<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 1998
REGISTRATION NO. 333-35579
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DYNAMICWEB ENTERPRISES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
NEW JERSEY 7372 22-2267658
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BUILDING F, SUITE 209
FAIRFIELD, NEW JERSEY 07004
(973) 244-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN L. VANECHANOS, JR.
CHIEF EXECUTIVE OFFICER
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BUILDING F, SUITE 209
FAIRFIELD, NEW JERSEY 07004
(973) 244-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
STEPHEN F. RITNER, ESQUIRE JAMES M. JENKINS, ESQUIRE
SCOTT H. SPENCER, ESQUIRE CRAIG S. WITTLIN, ESQUIRE
STEVENS & LEE HARTER, SECREST & EMERY, LLP
ONE GLENHARDIE CORPORATE CENTER 700 MIDTOWN TOWER
1275 DRUMMERS LANE ROCHESTER, NEW YORK 14604-2070
P.O. BOX 236 (716) 232-6500
WAYNE, PENNSYLVANIA 19087
(610) 964-1480
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective registration statement filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==================================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(2) PER UNIT(2) PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value........ 920,000 shares(1) $6.00 per share(2) $5,520,000(2) $1,725
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value........ 80,000 shares(3) $9.90 per share(2) $792,000(2) $247.50
- ------------------------------------------------------------------------------------------------------------------
Warrant to Purchase Common Stock,
$.0001 par value per share........... One Warrant(4) $10 per warrant $10 --
==================================================================================================================
</TABLE>
(1) Based upon the maximum number of shares of the Registrant's Common Stock
that may be issued under this Registration Statement, including 120,000
shares of Common Stock that may be issued to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for purposes of calculating the
Registration Fee.
(3) Reflects the shares issuable to H.J. Meyers & Co. Inc., the Representative
of the Underwriters, pursuant to the Representative's Warrant. See
"UNDERWRITING."
(4) To be issued to H.J. Meyers & Co., Inc., the Representative of the
Underwriters.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE> 2
CROSS REFERENCE TABLE
LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY PART I OF FORM SB-2
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<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- -------------------------------------------- -----------------------------------------
<C> <S> <C>
1 Front of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages of Inside Front Cover Page and Outside Back
Prospectus Cover Pages, Additional Information
3 Summary Information and Risk Factors Prospectus Summary, The Company, Risk
Factors
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Underwriting
6 Dilution Dilution
7 Selling Security Holders Not Applicable
8 Plan of Distribution Underwriting
9 Legal Proceedings Business
10 Directors, Executive Officers, Promoters and Management
Control Persons
11 Security Ownership of Certain Beneficial Principal Stockholders
Owners and Management
12 Description of Securities Description of Securities
13 Interests of Named Experts and Counsel Not Applicable
14 Disclosure of Commission Position on Management
Indemnification for Securities Act
Liabilities
15 Organization Within Last Five Years Not Applicable
16 Description of Business Business
17 Management's Discussion and Analysis or Plan Management's Discussion and Analysis of
of Operation Financial Condition and Results of
Operations
18 Description of Property Business
19 Certain Relationships and Related Certain Transactions
Transactions
20 Market for Common Equity and Related Market for Common Stock and Related
Transactions Stockholder Matters, Dividend Policy,
Description of Capital Stock
21 Executive Compensation Management
22 Financial Statements Index to Consolidated Financial
Statements
23 Changes in and Disagreements with Not Applicable
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 20, 1998
PRELIMINARY PROSPECTUS
[DYNAMICWEB ENTERPRISES, INC. LOGO]
DYNAMICWEB ENTERPRISES, INC.
800,000 SHARES OF COMMON STOCK
$6.00 PER SHARE
DynamicWeb Enterprises, Inc., a New Jersey corporation (the "Company" or
"DynamicWeb"), hereby offers 800,000 shares (the "Shares") of its common stock,
$.0001 par value per share (the "Common Stock"). See "DESCRIPTION OF
SECURITIES."
Prior to this Offering, there has been a limited public market for the
Common Stock, and no assurance can be given that a public market will develop
or, if developed, that it will be sustained. The Common Stock is presently
quoted on the National Association of Securities Dealers, Inc.'s ("NASD")
Over-the-Counter ("OTC") Bulletin Board Service under the symbol "DWEB."
Following completion of this Offering, the Company's Common Stock will continue
to trade on the OTC Bulletin Board Service. See "RISK FACTORS -- Uncertain
Public Market For Company's Common Stock."
The public offering price for the Common Stock will be $6.00 per share. The
offering price of the Common Stock has been determined by negotiation between
the Company and H.J. Meyers & Co., Inc., the representative (the
"Representative") of the several underwriters (the "Underwriters") and is not
related to the Company's asset value or any other established criterion of
value. For the method of determining the public offering price of the Common
Stock, see "RISK FACTORS" and "UNDERWRITING."
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A SUBSTANTIAL
DEGREE OF RISK. PERSONS WHO PURCHASE THESE SECURITIES WILL INCUR IMMEDIATE AND
SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FACTORS SET FORTH UNDER "RISK FACTORS," AT PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................... $6.00 $0.60 $5.40
- ---------------------------------------------------------------------------------------------------------
Total Share(3)................ $4,800,000 $480,000 $4,320,000
=========================================================================================================
</TABLE>
(1) Does not reflect additional compensation to be received by the
Representative in the form of (a) a non-accountable expense allowance of 3%
aggregating $144,000 (or $165,600 if the Underwriters' over-allotment option
described in Footnote (3) is exercised in full) and other compensation
payable to the Representative, and (b) warrants to purchase up to 80,000
shares of Common Stock at a purchase price of $9.90 per share (that being
165% of the public offering price, exercisable over a period of four years,
commencing one year from the date of this Prospectus (the "Representative's
Warrant"). In addition, the Company has agreed to indemnify the Underwriters
against certain civil liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "UNDERWRITING."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $651,700, including the Representative's non-accountable
expense allowance.
(3) The Company has granted the Underwriters an option, exercisable within 45
days, to purchase up to an additional 120,000 shares of Common Stock on the
same terms and conditions as set forth above, solely to cover
overallotments, if any. If the overallotment option is exercised in full,
the total "Price to Public," "Underwriting Discount," and "Proceeds to
Company" will be $5,520,000, $552,000, and $4,968,000, respectively. See
"UNDERWRITING."
The shares are being offered on a "firm commitment basis" by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the offer without notice.
It is expected that delivery of certificates representing the shares of Common
Stock will be made at the offices of H. J. Meyers & Co., Inc., 1895 Mount Hope
Avenue, Rochester, New York 14620, on or about January , 1998.
H.J. MEYERS & CO., INC.
The date of this Prospectus is January , 1998.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED THROUGH THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS AUTOMATED QUOTATION SYSTEM SMALL CAP MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. (FOR A DESCRIPTION,
SEE "UNDERWRITING.")
