U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
AMENDMENT NO. 1
TO THE
Form 10-QSB/A No. 1
Quarterly Report under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For quarterly period ended June 30, 1998
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 June 30, 1998, there were 2,245,947 shares of Common Stock,
$0.0001 par value, of the registrant outstanding.
PAGE 1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as at
June 30,1998 (unaudited) and September 30, 1997.
Condensed Consolidated Statements of Operations for the
three months and nine months ended June 30, 1998 and
1997 (unaudited).
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 1998 and 1997 (unaudited).
Notes to Condensed Financial Statements.
PAGE 2
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1998 September 30,
(Unaudited) 1997
ASSETS
Current assets:
Cash and cash equivalents $ 212,803 $ 188,270
Accounts receivable, less
allowance for doubtful
accounts $83,673 and $83,673 214,059 100,425
Prepaid expenses and other
current assets 36,703 20,738
Deposits securing orders 68,465
Total current assets 532,030 309,433
Property and equipment, less
accumulated depreciation of
$143,942 and $116,965 286,771 284,512
Patents and trademarks, less
accumulated amortization of
$9,430 and $4,851 27,986 21,808
Software development costs less
accumulated amortization of
$11,960 171,972
Excess of cost over net assets
of acquired business, less
accumulated amortization of
$6,948 409,955
Customer list, less accumulated
amortization of $31,667 and
$16,667 68,333 83,333
Deferred financial fees, less
accumulated amortization of
$129,127 51,373
Deferred registration costs 128,169
Other Assets 9,088 9,088
Total assets $ 1,506,135 $ 887,716
LIABILITIES
Current liabilities:
Accounts payable $ 211,370 $ 182,340
Accrued expenses 15,428 79,691
Accrued expenses - professional
fees 86,250
Current maturities of
long-term debt 7,250 7,925
Loan payable - banks 24,049
Loans from stockholders 117,163
Deferred revenue 20,918 15,065
Subordinated notes payable 840,873
Taxes payable- current 3,320
Taxes payable- deferred 10,300
Total current liabilities 268,586 1,353,356
<PAGE 3>
Long-term debt, less current
maturities 179,853 185,811
Total liabilities 448,439 1,539,167
STOCKHOLDERS' EQUITY/CAPITAL
DEFICIENCY
Common stock, $.0001 par value,
50,000,000 shares authorized;
2,967,574 shares issued and
outstanding at June 30, 1998;
and 2,141,740 shares issued
and outstanding at
September 30, 1997 297 214
Additional paid-in capital 10,777,327 3,530,324
Unearned portion of compensatory
stock options (117,750) (204,000)
Accumulated deficit (5,595,349) (3,577,989)
5,064,525 (251,451)
Less treasury stock, 721,257
shares at June 30, 1998 and
66,660 shares at
September 30, 1997 (4,006,829) (400,000)
Total stockholders'
equity/(capital
deficiency) 1,057,696 (651,451)
Total liabilities and
stockholders' equity/
(capital deficiency) $ 1,506,135 $ 887,716
The accompanying notes are an integral part of these
financial statements.
PAGE 4
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NINE MONTHS ENDED
JUNE 30,
JUNE 30,
1998 1997
1998 1997
<S> <C> <C>
<C> <C>
Net sales:
Transaction processing $ 150,410 $ 110,289
$ 328,993 $ 217,569
Professional services 191,159 68,336
331,552 177,029
Other - systems 8,778 42,675
59,287 103,497
Total 350,347 221,300
719,832 498,095
Cost of sales:
Transaction processing 110,053 29,618
253,744 78,166
Professional services 145,680 22,318
212,716 42,278
Other - systems 8,331 10,015
22,999 40,186
Total 264,064 61,951
489,459 160,630
Gross profit 86,283 159,349
230,373 337,465
Expenses:
Marketing and sales 211,560 115,338
543,023 365,967
General and administrative 441,447 246,251
1,087,918 639,428
Research and development 69,753 71,451
260,062 164,875
Total 722,760 433,040
1,891,003 1,170,270
Operating (loss) (636,477) (273,691)
(1,660,630) (832,205)
Purchased research and development 25,000
(713,710)
Interest expense (including $310,500,
$186,000 and $186,000 amortization of
deferred financing fee and debt <PAGE 5>
discount for nine months ended
June 30, 1998 and for the three and
nine months ended June 30, 1997,
respectively) (5,421) (200,310)
(369,049) (210,585)
Interest income 7,992 1,362
19,384 3,790
Net (loss) before (provision) benefit
for income taxes (633,906) (447,639)
(2,010,295) (1,753,310)
(Provision) benefit for income taxes (785) (1,684)
(7,065) 21,700
Net (loss) (634,691) (449,323)
(2,017,360) (1,731,610)
Net (loss) per common share - basic
and diluted $(.29) $(.21)
$(.99) $(.89)
Weighted average number of shares
outstanding - basic and diluted 2,215,114 2,097,834
2,028,897 1,952,116
</TABLE>
The accompanying notes are an integral part of these
financial statements.
