-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5kwoxrJlPXDCSEqMlOKQZNHfbvdB8giWhihTbQVBaVKjmFFFgn4XnjgtF56J12D ij32hqUexICI8sSsZ8LuQQ== 0000921895-98-000068.txt : 19980128 0000921895-98-000068.hdr.sgml : 19980128 ACCESSION NUMBER: 0000921895-98-000068 CONFORMED SUBMISSION TYPE: SC 13E4/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980123 DATE AS OF CHANGE: 19980126 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ENTERACTIVE INC /DE/ CENTRAL INDEX KEY: 0000929648 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 223272662 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13E4/A SEC ACT: SEC FILE NUMBER: 005-46535 FILM NUMBER: 98512268 BUSINESS ADDRESS: STREET 1: 110 W 40TH ST STE 2100 CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2023331063 MAIL ADDRESS: STREET 1: 110 W 40TH ST STE 210 CITY: NEW YORK STATE: NY ZIP: 10018 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ENTERACTIVE INC /DE/ CENTRAL INDEX KEY: 0000929648 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 223272662 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13E4/A BUSINESS ADDRESS: STREET 1: 110 W 40TH ST STE 2100 CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2023331063 MAIL ADDRESS: STREET 1: 110 W 40TH ST STE 210 CITY: NEW YORK STATE: NY ZIP: 10018 SC 13E4 1 SCHEDULE 13E4 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) (Amendment No. 2) ENTERACTIVE, INC. - - ------------------------------------------------------------------------------- (Name of Issuer) ENTERACTIVE, INC. - - ------------------------------------------------------------------------------- (Name of Person(s) Filing Statement) Common Stock Purchase Warrant Expiring December 13, 2001 - - ------------------------------------------------------------------------------- (Title of Class of Securities) (CUSIP Number of Class of Securities) Andrew Gyenes Enteractive, Inc. 110 West 40th Street, Suite 2100 New York, New York 10018 (212) 221-6559 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) Copy to: Steven Wolosky, Esq. Kenneth A. Schlesinger, Esq. Olshan Grundman Frome & Rosenzweig LLP 505 Park Avenue New York, NY 10022 (212) 753-7200 Facsimile: (212) 755-1467 November 19, 1997 - - ------------------------------------------------------------------------------- (Date Tender Offer First Published, Sent or Given to Security Holders) CALCULATION OF FILING FEE - - ------------------------------------------------------------------------------- Transaction Valuation (1) Amount of Filing Fee - - ------------------------------------------------------------------------------- $1,750,000 $350.00 - - ------------------------------------------------------------------------------- / / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount previously paid: 350.00 Filing party: N/A ------------------ ------------------- Form or registration no.: Schedule 13E-4 Date filed: November 26, 1997 ---------------- ----------------- - - -------- (1) Estimated solely for purposes of calculating the fee in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended. Based upon the book value of the Warrants $.416, multiplied by the number of Warrants that the issuer, Enteractive, Inc. (the "Company") is offering to acquire (4,200,000) Warrants). This constitutes Amendment No. 2 ("Amendment No. 2") to the Schedule 13E-4 filed by the undersigned (the "Schedule 13E-4"). This Amendment No. 2 supplements the Schedule 13E-4 as specifically set forth. All capitalized terms used herein which are not otherwise defined have the meaning ascribed to them in the Schedule 13E-4. This Amendment to Schedule 13E-4 is being filed to amend Item 1(b) and Item 9 so that they read in their entirety as follows: ITEM 1. SECURITY AND ISSUER. (b) The Company is seeking to acquire up to 90% of the 4,200,000 outstanding Common Stock Purchase Warrants expiring on December 13, 2001 (the "Warrants"). The Company is offering to exchange one share of its Common Stock, $.01 par value per share (the "Common Stock"), for 2.8 Warrants properly tendered and not validly withdrawn, upon the terms and subject to the conditions set forth in the Offering Circular of the Company, dated November 19, 1997 (the "Offering Circular"), and the related Letter of Transmittal (the "Exchange Offer"). In connection with the Exchange Offer and as a condition to the Closing of the Exchange Offer, the Company is requiring that all Warrantholders who participate in the Exchange Offer of the Company agree to modify the terms of the Class A Convertible Preferred Stock (the "Preferred Stock") owned by them to delay the date when the Preferred Stock can first be converted into Common Stock of the Company from April 30, 1998 to June 30, 1999 (the "Delayed Conversion Option"). In addition all holders of the Preferred Stock who approve the above-referenced proposal will receive a special monthly interest payment equal to 12% per annum (or 1% per month) of the stated value of the Preferred Stock ($1,250) for the period commencing on April 30, 1998 and ending on the earlier of (i) June 30, 1999 or (ii) the redemption, if any, of the Preferred Stock. Copies of the Offering Circular, a supplement to the Offering Circular and the Letter of Transmittal relating to the Exchange Offer are filed herewith as Exhibits (a)(1), (a)(2) and (a)(3), respectively. Information with respect to the number of Warrants outstanding is set forth in the Offering Circular under "THE EXCHANGE OFFER -- General -- Exchange Offer" and is incorporated herein by reference. Officers, directors and affiliates of the Company that own Warrants may participate in the Exchange Offer on the same basis as all other holders of Warrants. Definitive information with respect to their participation in the Exchange Offer will not be available to the Company until the consummation thereof. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offering Circular dated November 19, 1997.* (2) Supplement to Offering Circular (3) Form of Letter of Transmittal.* (4) Form of Press Release.* (5) Form of letter to Warrantholders from the Chairman of the Board of the Company dated January 22, 1998. -2- (6) 1997 Annual Report on Form 10-KSB.* (7) Quarterly Report on Form 10-QSB for the quarter ended August 31, 1997.* (8) Quarterly Report on Form 10-QSB for the quarter ended November 30, 1997. - - --------------------- * Previously filed. (b)-(f) Not Applicable. -3- SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. ENTERACTIVE, INC. By: /s/ Kenneth Gruber ------------------------------ Name: Kenneth Gruber Title: Chief Financial Officer Dated: January 22, 1998 -4- EX-2 2 SUPPLEMENT TO OFFERING CIRCULAR THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR WARRANTS AND CERTAIN RELATED MATTERS OF ENTERACTIVE, INC. IS BEING AMENDED HEREBY. ACCORDINGLY, THE EXPIRATION DATE FOR THE EXCHANGE OFFER HAS BEEN EXTENDED UNTIL FEBRUARY 6, 1998. FOR A DESCRIPTION OF THE AMENDED TERMS AND CONDITIONS, PLEASE REVIEW THE FOLLOWING SUPPLEMENT. ENTERACTIVE, INC. The following supplements the Offering Circular/Proxy Statement (the "Offering Circular/Proxy Statement") of Enteractive, Inc. ("Enteractive" or the "Company") mailed to holders of the Company's currently outstanding purchase warrants expiring December 13, 2001 (the "Warrants") whereby the Company has offered to exchange 2.8 of its currently outstanding warrants into one share of its Common Stock, $.01 par value per share (the "Common Stock"). This supplement supersedes in its entirety the supplement mailed to the holders of the Warrants on January 5, 1998. In connection with the Exchange Offer and as a condition to the consummation of the Exchange Offer, the Company has also sought the written consent of the holders of Preferred Stock to proposed amendments to the terms of the Preferred Stock which would (i) delay the date when the Preferred Stock can first be converted into Common Stock of the Company from any time after April 30, 1998 until any time after June 30, 1999 (the "Delayed Conversion Option") (this amendment will be a contractual agreement between the holder of Preferred Stock and the Company) and (ii) modify the redemption feature of the Preferred Stock (the "Revised Redemption Terms") so that (a) one-third of the net proceeds from any public offering consummated by the Company prior to January 1, 2000 will be used to redeem the outstanding Preferred Stock and (b) if the closing price of the Company's Common Stock is at least $6.00 for 10 trading days in any 30 day period, the Company will use its best efforts to complete an underwritten offering of its Common Stock. The Revised Redemption Feature will be set forth on an amendment to the Certificate of Designation for the Preferred Stock and will be applicable to all holders of Preferred Stock. This Supplement should be read in conjunction with the Offering Circular/Proxy Statement. Capitalized terms used herein and not otherwise defined shall have the same meaning as ascribed to them in the Offering Circular/Proxy Statement. Please be advised that due to the amendments to the Exchange Offer, the Expiration Date of the Exchange Offer has been extended until February 6, 1998. THESE AMENDMENTS ARE AS FOLLOWS: A) The offer has been amended to provide that (i) no Warrantholder may participate in the Exchange Offer unless they have contractually agreed to amend the terms of their Preferred Stock to provide for the Delayed Conversion Option and the amendments to the Certificate of Designation as to the Revised Redemption Terms and the monthly interest payment described below and (ii) that at least 90% of all outstanding Warrants be tendered in the Exchange Offer. Accordingly, the Section entitled "Conditions to the Exchange Offer" contained in the Offering Circular/Proxy Statement is being revised so that the first condition contained in such section will be amended to read in its entirety as follows: (1) No person or entity may participate in the Exchange Offer unless they consent to the Delayed Conversion Option, the Revised Redemption Terms and the monthly interest payment described below. In addition, the following has been added to "Conditions to the Exchange Offer"; (8) The Company may terminate and cancel the Exchange Offer if it does not receive a valid tender for 90% of all outstanding Warrants pursuant to the Exchange Offer. B) All holders of Preferred Stock who approve of the Delayed Conversion Option and the Revised Redemption Terms, will, with respect to each share of Preferred Stock that they hold, receive a special monthly interest payment equal to 12% per annum (or 1% per month) of the per share stated value of the Preferred Stock ($1,250) for the period commencing on April 30, 1998 and ending on the earlier of (i) June 30, 1999 or (ii) the