NOTICE TO CALIFORNIA INVESTORS
EACH PURCHASER OF SHARES OF COMMON STOCK IN CALIFORNIA MUST MEET ONE OF THE
FOLLOWING SUITABILITY STANDARDS: (i) A LIQUID NET WORTH (EXCLUDING HOME,
FURNISHINGS AND AUTOMOBILES) OF $250,000 OR MORE AND GROSS ANNUAL INCOME DURING
1996 AND ESTIMATED DURING 1997, OF $65,000 OR MORE FROM ALL SOURCES; (ii) A
LIQUID NET WORTH (EXCLUDING HOME, FURNISHINGS AND AUTOMOBILES) OF $500,000 OR
MORE; (iii) $1,000,000 NET WORTH (INCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES); OR (iv) $200,000 OR MORE GROSS ANNUAL INCOME DURING 1996, AND
ESTIMATED DURING 1997, FROM ALL SOURCES.
<PAGE> 5
PROSPECTUS SUMMARY
The following information does not purport to be complete and is qualified
in its entirety by and should be read in conjunction with the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the factors discussed below under "Risk Factors." Unless otherwise indicated,
the information in this Prospectus does not give effect to the issuance of (i)
up to 178,420 shares of Common Stock which may be issuable to a certain
shareholder as a result of the acquisition by the Company of all of the stock of
Software Associates, Inc. in the event certain conditions are met (See "CERTAIN
TRANSACTIONS"); (ii) up to 80,000 shares of Common Stock which are issuable upon
the exercise of the Representative's Warrant in connection with this Offering
(See "UNDERWRITING"); (iii) up to 120,000 shares of Common Stock issuable in
this Offering to cover over-allotments, if any (See "UNDERWRITING"); (iv) up to
234,764 shares issuable to employees under the Company's 1997 Employee Stock
Option Plan (See "MANAGEMENT -- Stock Option Plans"); (v) up to 78,254 shares
issuable to non-employee directors under the Company's 1997 Stock Option Plan
for Outside Directors (See "MANAGEMENT -- Stock Option Plans"); or (vi) up to
125,000 shares of Common Stock issuable to certain of the Company's existing
shareholders upon the exercise of common stock purchase warrants granted in
consideration for the contribution to the Company's capital of an aggregate of
654,597 shares of Common Stock (See "RECENT DEVELOPMENTS -- Contribution of
Stock By Certain Shareholders").
Except for the description of historical facts contained herein, this
Prospectus and the Exhibits attached hereto contain certain forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular to the
descriptions of the Company's plans and objectives for future operations,
assumptions underlying such plans and objectives and other forward-looking
statements included in this Prospectus under "Use of Proceeds," "Business" and
"Risk Factors." Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in such forward-looking
statements. Factors which could cause such results to differ materially from
those described in the forward-looking statements include those set forth under
"RISK FACTORS" below.
THE COMPANY
The Company is engaged in the business of developing, marketing and
supporting Year 2000-compliant software products and services that enable
businesses to engage in electronic commerce utilizing the Internet and
traditional Electronic Data Interchange ("EDI") technologies.
Electronic commerce ("EC") involves the automation of business transactions
using telecommunications and computers to exchange and process commercial
information and transactional documents. According to a July 1997 report by the
Aberdeen Group, an information technology research and consulting organization,
as broadly defined, electronic commerce is considered to represent a growing,
potentially multi-billion dollar market. EDI, a form of EC, is the
application-to-application transmission of business documents such as purchase
orders and invoices using industry-standard formats. Businesses utilizing
electronic commerce have found EDI to be a vital component of their enterprises.
EDI differs from more elementary forms of communication because it provides for
truly integrated information flow. For example, manufacturers of goods can
create electronic catalogues of their products and prices such that their
customers will have the ability to electronically enter purchase orders and
complete the purchase, payment and other documentation of a purchase
transaction. The Internet is a worldwide communications system that allows users
to transmit and receive messages and information over telephone and other
communications lines using terminals and computers.
Electronic commerce has traditionally involved the use of a third-party or
private value-added computer network ("VAN") to perform EDI, e-mail, and
electronic funds transfers and to provide services related to electronic forms,
bulletin board and electronic catalogues. Users of private or third-party VANs
may also have access through the VAN to directories or on-line information
services. A VAN is, in effect, an electronic post office which electronically
receives and delivers mail, in this case commercial documents, to the intended
1
<PAGE> 6
recipient. The major operators of VANs include Harbinger Corporation, GEIS,
Sterling Commerce, IBM/Advantis, MCI, AT&T and Kleinschmidt. The Company's
products and services work with all major VAN providers.
EDI can create commercial advantages for its users, including one-time data
entry, reduced clerical workload and the elimination of paper records. EDI also
allows for the rapid, accurate and secure exchange of business data, and reduced
operating and inventory carrying costs. EDI facilitates uniform communications
with different trading partners, including customers, suppliers, common
carriers, and banks or other financial institutions.
The Company's present business strategy is to focus upon the following
types of markets and customers:
- EDI-enabled suppliers of goods, such as manufacturers, that want to
engage in electronic commerce with customers which are not EDI-enabled.
- EDI-enabled purchasers, such as retailers or distributors of goods, that
want to engage in electronic commerce with suppliers which are not
EDI-enabled.
- Any businesses that want to engage outside service providers to manage or
to assist in the management of their EDI function ("EDI outsourcing").
- Businesses or groups of businesses that want to create "electronic
storefronts" for goods and services on the "World Wide Web." The World
Wide Web or "Web" is a series of computers called servers, which allow
individuals, groups and businesses to publish and exchange information
over the Internet to the general public.
The Company has four principal software and service packages for the
markets and customers described above:
ECBRIDGENET SERVICE(SM) -- ECbridgeNET is the Company's electronic commerce
service bureau. ECbridgeNET is a service provided by the Company that
allows for the transfer of information between trading partners. The
service includes EDI mapping and the translation and routing of business
documents between third party EDI (VAN) networks, the Internet and the
private computer networks maintained by the parties to the business
transaction. Generally referred to as "EDI outsourcing," this service
offers businesses cost-effective alternatives to investing in an in-house
EDI System.
EDIXCHANGE PROGRAM(SM) -- The Company's EDIxchange Program is a combination
of ECbridgeNET service and NetCat(TM) software. NetCat is the Company's
software program which allows a seller of goods to create an electronic
catalogue on the World Wide Web to offer and sell products electronically.
NetCat allows a customer to browse through the catalogue, to place an
order, and to be billed for, or to pay for, the order. The EDIxchange
Program provides a seamless and cost effective way for EDI-enabled
suppliers or retailers to conduct electronic commerce with their non-EDI
trading partners. EDIxchange bridges the Internet with traditional EDI
networks such as VANs by using the Company's service bureau, ECbridgeNET.