PAGE 6
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
JUNE 30,
1998 1997
Cash flows from operating activities:
Net (loss) $(2,017,360) $(1,731,610)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation and amortization 65,464 34,415
Purchased research and development 713,710
Amortization of compensatory
stock options 86,250
Deferred income taxes (21,700)
Amortization of deferred financing
fee and debt discount 310,500 186,000
Changes in operating assets and
liabilities:
(Increase) in accounts
receivable (66,149) (20,371)
(Increase) decrease in prepaid
expenses and other current assets (80,869) 855
Increase in accounts payable 29,030 137,280
Increase (decrease) in accrued
expenses (150,513) 5,395
Increase in income taxes payable
Increase in deferred revenue 5,853 6,743
Net cash (used in) operating
activities: (1,817,794) (689,283)
Cash flows from investing activities:
Acquisition of property and
equipment (25,558) (66,152)
Acquisition of patents and
trademarks (10,757) (4,251)
Proceeds from sale of equipment 1,954
Increase in software development
costs (183,932)
Cash acquired upon acquisition
of subsidiary 2,855 15,235
Net cash (used in) investing
activities: (217,392) (53,214)
Cash flows from financing
activities:
Payment of long-term debt (6,633) (7,838)
Net proceeds from issuance of
common stock 3,179,395 250,000
Proceeds from loan - banks 74,557 4,750
Proceeds from loan - officer/ <PAGE 7>
stockholder 117,800 50,000
Payment of loan - banks (98,606)
Payment of loans from officer/
stockholder (234,963) (50,000)
Payment of subordinated debt (1,100,000)
Decrease in deferred registration
costs 128,169
Proceeds from sale of units
consisting of notes and
common stock 600,000
Payment of deferred registration
costs (75,000)
Payment of deferred financing
fees (108,000)
Net cash provided by financing
activities 2,059,719 663,912
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 24,533 (78,585)
Cash and cash equivalents -
beginning of period 188,270 174,403
CASH AND CASH EQUIVALENTS - END
OF PERIOD $ 212,803 $ 95,818
Supplemental disclosure of non-cash investing activities:
On May 1, 1998, the Company purchased the outstanding stock
of Design Crafting, Inc. in exchange for 92,500 shares of the
Company's stock which was valued at $474,063.
The accompanying notes are an integral part of these
financial statements.
PAGE 8
<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 for interim financial information and with the
instructions to Form 10-QSB and 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 nine-month period ended June 30, 1998 are not
necessarily indicative of the results that may be expected for
the year ended September 30, 1998.
The balance sheet at September 30, 1997 has been restated giving
effect to the acquisition of Design Crafting, Inc. which is being
accounted for as a Purchase as described in Note E and 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. ("DWEB") and its wholly owned
subsidiaries, Megascore, Inc., DynamicWeb Transactions Systems,
Inc. ("DWTS"), Design Crafting, Inc, and Software Associates,
from the date of acquisition (November 30, 1996) (collectively
the "Company"). All significant intercompany balances and
transactions have been eliminated.
The Company:
DWEB 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").
DWEB 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
<PAGE 9>
their data processing and electronic communications
infrastructures through the use of EDI.
