EXHIBIT 99.1 DESIGN CRAFTING, INC. FINANCIAL STATEMENTS Contents Page Financial Statements Independent auditors' report.......................... 1 Balance sheet as of September 30, 1997................ 2 Statements of income for the years ended September 30, 1997 and 1996........................... 3 Statement of changes in stockholder's equity for each of the years ended September 30, 1997 and 1996............................................... 4 Statements of cash flows for the years ended September 30, 1997 and 1996............................ 5 Notes to financial statements........................... 6 INDEPENDENT AUDITORS' REPORT Board of Directors Design Crafting, Inc. We have audited the accompanying balance sheet of Design Crafting, Inc. as of September 30, 1997, and the related statements of income, changes in stockholder's equity and cash flows for each of the years in the two year period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the financial position of Design Crafting, Inc. as of September 30, 1997, and the results of its operations and its cash flows for each of the years in the two-year period then ended, in conformity with generally accepted accounting principles. /s/ Richard A. Eisner & Company, LLP Florham Park, New Jersey July 10, 1998 Balance Sheet September 30, 1997 ASSETS Current assets: Cash $ 5,015 Accounts receivable 56,812 Prepaid expenses and other current assets 468 Total current assets 62,295 Equipment, net of accumulated depreciation of $6,662 4,602 $66,897 LIABILITIES Current liabilities: Accounts payable and accrued expenses $30,597 Taxes payable - current 1,480 Taxes payable - deferred 6,195 Total current liabilities 38,272 STOCKHOLDER'S EQUITY Common stock, no par value, authorized 1,000 shares issued and outstanding 100 shares 1,000 Retained earnings 27,625 Total stockholder's equity 28,625 $66,897 Statements of Income Year Ended September 30, 1997 1996 Revenues - services $462,541 $311,363 Cost of services 384,244 241,427 Gross profit 78,297 69,936 Expenses: Selling, general and administrative 65,772 58,905 Income before taxes 12,525 11,031 Income taxes 3,250 2,870 Net income $ 9,275 $ 8,161 Statements of Changes in Stockholder's Equity
Common Stock Number of Retained Shares Amount Earnings Total Balance, October 1, 1995 100 $1,000 $10,189 $11,189 Net income -- -- 8,161 8,161 Balance, September 30, 1996 100 1,000 18,350 19,350 Net income -- -- 9,275 9,275 Balance, September 30, 1997 100 $1,000 $27,625 $28,625
Statements of Cash Flows
Year Ended September 30, 1997 1996 Cash flows from operating activities: Net income $ 9,275 $ 8,161 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,948 648 Deferred income taxes 1,390 2,700 Changes in: Accounts receivable (867) (29,993) Prepaid expenses and other current assets 718 687 Accounts payable and accrued expenses (10,249) 18,691 Taxes payable 1,310 (725) Net cash provided by operating activities 4,525 169 Cash flows from investing activities: Purchase of equipment (6,902) (1,296) Net decrease in cash (2,377) (1,127) Cash, beginning 7,392 8,519 Cash, ending $ 5,015 $ 7,392 Supplemental disclosure of cash flow information: Cash paid for: Income taxes $ 550 $ 895
Note A - Summary of Significant Accounting Policies and Basis of Presentation [1] Operations: Design Crafting, Inc. (the "Company") is a software developer and provides services primarily to customers in the distribution, retail and financial industries. In 1997, two customers and in 1996 one customer accounted for approximately 91% and 99% of revenues, respectively. As of September 30, 1997, two customers represented 100% of accounts receivable. No allowance for bad debts is required. [2] Revenue recognition: Revenue is recognized as the work is performed and services are provided at the customer's locations. [3] Use of estimates: The financial statements were prepared on an accrual basis in conformity with generally accepted accounting principles; estimates and assumptions were utilized to quantify certain components of the financial statements in the absence of specific amounts of the respective assets, liabilities, revenues and expenses. Actual results could differ from those estimates. [4] Equipment: Equipment is recorded at cost less accumulated depreciation. Depreciation is provided using accelerated and straight-line methods over the estimated lives of the assets (2 to 3 years). [5] Income taxes: The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standard No. 109 Accounting for Income Taxes ("SFAS 109") which requires use of the liability method of Accounting for Income Taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income taxes arise from temporary differences resulting primarily from income and expense items being reported on an accrual basis for financial statement purposes and on a cash basis for tax purposes. As a result, the Company had deferred federal and state liabilities of $6,195 as of September 30, 1997. Note B - Employee Benefit Plans The Company has a qualified simplified employee pension (SEP) under Section 408(k) of the Internal Revenue Code. Employer contributions under a SEP are discretionary and are excluded from the participants taxable income to the extent of 15% of the participant's compensation subject to limits. The Company's contributions to the plan were $25,742 and $7,573 for the years ended September 30, 1997 and 1996, respectively. Note C - Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following: Wages $18,486 Payroll taxes 2,544 Employee benefit plan 7,796 Other 1,771 $30,597 Note D - Income Taxes Year Ended September 30, 1997 1996 Current tax expenses: Federal $1,120 $ 20 State 740 150 1,860 170 Deferred tax expenses: Federal 830 1,700 State 560 1,000 1,390 2,700 Provision for taxes $3,250 $2,870 The differences between the statutory income tax rate of 34% and the income taxes reported on the statement of income and retained earnings are as follows:
Year Ended September 30, 1997 1996 Statutory rate $ 4,259 34% $ 3,751 34% Reduction due to graduated income tax rate (2,380) (19) (2,096) (19) State taxes, net of federal benefit 1,105 9 978 9 Other 266 2 237 2 Provision for taxes $ 3,250 26% $ 2,870 26%
Note E - Business Combination On May 1, 1998, the Company completed a merger with Dynamicweb Enterprises, Inc. (Dynamicweb) by exchanging all of its issued and outstanding stock for 92,500 shares of common stock of Dynamicweb with a provision for up to an additional 10,000 shares to be calculated under a formula based on the value at closing and the realization of certain assets within 120 days of the closing.