This product allows businesses which do not have in-house EDI capability to
communicate electronically with EDI-enabled business partners, using only
Internet access and a standard Web browser. A Web browser, such as Netscape
or Internet Explorer, allows Internet users to access various Web Sites on
the Internet.
SHIPTRAC(TM) -- ShipTrac is the Company's Windows-based software
application designed for manufacturers and suppliers of goods. It
electronically creates a shipping manifest or list of products that are
being shipped to a particular customer or distribution center. The ShipTrac
software receives an electronic purchase order into a database, and the
shipper then can print bar-coded shipping compliance labels. ShipTrac
generates EDI-standard advanced shipping notice documents (the "manifest")
which are sent electronically to a supplier's customers. When the goods are
received, the bar codes on the products can be verified against the
advanced shipping notice which has been electronically forwarded by
ShipTrac.
ECINTEGRATOR(TM) -- The Company has developed application interface modules
for two third party mid-range accounting software systems, RealWorld and
Synchronics. Designed for businesses using those systems, EC Integrator
allows a business to import and export business documents electronically
from those software applications. Generally, the Company sells this product
through distributors of Real World and Synchronics software.
2
<PAGE> 7
As of January 1, 1998, the Company's EDIxchange customers include Linens N'
Things (an EDI-enabled purchaser), and Great American Knitting Mills, makers of
Goldtoe socks, and ICXpress (both EDI-enabled sellers). Customers using the
Company's ECbridgeNET Service include Church & Dwight, manufacturers of Arm &
Hammer baking soda, Royal Dalton, makers of fine china, and Kings Supermarket, a
supermarket chain located in the Northeast United States.
The Company was initially incorporated in the State of New Jersey on July
26, 1979 under the name Seahawk Oil International, Inc. The Company's executive
offices are located at 271 Route 46 West, Building F, Suite 209, Fairfield, New
Jersey 07004 and its telephone number is (973) 244-1000.
The discussion of the Company in this Prospectus relates to the combined
operations of the Company's present subsidiaries: DynamicWeb Transaction
Systems, Inc. ("DWTS") and Megascore, Inc. ("Megascore"), for all periods
presented, and Software Associates, Inc. ("Software Associates") (which was
acquired by the Company on November 30, 1996) from December 1, 1996. In March of
1996, DWTS was acquired by the Company in a transaction accounted for as a
reverse acquisition and, as a result, the Company entered the electronic
commerce business and the Company's current management became associated with
the Company. Immediately prior to that acquisition the Company had divested
itself of all prior operations, none of which were related to the Company's
present business. For a description of the prior history of the Company,
including discontinued operations, see "BUSINESS -- Background of the Company."
THE OFFERING
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<S> <C>
Securities Offered by the Company......... 800,000 shares of Common Stock.
Shares of Common Stock Presently
Outstanding, Net of Treasury Stock...... 1,420,113 shares (1)
Shares of Common Stock to be Outstanding
After Offering, Net of Treasury Stock... 2,220,113 shares (1)
Use of Proceeds........................... The net proceeds of the Offering will be used for
selling and marketing expenses; the support of
its technical operations; purchase or lease of
capital equipment; repayment of indebtedness; and
working capital and general corporate purposes.
See "USE OF PROCEEDS."
NASD OTC Bulletin Board Symbol............ DWEB
</TABLE>
- ---------------
(1) Gives effect to the contribution to the Company's capital of an aggregate of
654,597 shares of Common Stock by certain shareholders of the Company which
occurred on or before December 23, 1997. See "RECENT
DEVELOPMENTS -- Contribution of Stock By Certain Shareholders." Excludes (a)
up to 178,420 shares of Common Stock which may be issuable to a certain
shareholder as a result of the acquisition by the Company of Software
Associates, Inc. (See "CERTAIN TRANSACTIONS"); (b) up to 80,000 shares of
Common Stock which are issuable upon the exercise of warrants granted to the
Representatives in connection with this Offering (See "UNDERWRITING"); (c)
up to 120,000 shares of Common Stock issuable in this Offering to cover
over-allotments, if any (See "UNDERWRITING"); (d) up to 234,764 shares
issuable to employees under the Company's 1997 Employee Stock Option Plan
(See "MANAGEMENT -- Stock Option Plans"); (e) up to 78,254 shares issuable
to non-employee directors under the Company's 1997 Stock Option Plan for
Outside Directors (See "MANAGEMENT -- Stock Option Plans"); and (f) up to
125,000 shares of Common Stock issuable to certain of the Company's existing
shareholders upon the exercise of warrants to purchase Common Stock granted
in consideration for the contribution to the Company's capital of an
aggregate of 654,597 shares of Common Stock. (See "RECENT
DEVELOPMENTS -- Contribution of Stock By Certain Shareholders"). Includes an
additional 74,760 shares of Common Stock issued on October 31, 1997 in
respect of the April 1997 Financing and 66,660 shares of Common Stock issued
on October 31, 1997 in respect of the August 1997 Financing, and also
reflects 66,660 shares contributed to the Company and held as Treasury
Stock. See "INTERIM FINANCINGS."
3
<PAGE> 8
RECENT DEVELOPMENTS
INTERIM FINANCINGS
On April 30, 1997, the Company completed a $600,000 private placement in
which H.J. Meyers & Co., Inc., the Representative, acted as the Company's
placement agent on a "best efforts" basis (the "April 1997 Financing"). That
private placement involved the sale of 24 units, each consisting of a
subordinated unsecured 8% promissory note of the Company having a principal
amount of $25,000 and 3,115 shares of Common Stock. Also, on August 27, 1997,
the Company completed a $500,000 private placement in which H.J. Meyers & Co.,
Inc. acted as placement agent on a "best efforts" basis (the "August 1997
Financing"). The August 1997 Financing involved the sale of 20 units, each
consisting of a subordinated unsecured 8% promissory note of the Company with a
principal amount of $25,000 and 3,333 shares of Common Stock. See "INTERIM
FINANCINGS."
CONTRIBUTION OF STOCK BY CERTAIN SHAREHOLDERS
On December 23, 1997, certain of the Company's existing shareholders, who
in the aggregate held approximately 79% of the issued and outstanding Common
Stock of the Company, contributed 40% of their Common Stock to the capital of
the Company in exchange for Warrants to purchase an aggregate of 125,000 shares
of Common Stock (the "Contribution of Stock"). The total number of shares
contributed was 654,597 shares, representing approximately 32% of the issued and
outstanding Common Stock at the time of contribution. The market price of the
Common Stock after the date of the Contribution of Stock transaction adjusted
upward to reflect the smaller number of shares outstanding. Although the bid
price of the Company's stock adjusted in proportion to the Contribution of
Stock, there is no assurance that such price will be maintained at that level.
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. Unless
otherwise noted, all references to the Company's Common Stock in this Prospectus
give effect to the Contribution of Stock.
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 has been filed with
the New Jersey Secretary of State and became effective on January 9, 1998.