Design Crafting, Inc., is an information technology professional
services company that provides services primarily to customers in
the distribution, retail and financial industries.
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. Stock options did not have an effect on the
computation of dilutive loss per share in the three and nine
month periods ended June 30, 1998 since they were anti-dilutive.
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 B) -- 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 the Company's 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's common stock which aggregated $3,606,829.
(NOTE C) -- Public Offering:
On February 6, 1998 the Company completed a public offering of
733,334 shares of its common stock at $6.00 a share and received
net proceeds of approximately $3,179,000. <PAGE 10>
(NOTE D) -- 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 the Company's 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.
(NOTE E) -- Acquisition of Design Crafting, Inc
On May 1, 1998, the Company purchased the outstanding stock of
Design Crafting, Inc., an information technology professional
services company which was financed through the issuance of
92,500 shares of the Company's stock, and up to 10,000 additional
shares. The Company is obligated to issue an additional share for
each $5.00 of (i) cash in the bank of design and (ii) accounts
receivable on the balance sheet on the day of closing. All of
the Company's shares are restricted within the meaning of
Rule 144 under the Securities Act of 1933 (the Act), and will not
be registered under the Act. In addition, the Company's shares
will be subject to a restriction on sale through May 1, 2000,
pursuant to a lock up agreement. The transaction was accounted
for as a purchase in accordance Accounting Principle Board
No. 16. The transaction was previously accounted for on the
basis of a pooling of interests.
(NOTE F) -- Series A Convertible Preferred Stock
On August 7, 1998, the Company completed a private placement for
$875,000 each consisting of 875 shares of Series A 6% Convertible
Preferred Stock, par value $0.001 per share (the "Preferred
Stock") together with 87,500 Common Stock Purchase Warrants which
expire on August 7, 2001 and have an exercise price of $6.00 per
share (the "Common Stock Purchase Warrants"). The terms of the
private placement provide that a second funding of $675,000
consisting of 675 shares of Preferred stock and 67,500 Common
Stock Purchase Warrants which will be sold under the same terms
and conditions as the original offering, provided that a
Registration Statement has been declared effective by the
Commission and remains effective for at least 30 days and that
certain other terms and condition are also satisfied and
fulfilled. The Company has the right to redeem at anytime, any
unconverted principal of the Preferred Stock at a premium of 115%
of the stated value.
On August 6, 1998, the Company's Board of Directors authorized an
issuance of Series A 6% Convertible Stock.
<PAGE 11>
(NOTE G) -- 1997 Employee Stock Ownership Plan
On July 27, 1998 the Company's Board of Directors authorized to
increase the number of shares of common stock issuable under the
Company's 1997 employee stock plan by 100,000 shares to
334,764 shares. The Company's shareholders approved that
increase on July 28, 1998.
PAGE 12
<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 four subsidiaries, DynamicWeb Transaction
Services, Inc., (DWTS)., Megascore, Inc. (Megascore), Software
Associates, Inc. (Software Associates) from the date of
acquisition on November 30, 1996 and Design Crafting, Inc,
(Design) from the date of acquisition on May 1, 1998. On May 1,
1998 the Company acquired all of the outstanding shares of stock
of Design for 92,500 shares of the Company's stock and up to
10,000 additional shares based on certain balances at May 1,
1998. The transaction was accounted for as a purchase in
accordance with Accounting Principle Board No. 16.
Financial Condition
As of June 30, 1998, the Company had cash and cash equivalents of
approximately $213,000 and total current assets of approximately
$532,000.
The Company had a net loss of approximately $2,017,000 for the
nine months ended June 30, 1998 and negative operating cash flow
of approximately $1,820,000. The Company's negative cash flow
for the nine months was funded by proceeds from the sale of
equity securities that was completed in February 1998.
On June 30, 1998, the capital resources available to the Company
were not adequate to finance the Company's activities for the
full year ended September 30, 1999. However, on August 7, 1998,
the Company received an aggregate of $875,000 in a private
placement to the Shaar Fund, Ltd. of 875 shares of Series A 6%
Convertible Preferred Stock, par value $0.001 per share (the
"Preferred Stock") together with 87,500 Common Stock Purchased
Warrants with a term of three years and an exercise price of
$6.00 per share. This financing represents the first tranche of
$1,550,000 financing with the Shaar Fund, Ltd.