redemption, if any, of the Preferred Stock. Such payment may be made, at the Company's option, in either cash or additional shares of its Common Stock or a combination thereof. Such payment will be made by the Company at the later of (i) the time it redeems the Preferred Stock, or (ii) July 10, 1999 (if the Company does not redeem the Preferred Stock on or before June 30, 1999). To the extent that the Company elects to make such payment through the issuance of Common Stock, the value of the Common Stock will be based upon the average closing sales price for the Common Stock for the 10 trading days immediately prior to the date in which the Company sends a written notice of redemption or June 30, 1999 as the case may be, in each case as reported by the Nasdaq SmallCap Market, or if the Company's Common Stock is not traded on the Nasdaq SmallCap Market, the principal market on which the Company's Common Stock is then trading. Please note that because the Company may not receive the written consent of all the holders of Preferred Stock to the Delayed Conversion Option and the Revised Redemption Terms, the Delayed Conversion Option will remain as -2- set forth in the Certificate of Designation and those holders of Preferred Stock who have consented to the Exchange Offer will have contractually agreed with the Company to the Delayed Conversion Option. The Delayed Conversion Option shall be binding upon such holders, successors and assigns and the holder of Preferred Stock may not transfer the Preferred Stock unless the transferee acknowledges in writing that it is bound by the Delayed Conversion Option. Any holder of Preferred Stock who does not consent shall continue to have the right to convert Preferred Stock into Common Stock at any time after April 30, 1998. If the requisite consents are obtained, the Certificate of Designation will be amended to provide for the Revised Redemption Terms. Accordingly, all Warrantholders and Preferred Stockholders who have consented to the Exchange Offer and the amended terms of the Preferred Stock should sign and deliver to the Company at 25 West 45th Street, Suite 306, New York, New York 10036. (Telecopy #212-768-3838) on or before February 6, 1998 (the Expiration Date of the Exchange Offer) the following letter agreement attached hereto as Exhibit A. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 6, 1998, UNLESS EXTENDED (SUCH DATE AS EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). WARRANTS TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. AFTER THE EXPIRATION DATE, WARRANTS TENDERED IN THE EXCHANGE OFFER MAY NOT BE WITHDRAWN UNLESS THE EXCHANGE OFFER IS TERMINATED OR EXPIRES WITHOUT CONSUMMATION THEREOF. If you have any questions or comments relating to the foregoing, please contact Andrew Gyenes or Kenneth Gruber at the Company at (212) 768-7100. Very truly yours, ENTERACTIVE, INC. By: /s/ Andrew Gyenes ---------------------------------- Andrew Gyenes, Chairman of the Board -3- EX-5 3 FORM OF LETTER TO WARRANTHOLDERS ENTERACTIVE, INC. 25 West 45th Street, Suite 306 New York, N.Y. 10036 January 23, 1998 To The Holders of Enteractive, Inc.'s Common Stock Purchase Warrants Expiring December 13, 2001: Please be advised that the Company's Plan to exchange one share of the Company's Common Stock for 2.8 of its Common Stock Purchase Warrants expiring December 13, 2001 has been amended to reduce the percentage of Warrants which are required to be tendered to close the Exchange Offer from 100% to 90%. Prior to this amendment, the closing of the Exchange Offer was contingent upon all holders of the Preferred Stock consenting to the amended terms of the Preferred Stock which were described in the original Offering Circular/Proxy Statement mailed to Warrant holders. Accordingly, as part of the percentage reduction, the Exchange Offer is also being amended to provide that no Warrant holder may participate in the Exchange Offer unless they agree to amend the terms of the Preferred Stock owned by them. For a detailed description of these amendments to the terms for the proposed transaction, please see the enclosed Supplement to the Offering Circular/Proxy Statement. In order to implement the new thresholds of the Exchange Offer, all Warrant holders and Preferred Stockholders who have submitted their documentation to Continental Stock Transfer and Trust Company ("Continental") only need to sign and deliver to the Company at 25 West 45th Street. Suite 306, New York, New York 10036 (Telecopy #212-768-3838) on or before February 6, 1998 (the Expiration Date of the Exchange Offer) the letter agreement attached as Exhibit A to the Supplement. For those of you who have not submitted their documentation to Continental and still would like to participate in the Exchange Offer, please forward the signed consent, the letter of transmittal and the warrant to Continental at 2 Broadway, New York, New York 10004. The enclosed letter agreement attached as Exhibit A needs to be delivered to the Company at 25 West 45th Street, Suite 306, New York, New York 10036 (Telecopy #212-768-3838) on or before February 6, 1998 (the Expiration Date of the Exchange Offer). If you have any questions please contact Ken Gruber or myself. We apologize for any inconvenience. Sincerely, /s/ Andrew Gyenes ------------------------------ Chairman of the Board -2- EX-8 4 QUARTERLY REPORT ON FORM 10QSB 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 NOVEMBER 30, 1997 / / TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT For the transition period from __________ to _______________ Commission file number: 1-13360 ENTERACTIVE, INC. (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.) 