Pursuant to the Reverse Stock Split, each share of Common Stock outstanding on
the effective date was converted into 0.2608491 of one share, except that no
fractional shares were issued and shareholders who would otherwise receive a
fractional share as a result of the Reverse Stock Split will receive cash in
lieu thereof. Unless otherwise noted, all references to the Company's Common
Stock contained in this Prospectus give effect to the Reverse Stock Split.
The effect of the Reverse Stock Split on the aggregate number of shares of
the Common Stock as of the effective date of the reverse split is set forth in
the table below. The numbers below give effect to the Contribution of Stock.
<TABLE>
<CAPTION>
PRIOR TO AFTER
REVERSE STOCK SPLIT REVERSE STOCK SPLIT
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<S> <C> <C>
Number of Shares of Common Stock:
Authorized............................................ 50,000,000 50,000,000
Issued and Outstanding, Net of Treasury Stock......... 5,444,194 1,420,113
Available for issuance................................ 44,555,806 48,579,887
Par value per share................................... $0.0001 $0.0001
</TABLE>
Effect on the Market for the Common Stock. The Common Stock is presently
quoted on the National Association of Securities Dealers ("NASD")
Over-The-Counter ("OTC") Bulletin Board Service. The last bid price of the
Common Stock on December 16, 1997, prior to the Reverse Stock Split and the
Contribution
4
<PAGE> 9
of Stock, was $31/32. See "MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS." If the price of the Common Stock as of December 16, 1997 was adjusted
in proportion to the Reverse Stock Split and the Contribution of Stock, the bid
price of the Common Stock on December 16, 1997 would have been $5 3/8. The last
bid price of the Common Stock on January 14, 1998, was $6. January 14, 1998 was
after both the date of the Contribution of Stock and the effective date relating
to the Reverse Stock Split. Accordingly, it appears that the trading market
reflected the effects of both the Contribution of Stock and the Reverse Stock
Split by adjusting the bid price upwards on a proportionate basis. There can be
no assurance that the bid price will be maintained at such level.
5
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
The following table sets forth selected consolidated financial data of the
Company. The Statement of Operations Data for the two years ended September 30,
1997, and the Balance Sheet Data as of September 30, 1997 have been derived from
the Company's Financial Statements, which have been audited by Richard A. Eisner
& Company, LLP, independent auditors, whose report thereon is included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................................................... $ 637,177 $ 460,067
Cost of sales and services........................................ 253,503 152,399
Other expenses.................................................... 2,089,494 748,433
Purchased research and development................................ 713,710 --
Net (loss)........................................................ (3,162,803) (455,230)
Net (loss) per share(1)........................................... (1.59) (.27)
Weighted average number of common shares outstanding(1)........... 1,984,507 1,667,202
Pro forma (loss) per share(1)(2).................................. (2.28) (.39)
Pro forma weighted average number of common shares
outstanding(1)(2).............................................. 1,386,383 1,158,905
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)(4)(5)
----------- --------------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital (deficit)................................. $(1,043,923) 2,493,419
Total assets.............................................. 887,716 3,263,431
Short-term debt........................................... 990,010 7,925
Long-term debt............................................ 185,811 185,811
Total liabilities......................................... 1,539,167 557,082
Accumulated deficit....................................... (3,577,989) (3,888,489)
Stockholders' equity (capital deficiency)................. (651,451) 2,706,349
</TABLE>
- ---------------
(1) Gives retroactive effect to the .2608491-for-one Reverse Stock Split, which
occurred on January 9, 1998. See Note G[5] to the Company's Financial
Statements and "RECENT DEVELOPMENTS."
(2) Reflects the Contribution of Stock by certain of the Company's existing
shareholders to the Company in exchange for warrants to purchase an
aggregate of 125,000 shares of the Company's Common Stock which occurred on
December 23, 1997. See Notes C[7] and G[6] to the Company's financial
statements, and "RECENT DEVELOPMENTS -- Contribution of Stock by Certain
Shareholders."
(3) Reflects borrowing of $72,851 subsequent to September 30, 1997 from the
Company's available credit lines and expected repayment of $97,000 from this
Offering.
(4) Reflects borrowing of $90,000 subsequent to September 30, 1997 from the
Company's Chief Executive Officer and expected repayment of approximately
$212,000.
(5) Gives effect to the sale of the Common Stock offered hereby, including the
anticipated application of the estimated net proceeds and the repayment of
certain indebtedness. See "USE OF PROCEEDS."
6
<PAGE> 11
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk and should not be made by persons who cannot afford the loss of their
entire investment. Prospective investors, prior to making an investment
decision, should consider carefully, in addition to the other information
contained in this Prospectus (including the financial statements and notes
thereto), the following factors. This Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below, as well as those discussed elsewhere in this
Prospectus.
Continuous Net Losses; Auditors' Report Going Concern Considerations. The
Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company entered its present business
only in March of 1996, when it acquired DWTS. The Company has incurred
continuous and substantial net losses. No assurance can be made that the Company
will become profitable in the near future, if at all. The Company's prospects
are subject to all of the risks encountered by a company in an early stage of
development, particularly in light of the uncertainties relating to the new and
evolving markets in which the Company intends to operate. To address these
risks, the Company must, among other things: further develop or acquire rights
to supporting software from third parties; commercially offer its services;
successfully implement its marketing strategy; respond to competitive
developments; attract, retain and motivate qualified personnel; and develop,
upgrade, and protect its technology. No assurance can be given that the Company
will succeed in addressing any or all of these issues; and the failure to do so
would have a material adverse effect on the Company's business, prospects,
financial condition and operating results. The auditors' opinion on the
Company's financial statements as of September 30, 1997, a copy of which is
attached to this Prospectus, calls attention to substantial doubts as to the
ability of the Company to continue as a going concern as of the date of those
financial statements. As of September 30, 1997, the Company had an accumulated
deficit of $3,577,989.
Anticipated Operating Losses. The Company anticipates realizing only
limited revenue for the foreseeable future. The Company's ability to generate
meaningful revenue thereafter is subject to substantial uncertainty. The Company
anticipates that its operating expenses will increase substantially in the
foreseeable future as it hires a substantial number of additional employees and
makes other significant expenditures to further develop its technology, increase
its marketing activities, create and expand the distribution channels for its
products and services, and broaden its customer support capabilities.
Accordingly, the Company expects to incur losses for the foreseeable future. No
assurance can be given that the Company's products and services will be
developed, marketed, expanded, or rendered successfully or on a timely basis, if
at all, or that the Company will be successful in obtaining market acceptance of
its products and services. No assurance can be given that the Company will ever
be able to achieve or sustain operating profitability.
Early Stage of Market Development; Unproven Acceptance of the Company's
Products and Services. The Company's products and services are designed to
facilitate electronic commerce. A major focus of the Company's products and
services is the Internet, which is a worldwide communications system that allows
computer users to transmit and receive messages and information over telephone
and other communications lines using terminals or computers. See "Dependence on
the Internet and on Internet Infrastructure Development" below. The market for
the Company's products and services is at an early stage of development, is
evolving rapidly, and is characterized by an increasing number of market
entrants who have introduced or are developing competing products and services.