Results of Operations
<PAGE 13>
Beginning with the Company's filing of Form 10-QSB for the
reporting period ending December 31,1997, the format of the
Company's financial reports has been changed to reflect its goals
and objectives as an electronic commerce company. As such,
revenues are 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 $350,000 for
the quarter ended June 30, 1998, compared to approximately
$221,000 for the same period in 1997, an increase of
approximately $129,000 or 58%. The Company had net sales of
approximately $720,000 for the nine month period ending June 30,
1998 as compared to approximately $498,000 for the same period in
1997, an increase of approximately $222,000 or 45%. The increase
in revenue for both periods ending June 30, 1998 was attributable
to new sales of the Company's EDI/Internet services and products,
particularly its transaction processing service and its
consulting services provided through the Company's Professional
Services Group.
Net sales for the Company's transaction processing services for
the three months ended June 30, 1998 were approximately $150,000
compared to approximately $110,000 for the same period in 1997,
an increase of approximately $40,000 or 36%. The increase is the
result of growth in transaction processing of approximately
$30,000 for existing customers as new trading partners were
brought on line, and new sales of EDI Services of approximately
$40,000, both of which offset the elimination of revenues from an
internet domain list that the Company no longer maintains for
sale. Net sales for the Company's transaction processing services
increased from approximately $218,000 for the nine months ended
June 30, 1997 to approximately $329,000 for the same period in
1998, an increase of $111,000 of 51%. This increase is largely
attributable to an increase in sales of EDI/Internet products and
services, including the addition of new transaction processing
customers, as well as sales of EDI/Internet services related to
the addition of new trading partners for current customers.
Net sales for the Company's professional services were
approximately $68,000 for the three months ended June 30, 1997
compared to approximately $191,000 for the same period in 1998,
an increase of approximately $123,000 or 180%. The increase is
attributable to a decline in sales of system integration services
(approximately $5,000) which was offset by an increase in
consulting services delivered through Design Crafting, Inc.,
which was acquired on May 1, 1998. Net sales for these
professional services increased from approximately $177,000 for
the nine months ending June 30, 1997 to approximately $332,000
for the same period in 1998, an increase of approximately
<PAGE 14>
$154,000 or 87%. This increase is attributable to the shift in
the Company's core business from its system integration services
to electronic commerce services and consulting services rendered
through Design Crafting, Inc.
Net sales for the Company's other products were approximately
$43,000 for the three months ended June 30, 1997 compared to
approximately $9,000 for the same period in 1998, a decrease of
$34,000 or approximately 79%. Net sales for these products were
approximately $103,000 for the nine months ending June 30, 1997
compared to approximately $59,000 for same period in 1998 a
decrease of approximately $44,000 or 43%. These decreases are
attributable to the shift in the Company's core business, from
its system integration services, particularly the sale of
computer hardware and software, to electronic commerce services.
Cost of transaction processing was approximately $110,000 for the
three months ended June 30, 1998, for a gross profit of 27%.
This compares to cost of transaction processing of approximately
$30,000, or 73% for the same period in 1997. The decrease in
profitability is attributable to salaries related to new hires,
rental of equipment and floor space for the Company's scaleable
network infrastructure, and salary increases that took effect on
March 1, 1998 and June 1, 1998. In order to remain competitive,
the Company has committed to compensate its employees at
prevailing market rates. The cost of transaction processing was
approximately $254,000 for the nine months ended June 30, 1998,
for a gross profit of 23%. This compares to cost of transaction
processing of approximately $78,000, or 64% for the same period
in 1997. The decrease in profitability is attributable to higher
monthly fixed costs associated with a re-engineered, scaleable
network infrastructure and expansion of the Company's EDI support
capability, as described above.
