U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from __________ to _______________
Commission file number: 1-13360
Cornerstone Internet Solutions Company
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3272662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
584 Broadway, Suite 509, New York, NY 10012
(Address of Principal Executive Offices)
(212) 343-3920
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 / /
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Number Outstanding
Title of Class as of August 31, 1998
-------------- ---------------------
Common Stock, $.01 Par Value 11,574,895
Transitional Small Business Disclosure Format: Yes / / No /X/
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1 Financial Statements
Consolidated Balance Sheets at August 31, 1998
and May 31, 1998 3
Consolidated Statements of Operations for the
three month period ended August 31, 1998 4
Consolidated Statements of Cash Flows for the
three month period ended August 31, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
,
PART II - OTHER INFORMATION
Page
Item 1. Legal Proceedings 10
Item 2. Change in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submissions of Matters to a Vote by Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
Cornerstone Internet Solutions Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Aug. 31 May 31
1998 1998
(unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 711,000 $ 392,200
Investments 125,900 167,400
Accounts receivable, net 505,700 343,700
Other Receivables 75,000 100,000
Prepaid expenses and other 190,600 269,300
------------ ------------
Total current assets 1,608,200 1,272,600
Affiliation rights, net 212,300 219,200
Property and equipment, net 408,400 485,900
Other 134,200 69,200
------------ ------------
$ 2,363,100 $ 2,046,900
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 573,500 $ 538,100
Accrued restructuring expenses 35,700 95,400
Accrued payroll and related expenses 226,400 202,800
Other accrued expenses 273,400 410,300
Deferred revenue 138,600 9,300
Current maturities of long-term debt 106,900 99,500
------------ ------------
Total current liabilities 1,354,500 1,355,400
Long-term debt 74,900 106,400
------------ ------------
Total liabilities 1,429,400 1,461,800
Commitments and contingencies
Stockholders' Equity
Preferred Stock $.01 par value, 2,000,000
shares authorized;
Class A 0 and 340 shares issued and outstanding
at August 31, 1998, and May 31, 1998. -- --
Class B 2,000 shares issued and outstanding at August
31, 1998, and May 31, 1998. 20 20
Class C 6,260 shares issued and outstanding at August
31,1998, and May 31, 1998. 100 100
Common Stock $.01 par value, 50,000,000 shares authorized;
11,574,895 and 9,441,117 issued and outstanding at
August 31, 1998, and May 31, 1998 respectively. 115,700 94,400
Additional paid-in capital 31,800,980 30,222,480
Unrealized Gain on marketable equity securities 125,900 167,400
Accumulated deficit (31,109,000) (29,899,300)
------------ ------------
Total stockholders' equity 933,700 585,100
------------ ------------
$ 2,363,100 $ 2,046,900
------------ ------------
</TABLE>
See notes to consolidated financial statements
3
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Cornerstone Internet Solutions Company and Subsidiaries
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended August 31
1998 1997
--------------------------
<S> <C> <C>
Internet services revenues 528,900 142,400
Software licensing and royalty revenue 38,000 34,500
----------------------------
Total revenues 566,900 176,900
Cost of Internet services revenues 1,091,700 499,000
Marketing and selling expenses 114,200 799,000
General and administrative expenses 565,600 566,600
----------------------------
Total costs and expenses 1,771,500 1,864,600
----------------------------
Operating loss (1,204,600) (1,687,700)
Other income (expense):
Interest expense (4,400) --
Other income/expense (1,200) --
Interest income 500 53,600
----------------------------
Net Loss $ (1,209,700) $ (1,634,100)
----------------------------
Preferred stock dividends and preferences (669,600) (1,952,100)
----------------------------
Net loss available to common shareholders $ (1,879,300) $ (3,586,200)
----------------------------
Basic and diluted loss per share $ (.17) $ (0.47)
----------------------------
Weighted average shares of common stock 10,989,409 7,679,441
----------------------------
</TABLE>
See notes to consolidated financial statements
4
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Cornerstone Internet Solutions Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended August 31
1998 1997
----------------------------
<S> <C> <C>
Cash flows from Operating Activities
Net Loss $(1,209,700) $(1,634,100)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 98,800 46,600
Stock option consulting expense 6,400 --
Changes in assets and liabilities
Accounts receivable (162,000) 11,000
Other receivables 25,000 37,300
Prepaid expenses and other 78,700 (49,800)