As is typical for a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. Market acceptance will depend, in large part, upon the
ability of the Company to demonstrate the advantages and cost effectiveness of
its products and services over existing products and services. There can be no
assurance that the Company will be able to market its products and services
successfully or that its current or future products and services will be
accepted in the marketplace. As a result of the Company's recent introduction of
its products and services into the market and their limited use to date, there
can be no assurance that the Company's products and services will achieve market
acceptance or will produce substantial revenues.
7
<PAGE> 12
Dependence on the Internet and on Internet Infrastructure Development. The
use of the Company's products and services is dependent upon the continued
development of an industry and infrastructure for providing Internet access and
carrying Internet traffic. The commercial market for products and services for
use with the Internet and the World Wide Web has only recently begun to develop.
The Internet may not prove to be a viable commercial marketplace or
communications network because of many factors, including inadequate development
of the necessary capacity, problems with reliability, lack of acceptable levels
of security, or lack of timely development of complementary products, such as
high speed modems. The Internet suffers from many problems related to
performance, reliability, congestion and delay. Customers may experience
frustration waiting for transactions to be processed. Consequently, they may
forego using the Company's products and services.
Further, there can be no assurance that the Internet will retain its
current pricing structure, which is generally flat-rate, independent of volume,
and independent of the time of day. Federal regulation of access fees to the
Internet may cause an increase in costs to the businesses utilizing the
Company's products and services.
The adoption of the Internet for commerce and as a means of communication,
particularly by those individuals and enterprises that historically have relied
upon traditional means of commerce and communication, will require a broad
acceptance of new methods of conducting business and exchanging information.
Enterprises that already have invested substantial resources in other methods of
conducting business may be reluctant or slow to adopt a new strategy that may
limit or compete with their existing business. Individuals with established
patterns of purchasing goods and services and effecting payments may be
reluctant to alter those patterns.
Thus far, significant commercial use of the Internet has not developed, in
part, because of the lack of security and verification processes. Although the
Company's products and services are compatible with existing and apparently
emerging security and verification products, there can be no assurance that
widespread commercial use of the Internet for electronic commerce will develop,
or that even if such use does develop, that the Company's products and services
will achieve market acceptance. If the Company's market fails to develop or
develops more slowly than expected, or if the infrastructure for the Internet is
not adequately developed, or if the Company's products and services do not
achieve market acceptance by a significant number of individuals and businesses,
the Company's business, financial condition, prospects and operating results
will be materially and adversely affected. See "BUSINESS -- Electronic Commerce
and Electronic Data Interchange" and "Risks Associated with Encryption
Technology."
Ability to Respond to Rapid Change. The Company's future success will
depend significantly on its ability to enhance its current products and services
and develop or acquire and market new products and services which keep pace with
technological developments and evolving industry standards as well as respond to
changes in customer needs. The market for EDI products and Internet software
products is characterized by rapidly changing technology, evolving industry
standards and customer demands, and frequent new product introductions and
enhancements. The Company will be required to manage effectively its strategic
position in a rapidly changing environment. There can be no assurance that the
Company will be successful in developing or acquiring product or service
enhancements or new products or services to address changing technologies and
customer requirements adequately, that it will introduce such products or
services on a timely basis, if at all, or that any such product or service
enhancements will be successful in the marketplace. The Company's delay or
failure to develop or acquire technological improvements or to adapt its
products or services to technological change would have a material adverse
effect on the Company's business, financial condition, prospects, and operating
results. The failure of the Company's management team to respond effectively to
and manage rapidly changing technological and business conditions as well as the
growth of its own business, should it occur, could have material adverse impact
on the Company's business, financial condition, prospects, and operating
results. See "Reliance on Limited Number of Products."
Need for Substantial Additional Capital. Management estimates that the
proceeds from this Offering will provide the Company with sufficient funds to
operate its business for approximately 13 months. The Company will need to raise
substantial additional capital in order to complete its business plan. In the
event the Company is
8
<PAGE> 13
unable to obtain additional funding in a timely manner, it will be unable to
complete its present business plan, it may need to significantly scale down its
operations or it may be required to cease its business operations. There can be
no assurance that the Company will be able to obtain the additional capital
required in a timely manner or that it will be able to complete its business
plan. If any additional capital is raised in equity offerings, the interests of
investors who purchase the Common Stock in this Offering may be diluted.
Control by Existing Management. As of January 1, 1998, the existing
management of the Company controls approximately 50% of the shares of Common
Stock eligible to vote and is therefore able to elect all of the members of the
Board of Directors and control the outcome of any issues which may be subject to
a vote of the Company's stockholders. After giving effect to this Offering and
Contribution of Stock by certain existing shareholders, existing management will
control approximately 32% of the shares of Common Stock eligible to vote.
Benefits of the Offering to Management. A portion of the net proceeds of
this Offering will be used to repay approximately $212,000 (including accrued
interest) in short term officers' loans made to the Company by Steve Vanechanos,
Sr. and Steven L. Vanechanos, Jr. and to repay approximately $97,000 expected to
be owing under the Company's bank lines of credit, which are personally
guaranteed by Steve Vanechanos, Sr., Steven L. Vanechanos, Jr., and Kenneth
Konikowski. See "USE OF PROCEEDS." In addition, portions of the net proceeds of
the Offering will be used to pay operating expenses of the Company, which will
include the compensation of Steve Vanechanos, Sr., Steven L. Vanechanos, Jr.,
Kenneth Konikowski, and James Conners, the executive officers of the Company.
The aggregate compensation expected to be paid to those individuals during the
two fiscal years ended September 30, 1999, is approximately $900,000. See "USE
OF PROCEEDS" and "MANAGEMENT." Except for the repayment of the officers' loans
and the relief from the personal guarantees under the lines of credit, none of
the executive officers of the Company and none of the five percent shareholders
of the Company (See "PRINCIPAL STOCKHOLDERS"), will receive any special benefit
from this Offering other than their pro rata benefit as any other shareholder or
employee of the Company.
Difficulty of Trading "Penny Stocks." Because the Company's Common Stock
trades on the NASD's OTC Bulletin Board Service, if the bid price of the
Company's Common Stock falls below $5.00 per share, and under certain other
circumstances, the Company's Common Stock may be subject to rules that impose
additional sales practice and market making requirements on broker-dealers who
sell or make a market in lower-priced securities which constitute "penny
stocks". The additional requirements will generally apply if sales are made to
persons other than established customers (as defined in such rules) and
accredited investors (generally, institutions and, for individuals, an investor
with assets in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 together with such investor's spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchaser and must have received the purchaser's written consent to the
transaction prior to the purchase. Consequently, many broker-dealers may be
unwilling to sell or make a market in the Company's securities because of the
added disclosure requirements, thereby making it more difficult for purchasers
in this Offering to resell the Common Stock in the secondary market.