The Company's cost of providing its professional services was
approximately $146,000 for the three months ended June 30, 1998
or a gross profit of 24%. This compares to cost of providing its
professional service of approximately $22,000 for the three
months ended June 30, 1998, or a gross profit of approximately
$46,000 or 67% for the same period for 1997. The decrease in
gross profit percentage for the Company's professional services
is attributable to the ongoing transition, including a
redeployment of personnel from services related to system
integration to services related to EDI/Internet solution,
salaries related to new hires, and the addition of consultants
through the acquisition of Design Crafting, Inc. A portion of
the decrease is also attributable to salary increases that took
effect on March 1, 1998 and June 1 1998.
Cost of other products was approximately $8,000 for the three
months ended June 30, 1998, or a gross profit of 5%, as compared
to approximately $10,000, or a gross profit of 77% for the same
period in 1997. This decrease is attributable to the transition
from sales of high margin computer products ancillary to system
integration services and a redeployment of resources despite the
<PAGE 15>
continued demand for computer products. Cost of other products
was approximately $23,000 for the nine months ended June 30,
1998, or a gross profit of 61%, as compared to approximately
$40,000, or a gross profit of 61% for the same period in 1997.
Quarterly marketing and sales expenses increased by approximately
$96,000, or 83%, from approximately $115,000 for the three months
ending June 30, 1997 to approximately $212,000 in 1997. The
increase is attributable to attendance at trade shows by more
Company personnel, and an increase in advertising expenses and
salaries related to new hires. A portion of the increase is also
attributable to salary increases that took effect on March 1,
1998 and June 1, 1998. The increase in marketing and sales
expenses by approximately $177,000, or 48%, from approximately
$366,000 for the nine months ending June 30, 1997 to
approximately $543,000 for the same period in 1998, is
attributable to the costs of increased attendance at trade shows,
salaries for new hires and salary increases.
General and administration expenses increased by approximately
$195,000, or 79%, from approximately $246,000 for the three
months ending June 30, 1997 to approximately $441,000 in 1998.
The increase is attributable to the cost of new hires in general
and administrative, the cost of legal, financial and consulting
services, the cost of administrative support for new hires in
other departments, the cost of insurance coverage for the
Company's directors, the addition of a senior executive,
amortization of capitalized software development costs, and
compensation expense for the 1997 Employee Stock Option Plan. A
portion of the increase is also attributable to salary increases
that took effect on March 1, 1998 and June 1 1998. The increase
in general and administration expenses by approximately $448,000
or 70%, from approximately $639,000 for the nine months ending
June 30, 1997 to approximately $1,088,000 for the same period in
1998, is attributable to the cost of new hires in general and
administrative and other departments, the cost of insurance
coverage for the Company's directors, the addition of a senior
executive, amortization of capitalized software development
costs, compensation expense for the 1997 Employee Stock Option
Plan and the phase-in of salary increases.
Research and development expenses decreased by approximately
$1,000 or 2% for the quarter, from approximately $71,000 for the
three months ending June 30, 1997 to approximately $70,000 in
1998. The decrease is attributable to capitalization of costs in
1998 for related expanded development of existing services, and
ongoing development of new services, such as EDIxchangeConnect.
These expenses were also impacted by salaries to new hires and
salary increases that took effect on March 1, 1998 and June 1,
1998.
Research and development expenses increased by approximately
$95,000 or 58% from approximately $165,000 for the nine months
ending June 30, 1997 to approximately $260,000 for the nine
months ending June 30, 1998. The increase is attributable to
<PAGE 16>
salaries of new hires, and salary increases that took effect on
March 1, 1998 and June 1, 1998.
Interest expense decreased by approximately $195,000, or 97% from
approximately $200,000 for the three months ended June 30, 1997
to approximately $5,000 in 1998. The decrease is attributable to
the elimination of amortization of debt discount on deferred
financing fees related to its interim bridge financing. Interest
expense increased by approximately $158,000, or 75% from
approximately $210,000 for the nine months ended June 30, 1997,
to approximately $369,000 in 1998. The increase is attributable
to amortization of debt discount and deferred financing fees
related to the interim bridge financing. PAGE 17
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
(a) Acquisition of Design Crafting, Inc
On May 1, 1998, the Company purchased the outstanding stock of
Design Crafting Inc, an information technology professional
services company which was financed through the issuance of
92,500 shares of the Company's stock, and up to 10,000 additional
shares. The Company is obligated to issue an additional share
for each $5.00 of (i) cash in the bank of design and
(ii) accounts receivable on the balance sheet on the day of
closing. All of the Company's shares will be restricted within
the meaning of Rule 144 under the Securities Act of 1933 (the
Act), and will not be registered under the Act. In addition, the
Company's shares will be subject to a restriction on sale for a
period of two years from the Closing Date, pursuant to a lock up
agreement.