Other assets (65,000) 7,500
Accounts payable 35,400 23,400
Accrued expenses (94,700) (53,700)
Deferred revenue 129,300 (49,900)
--------------------------
Net cash used in operating activities (1,157,800) (1,661,700)
Cash flows from investing activities
Purchases of property and equipment (14,400) (227,800)
--------------------------
Net cash (used in) investing activities (14,400) (227,800)
Cash flows from financing activities
Proceeds from private placement 1,487,900 --
Proceeds from exercise of stock options 27,200 --
Principal payments under long-term debt (24,100) --
--------------------------
Net cash provided by financing activities 1,491,000 --
--------------------------
Net increase (decrease) in cash and cash equivalents 318,800 (1,889,500)
Cash and cash equivalents
Beginning of period 392,200 4,952,900
--------------------------
End of period $ 711,000 $ 3,063,400
--------------------------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
CORNERSTONE INTERNET SOLUTIONS COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
The accompanying, unaudited financial statements have been prepared
in accordance with the instructions to Form 10-QSB and in the
opinion of management contain all adjustments, (consisting of only
normal recurring entries), necessary to present fairly the financial
position of Cornerstone Internet Solutions Company, (the "Company")
as of August 31, 1998 and the results of its operations and its cash
flows for the three month periods ended August 31, 1998 and August
31, 1997. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. The
interim financial statements should be read in conjunction with the
Company's financial statements and related notes in the May 31, 1998
Annual Report on Form 10-KSB. The results for the three month period
ended August 31, 1998 are not necessarily indicative of the results
to be obtained for the full year.
2. Business
On July 2, 1998, the Company's shareholders ratified a proposal to
change the Company?s name from Enteractive, Inc. to Cornerstone
Internet Solutions Company. Headquartered in New York, New York,
Cornerstone Internet Solutions Company (the "Company") is a provider
of business solutions based on Internet technologies. The Company's
address is 584 Broadway, Suite 509, New York, NY 10012 and its
Internet address is www.crstone.com.
Throughout the first half of fiscal 1997, the Company was primarily
engaged in the development, publishing and marketing of multimedia
interactive software with an emphasis on the CD-ROM platform. As a
result of a rigorous review of the CD-ROM market, the Company's
performance and the related risks of continuing to develop and
market interactive multimedia titles, the Company concluded that it
could capitalize on what the Company believes to be a vibrant market
and upon its expertise in development by redirecting its business to
provide network and web-related solutions, products and services to
businesses and other entities.
In August 1997, the Company sold its domestic distribution rights,
inventory and certain accounts receivable from its interactive
multimedia publishing business to a third party.
On August 14, 1998 the Company entered into a new agreement with the
same party and terminated the August 15, 1997 agreement, except with
respect to the sale of inventory and accounts receivable and the
assignment of the distribution contracts (the "1998 contract").
Under the terms of the 1998 contract, the Company sold all its
rights to its multimedia titles and has assigned all third party
rights in the titles to the acquirer for $100,000, payable at
varying monthly amounts through January 1, 1999. The August 31, 1998
and May 31, 1998 balance sheet caption "Other receivables" reflects
the amounts due under the contract.
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On December 4, 1996 the Company through a wholly-owned subsidiary
signed multiple market affiliate agreements with USWeb Corporation
and paid $625,000 for the right to operate USWeb affiliate offices
in New York City, and certain other markets in the Northeast portion
of the United States, for a ten-year period. The operation, which
has been conducting business as USWeb Cornerstone, provides a full
range of Internet and Intranet-based business solutions, including
Web site design, hosting and management, design and implementation
of database and e-commerce solutions, educational programs and
Web-related strategic consulting and marketing.
The Company's Internet and Intranet solutions services business
commenced operations in the fourth quarter of fiscal 1997, but did
not generate revenue until fiscal 1998. The Company is obligated to
pay USWeb monthly fees equal in the aggregate to 7% of adjusted
gross revenues, as defined, but not less than certain contractual
minimum fees. During fiscal 1998, the Company reduced operating
expenses by concentrating its development activities in New York
City and its marketing activities in the surrounding tri-state area.