Uncertain Public Market for the Company's Common Stock. The Company's
Common Stock is now, and upon completion of this Offering will continue to be,
traded on the NASD's OTC Bulletin Board Service. There is no assurance that an
active trading market will develop or be sustained. The investment community
could show little or no interest in the Company in the future. As a result,
purchasers of the Company's securities may have difficulty in selling such
securities should they desire to do so. It is substantially more difficult for
investors in securities listed on the OTC Bulletin Board to dispose of such
securities or to obtain accurate quotations regarding such securities, as
compared to securities listed on more established trading markets, such as the
NASDAQ Small Cap Market System.
Arbitrary Determination of Offering Price; Possible Volatility of Stock
Price. The initial public offering price and terms of the Common Stock have been
determined by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's asset value, net worth or results of
operation. Among the factors considered in determining the public offering price
were the material reduction in the number of outstanding shares resulting from
the Contribution of Stock, and the assumed pro forma public trading price of the
Common Stock, reflecting the effect of the Reverse Stock Split and the
Contribution of
9
<PAGE> 14
Stock. The bid price of the Common Stock on December 16, 1997, was $ 31/32. If
the bid price on December 16, 1997 was adjusted in proportion to both the
Contribution of Stock and Reverse Stock Split, the bid price on December 16,
1997 would have been $5 3/8. The last bid price of the Common Stock on January
14, 1998, after the date of the Contribution of Stock and the Reverse Stock
Split, was $6. Accordingly, it appears that the trading market reflected the
effects of both the Contribution of Stock and the Reverse Stock Split by
adjusting the bid price upwards on a proportionate basis. There can be no
assurance that the bid price of the Common Stock will be maintained at such
level. The market prices for securities of development stage companies have
historically been highly volatile. Future announcements concerning the Company
or its competitors, including the results of testing, technological innovations,
new commercial products, developments concerning proprietary rights or
litigation may have a significant impact on the market price of the Company's
securities. See "UNDERWRITING."
Common Stock Eligible for Resale. Of the 2,220,113 shares of Common Stock
to be outstanding after the consummation of this Offering, approximately
1,227,457 shares are "restricted securities" and under certain circumstances may
be sold in compliance with Rule 144 adopted under the Securities Act. Future
sales of such shares are likely to depress the market price of the Company's
Common Stock.
Reliance on Limited Number of Products and Services. The Company expects
that substantially all of its revenues will be derived from its EDIxchange
product and service, its ECbridgeNet service, and (to a lesser extent) its
ECIntegrator product. If these products and services are not successful, whether
as a result of technological change, competition or any other factors, the
Company's business, financial condition, prospects and operating results will be
adversely affected. Although the Company is continuing to develop its existing
products, it presently has no plans to develop or produce additional products
and services for the foreseeable future. See "BUSINESS -- Introduction."
Technological Change. The market for the Company's proposed services is
characterized by rapidly changing technology and evolving industry standards.
The Company will likely be required to design, develop, test, introduce and
support new services and enhancements on a timely basis that meet changing
customer needs and respond to technological developments and emerging industry
standards. The Company's proposed services are now designed around certain
technical standards. While the Company intends to provide compatibility with the
standards promulgated by leading industry participants and groups, widespread
adoption of a proprietary or closed standard could preclude the Company from
effectively marketing or developing its products or services. No assurance can
be given that the Company will be able to respond to technological changes or
evolving industry standards in a timely manner, if at all; or that the standards
upon which the Company's services are or will be based will be accepted by the
industry. In addition, no assurance can be given that services or technologies
developed by others will not render the Company's services noncompetitive or
obsolete. In the event that services or technologies developed by others render
the services of the Company impracticable, noncompetitive or obsolete, or the
industry in which the Company hopes to compete develops and adopts a proprietary
standard to which the Company does not have access, or the Company is not able
to respond to technological developments or emerging industry standards, there
could be a material adverse effect on the Company's business, financial
condition, prospects and operating results.
Risks of Defects and Development Delays. The Company has not sold a
material amount of its services or products. Products and services based on
sophisticated software and computing systems often encounter development delays
and the underlying software most often contains undetected errors, bugs, or
failures when introduced or when the volume of services provided increases. The
Company may experience delays in the development of the software and computing
systems underlying the Company's proposed products and services. In addition,
there can be no assurance that, despite testing by the Company and potential
customers, errors will not be found in the underlying software, or that the
Company will not experience development delays, which could result in delays in
the market acceptance of its products and services and could have a material
adverse effect on the Company's business, financial condition, prospects and
operating results. See "BUSINESS -- Product Development."
Competition. The EC and EDI markets are intensely competitive and subject
to rapid technological change and evolving industry standards. The Company does
and will compete with many companies that have
10
<PAGE> 15
substantially greater financial, marketing, technical and human resources than
the Company. Among the principal competitors in EDI and specifically in the
delivery of EDI over the Internet are, at present, Harbinger Corporation,
Sterling Commerce, GEIS, Netscape, Actra (which is a joint venture of GEIS and
Netscape), Open Market, Premenos, Icat, Interworld Technology Ventures, Elcom
International, Broadvision, Connect, IBM, Microsoft, EDS, and MCI, each of which
has announced plans to design and develop software products and to provide
services that facilitate electronic commerce over the Internet. Some of those
competitors operate VANs. Several of these companies utilize the same encryption
technology from RSA that the Company incorporates in its products. Virtually all
of the Company's current and potential competitors have longer operating
histories, greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing resources than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to potential customers. In addition, many of the Company's current or
potential competitors, such as Netscape, Microsoft and AT&T, have broad
distribution channels that may be used to bundle competing products directly to
end-users or purchasers. If such competitors were to bundle products that
compete with the Company for sale to their customers, any demand the Company is
able to create for its products and services may be substantially reduced, and
the ability of the Company to broaden the utilization of its products and
services would be substantially diminished. No assurance can be given that the
Company will be able to compete effectively with current or future competitors
or that such competition will not have a material adverse effect on the
Company's business, financial condition, prospects and operating results. See
"BUSINESS -- Competition."
New Market Entrants. In addition to existing competitors, there are many
companies that may enter the market in the future with new technologies,
products and services that may be competitive with services offered or to be
offered by the Company. Because there are many potential entrants to the field,
many of which are likely to have substantially greater resources than the
Company, it is extremely difficult to assess which companies are likely to offer
competitive products and services in the future, and in some cases it is
difficult to discern whether an existing product or service is competitive with
the Company's services. The Company expects competition to persist and intensify
in the future. It should be noted that companies that historically have produced
text, audio, video, graphics, art and animation ("multimedia" companies), and
companies that historically have owned various forms of communication media such
as cable, broadcasting, and telecommunications ("cross-media" companies) are
encroaching upon and entering into each other's historic businesses. This may
signal a further expansion by those integrated companies into the EDI and
related fields. If the market becomes congested with competition, the Company
may not be able to compete effectively in its intended marketplace.