25 West 45th Street, Suite 306, New York, NY 10036 (Address of Principal Executive Offices) (212) 768-7100 (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 December 22, 1997 -------------- ----------------------- Common Stock, $.01 Par Value 8,019,555 Transitional Small Business Disclosure Format: Yes / / No /X/ 1 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1 Financial Statements Consolidated Balance Sheets at November 30, 1997 and May 31, 1997 3 Consolidated Statements of Operations for the three months and six months ended November 30, 1997 and 1996 4,5 Consolidated Statements of Cash Flows for the six months ended November 30, 1997 and 1996 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Page Item 1. Legal Proceedings 11 Item 2. Change in Securities 11 Item 3. Defaults upon Senior Securities 11 Item 4. Submissions of Matters to a Vote by Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 2 ENTERACTIVE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
November 30 May 31 1997 1997 ASSETS (unaudited) --------------------------------------------- Current Assets Cash and cash equivalents $ 1,351,500 $ 4,952,900 Accounts receivable 232,200 224,400 Assets held for sale 19,900 100,000 Prepaid expenses and other 225,200 93,800 ------------------ -------------------- Total current assets 1,828,800 5,371,100 Affiliation Rights, net 562,500 593,800 Property and equipment, net 505,500 154,900 Other 119,300 61,500 ------------------ -------------------- $ 3,016,100 $ 6,181,300 ================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $415,900 $287,900 Accrued restructuring expenses 336,300 - Accrued payroll and related expenses 93,600 - Other accrued expenses 424,400 623,900 Deferred revenue - 69,500 Current maturities of long-term debt 104,700 40,200 ------------------ -------------------- Total current liabilities 1,374,900 1,021,500 Long-term debt 104,300 - ------------------ -------------------- Total liabilities 1,479,200 1,021,500 Commitments and contingencies Stockholders' Equity Preferred Stock $.01 par value, 2,000,000 shares authorized and 6,720 shares issued and outstanding 100 100 Common Stock $.01 par value, 50,000,000 shares authorized; 8,019,555 and 7,679,441 shares issued and outstanding for November 30, 1997 and May 31, 1997 respectively 80,200 76,800 Additional paid-in capital 28,249,500 28,038,400 Accumulated deficit (26,792,900) (22,955,500) ------------------ -------------------- Total stockholders' equity 1,536,900 5,159,800 $ 3,016,100 $ 6,181,300 ================== ====================
See notes to consolidated financial statements 3 ENTERACTIVE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended November 30 1997 1996 ------------------------------------------- (unaudited) (unaudited) Net product sales $ - $ 441,500 Internet services revenues 376,000 - Software licensing and royalty revenue 98,000 197,600 ------------------------------------------- Total revenues 474,000 639,100 Cost of product sales - 219,900 Amortization of capitalized software - 107,100 Cost of Internet services revenues 319,300 - Cost of licensing and royalty revenue 22,200 9,400 Research and development expenses 484,100 619,400 Marketing and selling expenses 953,500 1,109,300 General and administrative expenses 492,400 468,200 Restructuring expenses 427,700 - ------------------------------------------- Total costs and expenses 2,699,200 2,533,300 Operating loss (2,225,200) (1,894,200) ------------------------------------------- Other income (expense): Interest expense (3,400) (4,800) Other income - 6,900 Interest income 25,400 26,400 ------------------------------------------- Loss before income taxes (2,203,200) (1,865,700) Income tax expense - - ------------------------------------------- Net loss $ (2,203,200) $ (1,865,700) ------------------------------------------- Loss per common and common equivalent share $ (0.28) $ (0.24) ------------------------------------------- Weighted average shares of common stock and common stock equivalents 7,828,751 7,679,441
See notes to consolidated financial statements 4 ENTERACTIVE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended November 30 1997 1996 ----------------- --------------- (unaudited) (unaudited) Net product sales $ - $ 766,100 Product development revenue - 40,700 Internet revenues 518,300 - Software licensing and royalty revenue 132,400 375,300 ---------------------------------------- Total revenues 650,700 1,182,100 Cost of product sales - 348,900 Amortization of capitalized software - 214,200 Cost of internet revenues 418,800 - Cost of licensing and royalty revenue 22,200 37,000 Research and development expenses 883,600 1,440,200 Marketing and selling expenses 1,752,500 1,805,800 General and administrative expenses 1,058,800 907,500 Restructuring expenses 427,700 - ---------------------------------------- Total costs and expenses 4,563,600 4,753,600 Operating loss (3,912,900) (3,571,500) ---------------------------------------- Other income (expense): Interest expense (3,400) (22,200) Other income (expense) - 83,400 Interest income 78,900 6,900 ---------------------------------------- Loss before income taxes (3,837,400) (3,503,400) Income tax expense - ---------------------------------------- Net loss $ (3,837,400) $(3,503,400) ======================================== Loss per common and common equivalent share $ (0.49) $ (0.46) ======================================== Weighted average shares of common stock and common stock equivalents 7,754,096 7,679,441