As a result in the second quarter of fiscal 1998 the Company
incurred restructuring expenses of $427,700 for the estimated losses
from subleasing the closed offices and related severance costs. In
addition in the fourth quarter of fiscal 1998, the Company, with the
approval of USWeb surrendered its affiliation rights in certain
geographic regions and recorded a write off of $315,000 representing
the unamortized portion of the related Affiliation Rights.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's
continuing losses from operations could impact the Company's ability
to meet its obligations as they become due. As part of its business
plan to enhance liquidity, the Company has reduced its operating
expenses, secured approximately $1,487,900 in July 1998 from the
sale of common stock in a private placement and is in the process of
attempting to increase its revenues and secure a line of credit.
3. Affiliation Rights
Fees for affiliation rights were paid to USWeb for the right to join
the USWeb network and operate as an affiliate. The fee is being
amortized over the 10-year life of the agreement with USWeb.
Affiliation rights at August 31, 1998 were net of accumulated
amortization of $97,700.
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4. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
5. Convertible Preferred Stock Class A and C
On December 12, 1996 the Company completed a private placement of 84
units, each consisting of 80 shares of Class A Convertible Preferred
Stock (Class A Preferred) and 50,000 common stock purchase warrants
to purchase in the aggregate 4,200,000 shares of common stock at an
exercise price of $4.00 per share and expiring December 13, 2001(the
"Warrants"). Proceeds were approximately $7,869,100, net of related
expenses of $531,000. The preferred stock has a stated value of
$1,250 per share.
On November 19, 1997 the Company offered to exchange the 4,200,000
Warrants for common stock (the "Exchange Offer"), whereby for each
2.8 warrants exchanged, the Company issued one share of its Common
Stock. In connection with the Exchange Offer the Company received
the written consent of the participating preferred shareholders to
amend the terms of the Preferred Stock to delay the date when the
Preferred Stock can first be converted into Common Stock from May 1,
1998 to July 1, 1999 and modify certain redemption features of the
Preferred Stock. Holders of 6,260 shares of preferred stock agreed
to the terms of the Exchange Offer. As a result, on February 6, 1998
the Company issued 1,397,323 shares of common stock in exchange for
the cancellation of 3,912,500 Warrants. The fair value of the common
shares issued approximated the fair value of the canceled warrants.
Subsequently the Company redesignated the 6,260 shares of Class A
Preferred held by the shareholders who approved the Exchange Offer
as Class C Convertible Preferred Stock (Class C Preferred). Such
preferred shareholders will receive a dividend at 12% per year of
the stated value of the preferred stock for the period from April
30, 1998 and ending the earlier of June 30, 1999 or a redemption
date, if any. The dividend is payable in common stock an amounted to
$234,700 for the quarter ended August 31, 1998.
On April 27, 1998, the Company notified the holders of the Class A
Preferred that the Company would redeem the remaining 460 shares of
outstanding Class A Preferred as of May 28, 1998 at a price per
share equal to 1.1 multiplied by the stated value of each share of
Class A Preferred. Holders of 340 shares of Class A Preferred Stock
exercised their right to convert such Class A Preferred Stock to
Common Stock, which resulted in the issuance of 348,361 shares of
common stock in June 1998. 120 shares of Class A Preferred were
redeemed for $165,000 in May 1998.
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6. Class B Convertible Preferred Stock
On February 19, 1998, the Company consummated a $2,000,000 private
placement resulting in the issuance of 2,000 shares of Class B par
value $.01 Convertible Preferred Stock (Preferred Stock). Net
proceeds to the Company were $ 1,990,800. The Preferred Stock, with
a stated value of $1,000 per share, is entitled to vote on all
matters submitted to holders of the Company's common stock, at 1,000
votes per share, pays no dividends and is not redeemable.
The conversion rights for the Preferred Stock are: if prior to March
1, 1999 the Company has a private placement or public offering of
common stock where the gross proceeds to the Company are in excess
of $2,000,000 (the financing), all of the Preferred Stock shall
automatically convert into shares of the Company's common stock
equal to the aggregate stated value of the Preferred Stock
($2,000,000) divided by the greater of (a) 90% of the per share
offering price of the financing or (b) $1.00. Subsequent to March 1,
1999 the Preferred Stock is convertible into shares of common stock
equal to the aggregate stated value of preferred shares to be
converted divided by $1.00. The maximum number of common shares
issuable upon conversion of preferred stock is 2,000,000.
