Capital Deficiency 1,892,295 (1,428,005) (651,451)
Total liabilities and Capital Deficiency $ 2,594,641 $ 729,726 $ 887,716
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1997 1996*
Net sales:
Transaction processing $ 93,751 $ 28,766
Professional services 55,804 48,512
Other - systems 17,097 17,619
Total 166,652 94,897
Cost of sales:
Transaction processing 67,661 20,627
Professional services 28,821 4,244
Other - systems 9,222 13,343
Total 105,704 38,214
Gross profit 60,948 56,683
Expenses:
Marketing and selling 141,456 96,323
General and administrative 318,964 186,994
Research and development 61,783 27,225
Total 522,203 310,542
Operating (loss) (461,255) (253,859)
Purchased research and development 0 (738,710)
Interest expense (including
$310,500 of amortization of
deferred financing fees and debt
discount for 1997) (344,706) (4,045)
Interest income 657 1,758
Net (loss) $ (805,304) $ (994,856)
Basic net (loss) per common share $ (0.43) $ (0.55)
Weighted average number of shares
outstanding 1,875,485 1,812,825
* Reclassified to conform to current period presentation.
The accompanying notes are an integral part
of these financial statements.
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(805,304) $(994,856)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 16,608 10,251
Purchased research and development 738,710
Stock options issued for compensation 28,750
Amortization of debt discount and deferred
financing fees 310,500
Changes in operating assets and liabilities:
Decrease in accounts receivable 17,689 21,664
(Increase) decrease in prepaid expenses
and other current assets 1,568 (2,539)
Increase in accounts payable 129,599 28,931
Increase in accrued expenses 67,871 (9,249)
Increase in deferred revenue 1,845 4,313
Net cash (used in) operating activities $(230,874) $(202,775)
Cash flows from financing activities:
Acquisition of property and equipment (3,990) (49,256)
Acquisition of patents and trademarks (5,318)
Increase in software development cost (48,432)
Cash acquired upon acquisition - 15,235
Net cash used in investing activities (57,740) (34,021)
Cash flows from financing activities:
Payment of long-term debt (1,825) (2,707)
Proceeds from issuance of stock - 250,000
Proceeds from loans - banks 71,947 4,750
Loans from stockholders/officers 90,000 -
Payment of stockholders/officers loans
Refund of deferred registration costs 4,040 -
Net cash provided by financing activities 164,162 252,043
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (124,452) 15,247
Cash and cash equivalents, beginning of period 188,270 174,403
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 63,818 $ 189,650
Supplemental disclosure of non-cash investing and
financing activities:
On December 23, 1997, certain of the Company's
stockholders contributed 654,597 shares of the
Company common stock in exchange for warrants
to purchase 125,000 shares of the Company's
stock. The Company valued the 654,597
shares at market value of $3,606,829
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
DYNAMICWEB ENTERPRISES, INC. and SUBSIDIARIES
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 or 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 of the three-month period ended
December 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1998.
The balance sheet at September 30, 1997 has been derived
from the audited financial statements at the 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 Transactions Systems,
Inc. ("DWTS") and Software Associates, from the date of its
acquisition (November 30, 1996) (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
business entities 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.
Software Associates, Inc. is a 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.
(NOTE B) -- Summary of Significant Accounting Policies:
[1] Basic loss per share of common stock:
The Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"). Basic loss per share of
common stock is based on the weighted average number of shares
outstanding. Contingent shares issuable in connection with the
acquisition of Software Associates, Inc. are excluded from the
weighted average shares outstanding. The adoption of SFAS No.
128, which requires a retroactive adjustment did not have a
material effect on the Company's financial statement.
[2] Software development costs:
Costs relating to the conceptual formulation and design of
software are expensed as research and development. Costs
incurred subsequent to establishment of technological feasibility
to produce the finished product are generally capitalized.
Technological feasibility was established when a product design
and a working model were completed. Capitalized software costs
are amortized by the straight-line method over a maximum of five
years or the expected life of the product whichever is less.
(NOTE C) -- Contribution of Stock By Certain Shareholders:
On December 23, 1997, certain of the Company's existing
shareholders, who in the aggregate held approximately 79% of the
issued and outstanding common stock of the Company, contributed
40% of their common stock to the capital of the Company in
exchange for Warrants to purchase an aggregate of 125,000 shares
of common stock (the "Contribution of Stock"). The total number
of shares contributed was 654,597 shares, representing
approximately 32% of the issued and outstanding common stock at
the time of contribution. The effect of the Contribution of
Stock transaction was to reduce the outstanding number of shares
of common stock from 2,074,710 to 1,420,113. The Company valued
such transactions, based upon the market value of the Company
stock which aggregated $3,606,829.
(NOTE D) -- Public Offering:
On February 6, 1998 the Company completed a public offering
of 733,334 shares of common stocks at $6.00 a share. The Company
received net proceeds of approximately $3,300,000. The balance
sheet gives a pro forma basis to reflect the completion of the
offering.