See notes to consolidated financial statements 5 ENTERACTIVE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended November 30 1997 1996 ------------------------------------ (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (3,837,400) $ (3,503,400) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 109,400 297,600 Stock Option Consulting expense - 237,500 Changes in assets and liabilities Accounts receivable (7,800) (499,000) Assets held for sale 80,100 - Inventories - (156,300) Prepaid expenses and other (131,400) (232,100) Other assets (57,800) - Accounts payable 128,000 (61,600) Accrued expenses 230,400 (739,400) Deferred revenue (69,500) - ------------------------------------ Net cash used in operating activities (3,556,100) (4,656,700) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (428,700) (33,700) ------------------------------------ Net cash (used in ) provided by investing activities (428,700) (33,700) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 214,500 73,800 Proceeds from sale and leaseback of equipment 168,800 - Principal payments under long-term debt - (110,400) ------------------------------------ Net cash provided by financing activities 383,400 (36,600) ------------------------------------ Net decrease in cash and cash equivalents (3,601,400) (4,727,000) CASH AND CASH EQUIVALENTS Beginning of period 4,952,900 6,005,400 ------------------------------------ End of period $ 1,351,500 $ 1,278,400 ====================================
See notes to consolidated financial statements 6 ENTERACTIVE, INC. 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 Company's financial position as of November 30, 1997, and the results of its operations and its cash flows for the six month and three month periods ended November 30, 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, 1997 Annual Report on Form 10-KSB. The results for the six month period ended November 30, 1997 are not necessarily indicative of the results to be obtained for the full year. 2. BUSINESS Headquartered in New York, New York, Enteractive, Inc. (the "Company") offers products and services to customers for the design, development, operation and maintenance of customer Intranets or sites on the Internet and World Wide Web and publishes multimedia titles to the home.The Company sold its domestic distribution rights, inventory and certain accounts receivable from its interactive multimedia publishing business to a third party. The Company's address is 25 West 45th Street, Suite 306, New York, New York 10036 and its telephone number is (212) 768-7100. Its World Wide Web site address is http://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. The Company, directly or in cooperation with third parties, designs, develops, installs, maintains and hosts customer Intranets or sites on the Internet and World Wide Web. According to an August 1996 report by Forrester Research the number of Web sites is projected to grow from 43,000 at the end of 1996 to 657,000 at the end of 2000. In addition, businesses are demanding more complex Web sites, as these sites become increasingly important first points of contact with current and prospective customers. Accordingly, the Company believes that a company's web site is becoming a mission-critical component of the enterprise. Companies are also increasingly deploying Intranets to manage their internal corporate communications because they enable employees and business associates to receive corporate information and training efficiently, communicate through e-mail, use the internal network's client applications and access proprietary information and legacy databases. On December 4, 1996, the Company entered into an agreement (the "Enteractive Affiliates Agreement") with USWeb Corporation ("USWeb") pursuant to which the Company became an affiliate of USWeb and a member of USWeb's network of independent affiliates (the "USWeb Network"). Under the Affiliates Agreement, the Company paid $625,000 for the right to operate USWeb affiliate offices in certain localities for 10 years as provided below. USWeb is a public company whose principal investors include Intel, Softbank Corporation, which owns Comdex and Ziff-Davis Publishing, 21st Century Communications Partners L.P., Wheatly Partners L.P. and Reuters. USWeb is seeking to capitalize on the service opportunities presented by the increasing use of the Internet and Intranets as commercial tools. The Company has formed a subsidiary, Enteractive Network Solutions Inc., doing business as USWeb Cornerstone, which is intended to provide 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 is obligated to pay USWeb monthly royalty and service and marketing and advertising fees equal in the aggregate to 7% of Adjusted Gross Revenues from this business, as defined in the agreement, but not less than certain contractual fee levels. The Company has been granted exclusive rights to develop new USWeb Affiliate offices in Long Island (Nassau-Suffolk County), Philadelphia, Baltimore, Stamford, CT, and Bergen County and Newark, NJ. The Company has established a USWeb Affiliate office in New York City and in each of the above territories. The exclusive rights granted to the Company are subject to certain minimum performance standards set forth in the Affiliates Agreement. If the Company is unable to meet these minimum performance standards, its exclusive rights may be terminated. 