Based on the market price of the Company's common stock on the date
of issuance the Class B Preferred Stock had a non-cash beneficial
conversion feature of $2,250,000. The beneficial conversion feature
is recognized solely in the calculation of loss per common share
over a 14 month period, beginning with the issuance of the preferred
stock to March 1999 the first date that conversion can occur. As a
result, the net loss to common shareholders includes preferred stock
preferences of $434,900 for the quarter ended August 31, 1998.
7. Private Placement of Common Stock
On July 24, 1998 the Company consummated a private placement of
1,768,750 unregistered shares of Common Stock, for $1 per share. The
net proceeds of the offering were approximately $1,487,900.
9
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The discussion and analysis should be read in conjunction with the Consolidated
Financial Statements of Cornerstone Internet Solutions Company and Subsidiaries
and Notes to the Consolidated Financial Statements included elsewhere in this
Form 10-QSB.
Quarterly results
The Company expects its quarterly results to vary significantly in the future.
The number of customer contracts signed as well as the ability of the solutions
to be readily implemented by the development staff significantly influence
revenues. Further market acceptance of the Company's offerings is dependent on
(1) the growth and utilization of the Internet as a medium for commerce, (2) the
success of USWeb establishing and positioning the USWeb brand in the territories
where the Company operates (3) the degree of market acceptance of the Company's
offerings and (4) the success of offerings by competitors. The Company does not
expect seasonal factors to be a significant influence on revenues.
Results of Operations - Quarter Ended August 31, 1998 and 1997
Revenues
Internet services revenues Internet services revenues were $528,900 and
$142,400, in the quarters ended August 31, 1998 and 1997, respectively. The
increase in revenues is a result of securing new contracts with customers. The
company anticipates that revenues will be impacted in the future by its ability
to expand its services in existing accounts and grow its client base.
Expenses
Cost of Internet Services Revenues Cost of Internet Services Revenues were
$1,091,700 and $499,000, in the quarters ended August 31, 1998 and 1997,
respectively. The increase in cost of Internet services revenues is due to
hiring of technical personnel, the third party cost of software and hardware and
subcontractors used to fulfill customer contracts. Cost of Internet Services
Revenues in the quarter ended August 31, 1998 exceeded Internet services
revenues as a result of the Company's decision to retain technical staff in
anticipation of securing higher levels of revenue producing contracts. The
company expects that as the Company secures additional contracts the cost of
revenues, as a percentage of revenues will decrease.
Marketing and Selling Expenses Marketing and Selling expenses were $114,200 and
$799,000, in the quarters ended August 31, 1998 and 1997, respectively. The
decrease relates to the reduction in sales force and closure of sales offices
during the second half of fiscal 1998, a result of the Company's fiscal 1998
decision to centralize its marketing activities in New York City.
General and Administrative Expenses General and administrative expenses were
$565,600 and $566,000, in the quarters ended August 31, 1998 and 1997.
Other Income and (Expense) Other income and (expense) were $53,600 and ($5,100)
in the quarters ended August 31, 1998 and 1997. The change, an increase in
expense of $58,700 results from less interest income in the quarter ended August
31, 1998 due to the Company's lower cash balances than in the quarter ended
August 31, 1997.
Income tax benefit No income tax benefit was recorded in the quarters ended
August 31, 1998 and August 31, 1997. Using the standards set forth in Financial
Accounting Standard No. 109, management cannot currently determine whether the
Company will generate taxable income during the period that the Company's net
operating loss carry forward may be applied towards the Company's taxable
income, if any. Accordingly, the Company has established a valuation allowance
against its deferred tax asset.
10
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Liquidity and Capital Resources
Since June 1, 1997, the Company's principal sources of capital have been as
follows:
(i) On February 19, 1998, the Company consummated a $2,000,000
private placement resulting in the issuance of 2,000 shares
of Class B par value $.01 Convertible Preferred Stock
("Class B Preferred Stock"). Net proceeds to the Company
were $ 1,990,800.
(ii) On July 24, 1998, the Company consummated a private
placement of 1,768,750 unregistered shares of Common Stock
for $1.00 per share. The net proceeds of the offering were
approximately $1,487,900.
On April 27, 1998, the Company notified the holders of the Class A Preferred
Stock that the Company would redeem the remaining 460 shares of outstanding
Class A Preferred Stock as of May 28, 1998 at a price per share equal to 1.1
multiplied by the stated value of each share of Class A Preferred. Holders of
340 shares of Class A Preferred Stock exercised their right to convert such
Class A Preferred Stock to Common Stock, which resulted in the issuance of
348,361 shares of Common Stock in June 1998. One hundred twenty shares of Class
A Preferred Stock were redeemed for $165,000 in May 1998.