Dependence on Third-Party Intellectual Property Rights. The Company
currently licenses certain proprietary and patented technology from third
parties. Most of the Company's planned services incorporating data encryption
and authentication is based on proprietary software of RSA Data Security
("RSA"). The RSA software is incorporated in certain other software licensed to
the Company from Community Connexion related to the Web server utilized by the
Company. The RSA software is available on a non-exclusive basis. No assurance
can be given that the encryption software presently available to the Company
will continue to be available to the Company on commercially reasonable terms,
or at all. Additionally, there is no assurance that if a new encryption
technology develops, that it will be available to the Company on commercially
acceptable terms, if at all.
The Company also licenses Cybercash software, which is credit card
verification software, on a non-exclusive basis. No assurance can be given that
Cybercash will continue to be available to the Company on commercially
reasonable terms, if at all. The lack of availability of credit card
verification software could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
No assurance can be given that the Company's third party licenses will
continue to be available to the Company on commercially reasonable terms, if at
all. The Company bears the risk that all third party technology supplied to the
Company is actually owned by the party supplying the technology and does not
infringe upon the rights of others. Any threat of infringement or
misappropriation against these third parties may in turn cause substantial
interference with the Company's right to utilize that technology. The loss of or
11
<PAGE> 16
inability to maintain any of those software licenses could result in delays in
introduction of the Company's products and services until equivalent software,
if available, is identified, licensed and integrated into the Company's planned
services, which could have a material adverse effect on the Company's business,
financial condition, prospects and operating results. See
"BUSINESS -- Intellectual Property Rights."
Because certain of the Company's products incorporate software developed
and maintained by third parties, the Company is dependent upon such third
parties' ability to enhance their current products, to develop new products on a
timely and cost-effective basis and to respond to emerging industry standards
and other technological changes. There can be no assurance that the Company
would be able to replace the functionality provided by the third party software
currently offered in conjunction with the Company's products in the event that
such software becomes obsolete or incompatible with future versions of the
Company's products or is otherwise not adequately maintained or updated. The
absence of or any significant delay in the replacement of that functionality
could have a material adverse effect on the Company's business, financial
condition, prospects and operating results. See "BUSINESS -- Competitive
Strategy."
Reliance on PERL. The Company's proprietary software is written in
Practical Extraction and Reporting Language ("PERL"), which is the computer
programming language utilized for Internet applications. Because the Internet is
not controlled or supervised by any one person or group, the evolution and
continued utilization of PERL cannot be controlled or predicted. Changes in or
the elimination of PERL could cause the Company to have to assume responsibility
for support and development of PERL, which could have a material adverse effect
on the Company's business, financial condition, prospects, and operating
results.
Dependence on Distribution and Marketing Relationships. The Company has few
sales and marketing employees and does not have established distribution
channels for its services. In order to generate substantial revenue, the Company
must achieve broad distribution of its services to businesses and individuals
and secure general adoption of its services and technology. A key element of the
Company's current business and its future business strategy is to maintain and
develop relationships with leading companies that market software products and
EDI-related services.
The Company has entered into value added-reseller ("VAR"), distribution,
co-marketing and other agreements with a number of companies. See
"BUSINESS -- Sales and Marketing." Many of these agreements are nonexclusive,
and many of the companies with which the Company has agreements also have
similar agreements with the Company's competitors or potential competitors.
Those agreements do not require the distributors to purchase minimum quantities.
The Company believes that its success in penetrating markets for its EDI
products and services depends in large part on its ability to maintain these
relationships, to add the Company's EDIxchange products and services to such
arrangements, to cultivate additional relationships and to cultivate alternative
relationships if distribution channels change. There can be no assurance that
the Company's VAR partners, distributors or co-marketers will not develop and
market products in competition with the Company in the future, discontinue their
relationships with the Company or form additional competing arrangements with
the Company's competitors, all of which could have a material adverse effect on
the Company's ability to successfully compete. See "BUSINESS -- Sales and
Marketing."
Dependence on Intellectual Property Rights; Risk of Infringement. The
Company's success and ability to compete are dependent in part upon its
proprietary technology relating to its NetCat software. The Company has applied
for a patent with the United States Patent and Trademark Office covering that
software, but to date no patent has been granted. There can be no assurance that
the applied-for patent will be granted, or, if granted, will be effective to
protect the Company's rights in its NetCat technology. The Company's patent, if
issued by the United States Patent and Trademark Office, would offer no
protection outside of the United States. The Company's patent, if issued, may be
subsequently challenged. If the patent is challenged the counsel and other fees
in defending the patent, together with loss of management's time, could be
substantial. Those adverse consequences also could occur with respect to the
trademarks, trade secrets, or other intellectual property rights of the Company.
In addition, the software and electronic commerce industries are
characterized by the existence of a large number of patents, and litigation
based on allegations of patent infringement is common. From time to time, third
parties may assert exclusive patent, copyright, trademark and other intellectual
property rights to
12
<PAGE> 17
technologies that are important to the Company. Although the Company believes
that it is not infringing on the rights of any third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company, that any such assertion of infringement will not result in litigation
or that the Company would prevail in such litigation or be able to license any
valid and infringed patents of third parties on commercially reasonable terms.
See "BUSINESS -- Proprietary Information."
Risks Associated with Encryption Technology. A significant barrier to
Internet commerce are the problems and risks associated with exchanging
financial information securely over public networks. The Company relies on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect the secure exchange of
financial information over the Internet, including public key cryptography
technology licensed from RSA. No assurance can be given that advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments will not result in a compromise or breach of the RSA
cryptography technology or other algorithms used by the Company to protect
customer transaction data. If any such compromise of the Company's security were
to occur, it could have a material adverse effect on the Company's business,
financial condition, prospects and operating results. In addition, no assurance
can be given that existing security systems of others will not be penetrated or
breached, which could have a material adverse effect on the market acceptance of
Internet security services, which in turn could have a material and adverse
effect on the Company's business, financial condition, prospects and operating
results.
Liability and Availability of Insurance. The Company is responsible for the
electronic transmission of commercial transaction data for its customers,
including, but not limited to, purchase orders, payments, invoices, and advance
ship notices. If the Company were unable to fulfill its contractual obligations
to its customers, whether due to failure of its software, to failure of the
Internet, EDI or telecommunications services to function properly, to failure of
its employees, contractors, agents or representatives, or for any other reason,
the Company could be subject to claims for the value of the lost business to its
customers. The liability could be substantial. If the Company incurs substantial
liability to its customers due to its breach, it may materially and adversely
affect the Company's ability to complete its plan of operation. The Company's
standard agreements with its customers contain provisions which attempt to limit
the liability of the Company for such matters, including the customer's lost
data, lost profits, or other incidental or consequential damages arising out of,
or in connection with, the customer's use or inability to use the Company's
software or services, or the negligence of the Company. In addition, in May,
1997 the Company purchased general liability and professional liability
insurance policies that are intended to cover the foregoing liabilities. The
general liability policy provides coverage of $1 million per claim and $2
million in the aggregate; and the Company has an additional $1 million umbrella
liability policy. The professional liability policy provides coverage of $1
million per claim and $1 million in the aggregate. The Company intends to
maintain such coverage and to evaluate increasing it from time to time, subject
to availability on commercially reasonable terms.