(b) Private Placement of Securities
See Item 5 concerning a private placement of unregistered
securities which closed on August 7, 1998.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to Shareholders for a vote. However
see Item 5 for a discussion of the Company's 1998 Annual meeting
of Shareholders.
Item 5. Other Information
(a) Private Placement.
On August 7, 1998, the Company completed a private placement to
the Shaar Fund, Ltd. Of 875 shares of Series A 6% Convertible
Preferred Stock, par value $0.001 per share (the "Preferred
Stock") together with 87,500 Common Stock Purchase Warrants with
a term of three years and at an exercise price of $6.00 per share
(the "Common Stock Purchase Warrants") for a purchase price of
$875,000. The terms of the private placement provide that a
second funding of $675,000 for 675 shares of Preferred stock and
67,500 Common Stock Purchase Warrants will be sold to the Shaar
Fund, Ltd. Under the same terms and conditions as the original
offering provided that a Registration Statement has been declared
<PAGE 18>
effective by the Commission and remains effective for at least
30 days and that certain other terms and condition are also
satisfied and fulfilled. The offering was made pursuant to an
exemption from registration under Rule 506 of Regulations D
promulgated under the Securities Act of 1933 (the "Securities
Act") and equivalent state securities laws exemptions. The Shaar
Fund, Ltd. Is an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act.
(b) Annual Meeting of Shareholders
On July 28, 1998, the Company held its 1998 Annual Meeting of
Shareholders. At such meeting the shareholders were asked to
vote upon (i) the election of three Class I directors to the
Company's Board of Directors, and (ii) an amendment to the
Company's 1997 Employee Stock Option Plan to increase the number
of shares reserved for issuance thereunder by 100,000 shares.
The shareholders approved the amendment to the stock option plan
and elected management's three nominees of class I directors.
Item 6. Exhibits and Reports on Form 8 -K
(a) Acquisition of Design Crafting, Inc.
The Company filed Form 8-K on May 15, 1998 related to the
acquisition of Design Crafting, Inc. on May 1, 1998.
The Company filed Form 8-K/A No. 1 on July 16, 1998 related to
the acquisition of Design Crafting, Inc., to provide financial
information and pro-forma financial information.
The Company filed Form 8-K/A No. 2 on November 10, 1998 related
to the acquisition of Design Crafting, Inc., to reflect the
transactions as a purchase under Accounting Principle No. 16.
The transaction was previously accounted for on the basis of a
pooling of interests.
PAGE 19
<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)
November 12, 1998
By:/s/ Steven L. Vanechanos, Jr.
Chief Executive Officer
<PAGE 20>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Consolidated
Statements of Operations and consolidated balance sheets of DynamicWeb
Enterprises, Inc. and is qualified in its entirety by reference of such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 22,803
<SECURITIES> 0
<RECEIVABLES> 297,732
<ALLOWANCES> 83,673
<INVENTORY> 0
<CURRENT-ASSETS> 532,030
<PP&E> 430,713
<DEPRECIATION> 143,942
<TOTAL-ASSETS> 1,506,135
<CURRENT-LIABILITIES> 268,586
<BONDS> 0
0
0
<COMMON> 297
<OTHER-SE> 1,507,399
<TOTAL-LIABILITY-AND-EQUITY> 1,506,135
<SALES> 719,832
<TOTAL-REVENUES> 719,832
<CGS> 489,459
<TOTAL-COSTS> 1,891,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369,049
<INCOME-PRETAX> (2,010,295)
<INCOME-TAX> 7,065
<INCOME-CONTINUING> (2,017,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,017,360)
<EPS-PRIMARY> (.99)
<EPS-DILUTED> (.99)
</TABLE>