(NOTE E) -- Reverse Stock Split:
At the Company's Annual Meeting held on June 12, 1997, the
Company's shareholders approved an Amendment and Restatement of
the Company's Certificate of Incorporation (the "Amendment and
Restatement") which, among other things, effected a 0.2608491 -
for-one reverse stock split of the Company's common stock (the
"Reverse Stock Split"). The Amendment and Restatement was filed
with the New Jersey Secretary of State and took effect on
January 9, 1998. Pursuant to the Reverse Stock Split, each share
of Common stock outstanding on the effective date was converted
into 0.2608491 of one share, except that no fractional shares
were issued and shareholders who would otherwise receive a
fractional share as a result of the Reverse Stock Split will
receive cash in lieu thereof. The financial statements have been
retroactively adjusted for this transaction.
<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, 1997. 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, 1997.
The financial statements included in this report are
consolidated for the Company and its three subsidiaries,
DynamicWeb Transaction Services, Inc. (DWTS), Megascore, Inc.
(Megascore) and Software Associates, Inc. (Software Associates).
Financial Condition
As of December 31, 1997, the Company had cash of
approximately $63,000 and total current assets of approximately
$166,000.
The Company had a net loss of approximately $805,000 for the
three months ended December 31, 1997 and negative operating cash
flow of approximately $231,000. The Company's negative cash flow
for the three months was funded by cash from short-term officer's
loans of approximately $90,000, credit lines of approximately
$73,000, and previously funded primarily through a private
placement of units consisting of $500,000 aggregate principal
amount of subordinated unsecured promissory notes and 66,660
shares of common stock.
On December 31, 1997, the capital resources available to the
Company were not adequate to finance the Company's activities for
the full year ended September 30, 1998. On February 6, 1998,
however, the Company completed a public offering of 733,334
shares of common stock at $6.00 per share that provided net
proceeds of approximately $3,300,000 which will be sufficient to
meet the Company's short-term working capital requirements. The
Company will require substantial additional financing during the
1998 calendar year to continue its operations. There is no
assurance that the Company will receive additional financing.
Results of Operations
Beginning with this Report, the format of the Company's
financial reports has been changed to better reflect its goals
and objectives as an electronic commerce company. As such,
revenues will be presented for the Company's two principal
segments: transaction processing and professional services.
Similarly, expenses for marketing and sales have been separated
from expenses of general and administration to more accurately
reflect the Company's increased focus on marketing and sales.
Management believes that continuous investments in marketing and
sales are necessary to grow the Company's business, and that a
similar commitment to research and development will allow the
Company's technology to achieve and to maintain a value added
proposition in the marketplace.
The Company recognized net sales of approximately $166,000
for the three months ended December 31, 1997, compared to
approximately $94,000 for the same period in 1996, an increase of
approximately $72,000, or 76%. The increase in sales was
attributable to increased sales of the Company's new EDI/Internet
products and services, particularly transaction processing
services offered through the Company's EDI service bureau. The
increase also includes approximately $9,000 in revenues from the
sale of EDIxchange to Southern New England Telecommunications
("SNET"). SNET selected EDIxchange through an open and
competitive process involving products from other leaders in the
electronic commerce industry.
Sales from transaction processing and its ancillary products
and services were approximately $93,000 in the three months ended
December 31, 1997, as compared to approximately $28,000 in the
same period in 1996, an increase of approximately $65,000 or
232%. Approximately $39,000 of the increase is attributable to
an increase in sales of the Company's EDI/Internet products and
services including new transaction processing customers. The
remainder of the increase reflects sales for transaction
processing associated with Software Associates' customers.
Software Associates was acquired by the Company on November 30,
1996.
Sales from professional services were approximately $55,000
for the three months ended December 31, 1997 as compared to
approximately $48,000 for the same period in 1996, an increase of
approximately $7,000 or 15%. The small increase is attributable
to the shift in focus of the Company's core business from its
system integration services to electronic commerce services. For
most of calendar year 1997 the Company focused on generating
sales of transaction processing rather than sales of system
integration services. The Company intends to replace system
integration services with electronic commerce professional
services.
Sales from other products were approximately $17,000 for the
three months ended December 31, 1997 as compared to $17,600 for
the same period in 1996. The decrease is attributable to the
internal de-emphasis of system sales that were ancillary to the
Company's system integration services to electronic commerce
services.
Cost of transaction processing was approximately $67,000 for
the three months ended cost of transaction processing of
approximately December 31, 1997, or a gross profit of 28%. This
compares to $20,000 or 27% for the same period in 1996. The
increase in profitability is attributable to sales of high margin
customized EDI software that are integrated into transaction
processing through the EDI service bureau. However, the
Company's gross profit margin was negatively affected by higher
monthly fixed costs associated with a re-engineered, scaleable
network infrastructure, consisting of new computer and
communications hardware and software.