7 3. AFFILIATE RIGHTS Fees for affiliation rights were paid to USWeb for the right to join the USWeb network and operate as an affiliate in the territories indicated in note 2. The fee is being amortized over the 10 year life of the agreement with USWeb. Affiliate rights at November 30, 1997 were net of accumulated amortization of $62,500. 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. 6. WARRANT EXCHANGES On September 16, 1997, the Company offered to exchange (the "Exchange Offer") twenty of its publicly-traded Common Stock Purchase Warrants (the "Warrants") expiring October 20, 1997 for one share of newly-issued Common Stock, $.01 par value. On September 16, 1997, there were 5,121,468 Warrants outstanding. The purpose of the Exchange Offer was to (i) reduce the overhang to the market for the Company's Common Stock and (ii) offer Warrant holders the opportunity to participate in any long term appreciation of the Company's securities, since absent the Exchange Offer, it is likely that the Warrants have would expired unexercised on October 20, 1997. On October 14, 1997 the company issued 248,864 shares of common stock, $.01 par value in exchange of 4,977,280 warrants which were exchanged as part of the Exchange Offer. The balance of the outstanding Warrants expired unexercised. On November 19, 1997 the Company offered to the holders of 4,200,000 common stock purchase warrants to issue one share of its par value $.01 common stock for 2.8 warrants. The exchange offer is conditioned on all holders of the warrants agreeing to the exchange and expires on January 20, 1998, unless extended. The warrants subject to the offer entitled the registered holder to purchase through December 13, 2001 one share of common stock at $4.00 per share. As a condition to closing the exchange offer, the Company is seeking the consent of all the holders of its Convertible Preferred Stock to (1) delay the date when the Preferred Stock can first be converted into Common Stock from April 30, 1998 until any time after June 30, 1999 and (2) modify the redemption feature so that one-third, rather than 50%, of the net proceeds from any public equity offering consummated by the Company prior to January 1, 2000 will be used to redeem the outstanding Preferred Stock and if the closing price of the Company's common Stock is at least $6.00 for 10 trading days in any 30 day period, the Company will use its best efforts to complete an underwritten offering of its Common Stock. All holders of Preferred Stock who approve the delay in the conversion date will receive a special monthly interest payment equal to 12% per annum of the stated value of the Preferred Stock ($1,250 per share) for the period commencing April 30, 1998 and ending the earlier of (1) June 30, 1999 or (2) the redemption date, if any of the Preferred Stock. Such payment may be made, at the Company's option in either cash or additional shares of its Common Stock or a combination thereof. Such payments will be made at the later of (1) the time it redeems the Preferred Stock, or (2) July 10, 1999 (if the Company does not redeem the Preferred Stock on or before June 30, 1999) ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis below should be read in conjunction with the Financial Statements of Enteractive and the Notes to Financial Statements included elsewhere in this Form 10-QSB. OVERVIEW Enteractive was formed in December 1993 to develop, publish and market interactive multimedia software products. On December 4, 1996 the Company signed an agreement with USWeb Corporation under which the Company has established a subsidiary to operate in New York and the exclusive rights in Long Island, Philadelphia, Baltimore, Stamford, CT and Bergen County and Newark, NJ. USWeb Cornerstone, the subsidiary, 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, and Web-related strategic consulting and marketing. QUARTERLY RESULTS Since signing the affiliate agreement with USWeb Corporation, the Company has been building infrastructure to support anticipated sales. The Company monitors and adjusts expense levels to support the revenue stream. By May 31, 1997, the Company no longer utilized significant resources for development or marketing of multimedia products and consequently most comparisons to the previous years' periods are not applicable. 