The Company had cash and cash equivalents of $711,000 and $392,200 at August 31,
1998 and May 31, 1998, respectively. The increase of $318,800 reflects primarily
the funding of operating activities - $1,157,800 offset by the private placement
described above which yielded $1,487,900.
Capital expenditures were $14,400 and $14,500 in the quarter ended August 31,
1998 and August 31, 1997. The Company anticipates that capital expenditures will
increase as revenues increase as a result of equipping staff or contractors to
services customers.
The Company's continuing losses from operations could impact the Company's
ability to meet its obligations as they become due. The Independent Auditor's
report for the fiscal year ended May 31, 1998 includes an explanatory paragraph
regarding the Company's ability to continue as a going concern. Based on its
current operating plan, the Company believes that its current cash and cash
equivalents are not sufficient to meet its operating expenses and working
capital requirements. To enhance liquidity, the Company has reduced its
operating expenses and secured, in July 1998, approximately $1,487,900 from the
sale of common stock in a private placement. In addition, in order to generate
additional cash, of which there is no assurance, the Company is attempting to
increase its revenues, secure a line of credit, further reduce operating
expenses and obtain additional financing. However, the cash generated from these
activities, if any may not be sufficient to meet the Company's longer-term cash
requirements.
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NASDAQ Listing Standards; Possible NASDAQ and Boston Stock Exchange Delisting
In August 1997, the Nasdaq Stock Market ("Nasdaq") enacted new standards for the
listing of its member companies on Nasdaq. These standards, which took effect on
February 23, 1998, require listed companies to maintain certain financial and
corporate governance criterion for continued listing on Nasdaq, including net
tangible assets of at least $2,000,000 and a per share price of at least $1.00
per share. As of May 31, 1998, the Company had less than $2,000,000 in net
tangible assets and as of August 31, 1998, the Company had $933,700 in net
tangible assets. Nasdaq has advised the Company that the Company no longer meets
the requirements for continued listing and accordingly the Company was required
to provide Nasdaq by September 30, 1998 its proposal for achieving compliance.
If Nasdaq determines that the proposal will not warrant continued listing,
Nasdaq will issue a Formal Notice of Deficiency and, pending a hearing, the
Common Stock will be delisted. The Company may seek to enter a transaction or
transactions to raise additional equity capital to ensure that its Common Stock
will continue to be listed on the SmallCap Market. There can be no assurances
that additional financing will be available to the Company. If the Common Stock
is delisted from Nasdaq, trading, if any, in the Common Stock, would then
continue to be conducted in the over-the-counter market on the OTC Bulletin
Board, an NASD-sponsored inter-dealer quotation system, or in what are commonly
referred to as "pink sheets." As a result, an investor may find it more
difficult to dispose of or to obtain accurate quotations as to the market value
of the Company's Common Stock and the trading price of the Company's Common
Stock may be adversely affected.
Furthermore, on September 11, 1998, the Company received a letter from the
Boston Stock Exchange informing the Company that it believed the Company may no
longer met the Boston Stock Exchange's minimum shareholder's equity maintenance
requirement of $500,000. The Company is required to submit a written response to
the Boston Stock Exchange by the close of trading on October 12, 1998,
indicating that such deficiency has been cured or explaining when and how such
deficiency will be cured. If the Company cures such deficiency and fails to
provide the requested response, or, in the event the Company is unable to cure
the deficiency and submits a plan to cure the deficiency, if the Boston Stock
Exchange determines that the Company's response does not provide the necessary
details relating to its plans to cure the deficiency, trading in the Company's
Common Stock could be suspended on the Boston Stock Exchange and such Common
Stock could be delisted.
New Accounting Pronouncement
During fiscal 1998, the Company adopted the provisions of Statement of Position
No. 97-2, "Software Revenue Recognition", which did not have a significant
impact on the financial statements.
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for derivative Instruments and Hedging
Activities" in fiscal year 2000, for which the Company is presently assessing
its impact on the consolidated financial statements, if any.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and
software used by many companies, including customers and potential customers of
the Company, may need to be upgraded to comply with such "Year 2000"
requirements. The Company is closely monitoring the progress the developers of
the
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software the Company utilizes in many of its customer projects i.e. Microsoft
Corporation, as well as the developers of the software utilized in internal
systems are making towards ensuring that the products the Company utilizes are
Year 2000 compliant. The Company believes that its internal systems and third
party software incorporated into client solutions will be Year 2000 compliant.