Cost of professional service revenues provided by the
Company was approximately $28,000 for the three months ended
December 31, 1997 or a gross profit of 48%. This compares to
$4,000 or 92% for the same period in 1996. The decrease is
attributable to a reallocation of expenses from research and
development to cost of professional services to more accurately
reflect the cost of providing system integration services.
Cost of other products was approximately $9,000 for the
three months ended December 31, 1997, or a gross profit of 46%,
as compared to approximately $13,000, or a gross profit of 16% in
1997. This increase is attributable to the transition from sales
of low margin computer products ancillary to system integration
services and a re-deployment of resources.
Quarterly marketing and sales expenses increased
approximately $45,000 or 47% from approximately $96,000 for the
three months ended December 31, 1996 to approximately $141,000 in
the same period in 1997. The increase is attributable to
salaries for new hires and the costs of attendance at trade shows
associated with the Company's efforts to market its EDI/Internet
services. The increase is also a result of an outreach program
directed at the electronic commerce community which management
expects to 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.
General and administrative expenses increased by
approximately $132,000 or 70%, from approximately $187,000 for
the three months ended December 31, 1996 to approximately
$319,000 for the same period in 1997. The increase is
attributable to new hiring of employees, professional services,
the cost of benefits and administrative support for new hires in
other departments, the cost of insurance coverage for the
Company's directors, the addition of a senior executive, and
compensation expense for the 1997 Employee Stock Ownership Plan.
Research and development expenses increased by approximately
$34,000 or 126%, for the three months, from approximately $27,000
for the three months ending December 31, 1996 to approximately
$61,000 in 1997. The increase is attributable to expanded
development of existing services, and ongoing development of new
services.
Purchased research and development of $738,710 for the three
months ended December 31, 1996 was a result of the allocation of
the purchase price for the acquisition of Software Associates,
Inc. which occurred on November 30, 1996.
Interest expense increased from approximately $4,000 for the
three months ended December 31, 1996 to approximately $340,000
for the same period in 1997. The increase is attributable to
amortization of debt discount and deferred financing fees of
$310,500 and related interest on interim financings of $22,000.
<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
(a) Contribution of Stock By Certain
Shareholders
On December 23, 1997, certain of the
Company's existing shareholders, who in
the aggregate held approximately 79% of
the issued and outstanding common stock
of the Company, contributed 40% of their
Common stock to the capital of the
Company in exchange for Warrants to
purchase an aggregate of 125,000 shares
of common stock (the "Contribution of
Stock"). The total number of shares
contributed was 654,597 shares,
representing approximately 32% of the
issued and outstanding Common stock at
the time of contribution. The effect of
the contribution of Stock transaction
was to reduce the outstanding number of
shares of common stock from 2,074,710 to
1,420,113.
(b) Reverse Stock Split
At the Company's Annual Meeting held on
June 12, 1997, the Company's
shareholders approved an Amendment and
Restatement of the Company's Certificate
of Incorporation (the "Amendment and
Restatement") which, among other things,
effected a 0.2608491-for-one reverse
stock split of the Company's common
stock (the "Reverse Stock Split"). The
Amendment and Restatement was filed with
the New Jersey Secretary of State and
took effect on January 9, 1998.
Pursuant to the Reverse Stock Split,
each share of Common stock outstanding
on the effective date was converted into
0.2608491 of one share, except that no
fractional shares were issued and
shareholders who would otherwise receive
a fractional share as a result of the
Reverse Stock Split will receive cash n
lieu thereof.
(c) Public Offering Completed
On February 6, 1998 the Company
completed a public offering of 733,334
shares of common stock at $6.00 a share.
The Company received net proceeds of
approximately $3,300,000.
Item 6. Exhibits and Reports on Form 8 -K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
<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)
February 17, 1998 By: /s/ Steve Vanechanos, Jr.
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
CONSOLIDATION
STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS OF
DYNAMICWEB
ENTERPRISES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000317788
<NAME> DYNAMICWEB ENTERPRISES, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 63,818
<SECURITIES> 0
<RECEIVABLES> 166,409
<ALLOWANCES> (83,673)
<INVENTORY> 0
<CURRENT-ASSETS> 165,724
<PP&E> 352,342
<DEPRECIATION> 72,043
<TOTAL-ASSETS> 729,726
<CURRENT-LIABILITIES> 1,973,540
<BONDS> 0
0
0
<COMMON> 214
<OTHER-SE> (1,428,219)
<TOTAL-LIABILITY-AND-EQUITY> 729,726
<SALES> 166,652
<TOTAL-REVENUES> 166,652
<CGS> 105,704
<TOTAL-COSTS> 105,704
<OTHER-EXPENSES> 522,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,706
<INCOME-PRETAX> (805,304)
<INCOME-TAX> 0
<INCOME-CONTINUING> (805,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (805,304)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