8 By November 30, 1997 the Company, with the approval of USWeb, decided that it could more cost effectively service the territories covered under the franchise agreement with USWeb by closing offices in New Jersey, Long Island, NY Philadelphia, PA and Stamford CT and operate from offices located in New York City and Baltimore, Maryland. The statement of operations for the three month period ended November 30, 1997 reflects expenses totaling $427,700 to reflect the Company's estimated losses from subleasing the closed offices and the severance associated with eliminating positions deemed unnecessary by management. The Company expects its quarterly results to vary significantly in the future. The number of customer contracts signed and fulfilled 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 and (3) the success of offerings by competitors. The Company does not expect seasonal factors to be a significant influence on revenues. RESULTS OF OPERATIONS - QUARTER AND SIX MONTHS ENDED NOVEMBER 30, 1997 Net product sales for the three and six month periods ended November 30, 1997 were $0 compared to $441,500 and $766,100 for the three and six month periods ended November 30, 1996. The decrease is due to the Company's decision to license others to market and distribute it's interactive multimedia products. Revenues from these relationships are reflected as royalties. Prospectively, the Company does not expect any revenues from CD-ROM title sales other than royalty income as discussed below. Internet services revenue for the three and six month periods ended November 30, 1997 were $376,000 and $518,300 respectively compared to $0 and $0 for the three and six month periods ended November 30, 1996. These are consulting and services revenues from USWeb Cornerstone, which began operations in the current fiscal year. Royalty revenue for the three and six month periods ended November 30, 1997 were $98,000 and $132,400 respectively compared to $197,600 and $375,300 for the three and six month periods ended November 30, 1996. The decrease is the result of the Company's decision to focus on the Internet business of USWEB Cornerstone. The royalties relate to sales of titles all of which were first marketed over 12 months ago. This revenue stream is expected to continue to diminish as the titles continue to age. Cost of Internet services revenue for the three and six month periods ended November 30, 1997 were $319,300 and $418,800 respectively compared to $0 for the three and six month periods ended November 30, 1996. These costs include the labor (salary and benefits) and overhead related to the provision of consulting and development services and cost of equipment resold to clients. Research and development expenses for the three and six month periods ended November 30, 1997 were $484,100 and $883,600 respectively compared to $619,400 and $1,440,200 for the three and six month periods ended November 30, 1996. The decrease is due to the reduction in interactive multi-media product development and fewer number of people performing development. These amounts may increase in the short term, but, relative to revenue, should decrease over time as development resources are utilized to fulfill contracts. Marketing and selling expenses for the three and six month periods ended November 30, 1997 were $953,500 and $1,752,500 respectively compared to $1,109,300 and $1,805,800 for the three and six month periods ended November 30, 1996. Throughout most of the quarter ended November 30, 1997, the Company incurred costs to staff and equip multiple sales offices. However, as mentioned earlier, the Company has recently consolidated its sales operations and selling expense as a percentage of revenues should decrease. General and administrative expenses for the three and six month periods ended November 30, 1997 were $492,400 and $1,058,800 respectively compared to $468,200 and $907,500 for the three and six month periods ended November 30, 1996. General and administrative expenses include costs for accounting, information systems, human resources, legal, general facilities and senior executives. Interest and other income includes interest and dividend payments on cash balances. Interest and other income for the three and six month periods ended November 30, 1997 were $25,400 and $78,900 respectively compared to $33,300 and $90,300 for the three and six month periods ended November 30, 1996 due to lower cash balances. 9 No income tax benefit was recorded for the quarter ended November 30, 1997. The Company does not believe it will generate taxable income for the period ending May 31, 1998. Beyond such time, 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. LIQUIDITY AND CAPITAL RESOURCES Since June 1, 1995, the Company's principal sources of capital have been as follows: On December 12, 1996 the Company completed a private placement of 84 units each consisting of 80 shares of Preferred Stock 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. Proceeds were approximately $7,869,000, net of related expenses of $531,000. The Preferred Stock has a stated value of $1,250 per share and each share is convertible at any time after April 30, 1998 into such whole number of shares of common stock equal to the aggregate stated value of the Preferred Stock to be converted divided by the lesser of (i) $2.00 or (ii) 50% of the average closing sale price for the common stock for the last ten trading days in the fiscal quarter of the Company prior to such conversion. The Company must use 50% of the proceeds from any equity financing, to redeem the Preferred Stock at 110% of the stated value. The Company also has the option to redeem the Preferred Stock at any time upon 30 days prior written notice, at a redemption price equal to 110% of the stated value. In May 1996, the Company consummated an agreement with certain of its officers pursuant to which the Company repurchased 1,000,000 shares of Common Stock at $1.00 per