Failure to provide Year 2000 compliant business solutions and software to its
customers could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company?s costs to ensure
that internal systems and software acquired for integration into client business
solutions are Year 2000 compliant has not been and is not expected to become
significant.
Further, the Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase products and services such as those offered by the Company.
Forward looking statements
This Form 10-KSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to develop its products, the success of
its USWeb Cornerstone subsidiary as well as general market conditions,
competition and pricing. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this Form 10-KSB will prove to
be accurate. In light of significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
Inflation
The past and expected future impact of inflation on the financial statements is
not significant.
Item 1. Legal Proceedings
None
Item 2. Change in Securities
On July 24, 1998 the Company consummated a private placement of 1,768,750
unregistered shares of Common Stock, for $1 per share. The net proceeds of the
offering were approximately $1,487,900. The sale was made pursuant to the
exemption contained in Section 4(2) of the Securities Act of 1933 as amended.
The Company engaged a placement agent in connection with the private placement.
Item 3. Defaults upon Senior Securities
None
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Item 4. Submissions of Matters to a Vote Security Holders
On July 2, 1998, the Company held its annual meeting of Stockholders (the
"Annual Meeting"). As of May 13, 1998, the record date for the Annual Meeting
(the "Record Date"), there were outstanding 9,435,016 shares of Common Stock. In
addition, as of the Record Date, there were outstanding an aggregate of 6,720
shares of Class A Preferred Stock and Class C Preferred Stock and 2,000 shares
of Class B Preferred Stock. Holders of each share of Common Stock are entitled
to one vote for each share held on all matters. The Class A Preferred Stock,
Class B Preferred Stock and Class C Preferred Stock are sometimes collectively
referred to herein as Preferred Stock with respect to the Annual Meeting.
Holders of each share of Class A and Class C Preferred Stock were entitled to
approximately 1,025 votes per share, aggregating 6,885,246 votes, and holders of
each share of Class B Preferred Stock were entitled to 1,000 votes per share,
aggregating 2,000,000 votes. For information with respect to the redemption of
the Class A Preferred Stock and the conversion rights of the Class B Preferred
Stock and the Class C Preferred Stock see Notes 5 and 6 of Notes to Consolidated
Financial Statements.
At the Annual Meeting, the Company's stockholders approved the election of the
following individuals as directors by the following vote:
Name For Withheld
---- --- --------
Edward Schroeder 10,436,845 13,765
Rino Bergonzi 10,436,095 14,515
Andrew Gyenes 10,323,614 126,996
Peter Gyenes 10,323,614 126,996
Harrison Weaver 10,438,845 11,765
The stockholders also approved proposals which (i) amended the Company's
Certificate of Incorporation by changing the name of the Company from
"Enteractive, Inc." to "Cornerstone Internet Solutions Company" (Proposal 1) and
(ii) increased the number of shares of Common Stock reserved for issuance under
the Company's 1994 Incentive and Non-Qualified Stock Option Plan to 3,250,000.
(Proposal 2).
The stockholder votes for the two proposals were as follows:
For Against Abstain
--- ------- -------
Proposal 1 10,397,909 50,170 2,531
Proposal 2 10,328,435 121,075 1,100
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CORNERSTONE INTERNET SOLUTIONS COMPANY
-----------------
(Registrant)
Date October 14, 1998 /s/ Kenneth Gruber
------------------------------
Kenneth Gruber
Chief Financial Officer and
Principal Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE YEAR ENDED AUGUST 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETYBY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 711,000
<SECURITIES> 125,900
<RECEIVABLES> 580,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,608,200
<PP&E> 1,585,452
<DEPRECIATION> (1,177,052)
<TOTAL-ASSETS> 2,363,100
<CURRENT-LIABILITIES> 1,354,500
<BONDS> 0
0
120
<COMMON> 115,700
<OTHER-SE> 817,880
<TOTAL-LIABILITY-AND-EQUITY> 2,363,100
<SALES> 0
<TOTAL-REVENUES> 566,900
<CGS> 1,091,700
<TOTAL-COSTS> 1,771,500
<OTHER-EXPENSES> 700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,400
<INCOME-PRETAX> (1,209,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,209,700)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