share. Under the purchase agreement as amended, the Company paid all but $40,200 of the purchase price by November 30, 1997. During the second quarter of fiscal 1998, the Company completed a three year sale/leaseback agreement with a leasing company secured by the net book value of specific equipment. The Company received $168,800 which approximated the net book value of the equipment. The current portion of the $168,800 is $104,700. The effective interest rate of the lease is 8 1/2% and the monthly payment is $6,400. At November 30, 1997, the Company had cash and cash equivalents of $1,351,500. The decrease of $3,601,400 in cash and cash equivalents from May 31, 1997 reflects the funding of operating activities of $3,556,100 and the purchase of fixed assets of $428,700. Capital expenditures were $428,700 for the six months ended November 30,1997 compared to $33,700 for the six months ended November 30, 1996. The Company's higher fiscal 1998 capital expenditures result from acquiring equipment required for the US Web affiliate sales offices. The Company does not anticipate significant capital expenditures for the remaining of the fiscal year other than for the development center which will grow relative to sales volume. In August 1997, Nasdaq enacted new standards for the listing of its member companies on its Small Cap Market. These standards, which take effect on February 23, 1998, require listed companies to maintain certain financial and corporate governance criterion for continued listing on the SmallCap market. As of November 30, 1997, the Company would not meet one of the financial criterion which require it to maintain certain minimum tangible net asset amounts and, thus, would not meet the new standards for continued listing on the SmallCap market. After such standards take effect, companies that do not meet the new standards could be subject to de listing from the SmallCap market. The Company is actively pursuing its options to ensure that it attains at least the minimum standards for continued listing on the SmallCap Market before the six month period expires, however, there can be no assurances that the Company will be successful in achieving the new standards and maintaining its SmallCap listing. Given the Company's anticipation of continued losses and its need to attain compliance with the new SmallCap listing standards, the Company is assessing alternative ways to raise capital. The Company will seek to enter into a transaction or transactions to raise additional capital during January and February of 1998 to ensure that it has sufficient capital resources to carry it through the end of 1998. The can be no assurances that additional financing will be available to the Company. 10 FORWARD LOOKING STATEMENTS This Form 10-QSB 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-QKSB 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 As described in Note 6 to Notes to Condensed Consolidated Financial Statements, the Company completed the Exchange Offer during the quarter ended November 30, 1997. Item 3. Defaults upon Senior Securities None Item 4. Submissions of Matters to a Vote Security Holders None Item 5. Other Information On December 17, 1997, the Company announced that Ed Schroeder was promoted to President and Chief Executive Officer and named to the Company's Board of Directors. Since September 1997 Mr. Schroeder has been a Vice President and General Manager of USWEB Cornerstone. Before joining Enteractive, Mr. Schroeder had been affiliated with IBM Corporation for over 25 years. Most recently he was the Vice President, Northeast Area. In this capacity he directed 250 employees and 150 contractors which generated $450 million in services and hardware revenues. Prior to that he was General Manager of IBM Long Island with P&L responsibility for an annual $250 million business providing hardware, software and professional services. Mr. Andrew Gyenes will continue as the Chairman of the Board focusing on acquisitions and the long term strategic direction of the Company. The Company also announced that in addition to Mr. Schroeder, Ronald E. Cuneo has joined the Company's Board of Directors. They are replacing Messrs. Michael Alford and Randal Hujar who have resigned from the Board. Mr. Cuneo has experience as a CEO working with acquisitions, growing and transitioning businesses. Most recently Mr. Cuneo was President of Wang Federal, Inc. a major worldwide systems integrator and provider of software services and products to the Federal Government. Prior to that Mr. Cuneo had 25 years of increasing senior management experience in various divisions of Honeywell. Item 6. Exhibits and Reports on Form 8-K None 11 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. ENTERACTIVE, INC. ----------------- (Registrant) Date January 14, 1997 /s/ Kenneth Gruber ------------------------------ Kenneth Gruber Chief Financial Officer and Principal Accounting Officer EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED FINANCIAL STATEMENTS FOR THE QUARTER ENDED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 3-MOS MAY-31-1998 JUN-01-1997 NOV-30-1997 1,351,500 0 232,200 0 0 1,828,800 1,508,300 1,002,300 3,016,100 1,374,900 0 0 100 80,200 1,536,900 3,016,100 474,000 474,000 341,500 2,699,200 0 0 0 (2,203,200) 0 (2,203,200) 0 0 0 (2,203,200) (.28) (.28)
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