Fluctuating Results; Cyclical Business. The Company's future revenues and
operating results may fluctuate materially as a result of, among other things,
the timing of the introduction of, or enhancements to, the Company's products
and services, demand for the Company's products and services, the timing of
introduction of products or services by the Company's competitors, market
acceptance of Internet commerce, the timing and rate at which the Company
increases its expenses to support projected growth, the budgeting and purchasing
practices of its customers, the length of the customer product evaluation
process for the Company's products, the size and timing of customer orders,
competitive conditions in the industry, and other factors inherent in a new,
developing business. Fluctuations in revenues and operating results may cause
volatility in the Company's stock price. See "Possible Volatility of Stock
Price."
Dependence Upon Key Personnel. The Company's success will depend in part
upon the retention of key senior management and technical personnel,
particularly Steven L. Vanechanos, Jr., co-founder of the Company and Chairman
of the Board, James D. Conners, President of the Company, and Kenneth R.
Konikowski, Executive Vice President of the Company. The loss of the services of
any of the Company's key personnel could have a material adverse effect on the
Company's business, prospects, financial condition and operating results. The
Company has a policy that all of the Company's employees must sign
confidentiality agreements, and that certain of its employees also sign
non-competition agreements. The Company presently
13
<PAGE> 18
maintains key man life insurance on Steven L. Vanechanos, Jr. in the amount of
$3,000,000. There can be no assurance that the Company will be able or willing
to continue to maintain such insurance at present coverage levels.
Ability to Attract Qualified Personnel. The Company believes that its
future success also depends upon its ability to attract and retain additional
highly skilled technical, professional services, management and sales and
marketing personnel. The market for skilled computer programmers and other
technically skilled employees is highly competitive and other companies with
greater resources can provide higher salaries and greater benefits. To attract
quality personnel, the Company may be required to offer Common Stock or stock
options, which will dilute investors' interests. The market for these
individuals has historically been, and the Company expects that it will continue
to be, intensely competitive. The Company's inability to attract and retain
qualified employees could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
Management of Growth. If the Company experiences a period of rapid growth,
a significant strain may be placed on the Company's financial, management and
other resources. The Company's future performance will depend in part on its
ability to manage change in its operations and will require the Company to hire
additional management and technical personnel, particularly in areas of
marketing and customer support. In addition, the Company's ability to manage its
growth effectively will require it to continue to improve its operational and
financial control systems and infrastructure and management information systems,
and to attract, train, motivate, manage and retain key employees. If the
Company's management were unable to manage growth effectively, there could be a
material adverse effect on the Company's business, financial condition,
prospects, and operating results.
Ability to Issue Blank Check Preferred Stock; New Jersey Anti-Takeover
Provisions. Under the Company's Certificate of Incorporation, the Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of shares of preferred stock, while potentially providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present intention to issue shares of preferred
stock. In addition, the Company has, pursuant to the Underwriting Agreement,
agreed with the Representative that the Company will not sell or otherwise issue
any shares of preferred stock for two years following this Offering, without the
Representative's prior written consent.
In addition, the Company is subject to the anti-takeover provisions of the
New Jersey Shareholder Protection Act, which, among other things, prohibits it
from engaging in a "business combination" with an "interested stockholder" for a
period of five years after the date of the transaction in which the person
became an interested stockholder (the "Stock Acquisition Date"), unless the
business combination is approved by the Company's Board of Directors prior to
the Stock Acquisition Date. The application of such Act also could have the
effect of delaying or preventing a change in control of the Company.
Furthermore, certain provisions of the Certificate of Incorporation and the
Company's Bylaws, including provisions that provide for the Board of Directors
to be divided into three classes to serve for staggered three-year terms, as
well as certain contractual provisions, could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock
and may have the effect of delaying or preventing a change in control of the
Company. These provisions may also reduce the likelihood of an acquisition of
the Company at a premium price by another person or entity.
Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct regulation by any federal or state governmental agency, other
than regulations applicable to businesses generally. The laws generally
applicable to business will also be applicable to doing business over the
Internet. Laws relating to advertising, buying and selling goods and services,
contracts, payments, privacy, obscenity, defamation, taxation, export controls,
unfair competition and deceptive trade practices, among other things, will
likely apply to online activities as well, and numerous criminal statutes may
apply. There are currently few
14
<PAGE> 19
laws or regulations directly applicable to access to, or commerce on, the
Internet. If the Internet becomes more generally accepted, it is possible that a
number of laws and regulations may be adopted with respect to the Internet. Such
laws may address user privacy, pricing and characteristics and quality of
products and services, among other things. The adoption of any laws or
regulations governing commerce on the Internet may result in decreased growth or
use of the Internet, which could have an adverse effect on the Company's
business, financial condition, prospects and operating results. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain.
Possible Volatility of Stock Price. The market price of the Company's
Common Stock is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new software or services by the
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors, many of which are beyond the Company's
control. In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In the
past, following periods of volatility in the market price for a company's
securities, securities class action litigation has often been instituted. Such
litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition, prospects or operating results.
Substantial Options and Warrants Reserved. Under the Company's 1997
Employee Stock Option Plan, the Company may issue options to purchase up to an
aggregate of 234,764 shares of Common Stock to employees and officers, and, as
of the date of this Prospectus, options to purchase 203,392 shares have been
granted under that plan. Further, under the Company's Stock Option Plan for
Outside Directors, the Company may issue options to purchase up to an aggregate
of 78,254 shares of Common Stock to its outside directors, including certain
mandatory grants, and, as of the date of this Prospectus, options to purchase
15,648 shares have been granted under that plan. In connection with the
contribution of Common Stock by certain existing shareholders of the Company,
the Company has granted Warrants to purchase 125,000 shares of Common Stock at
an exercise price of $6.00 per share. In connection with this Offering, the
Company will grant to the Representative a warrant to purchase up to 80,000
shares of Common Stock at a purchase price of $9.90 per share. The exercise of
such options and warrants may further dilute the net tangible book value of the
Common Stock and an investor's interest in the Company. Further, the holders of
such options and warrants may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.
Dilution. This Offering involves immediate and substantial dilution of
$4.83 per share (or 80.5%) between the net tangible book value per share of
Common Stock after this Offering and the per share public offering price. Based
upon the public offering price, new investors in this Offering will be paying
$4.8 million, or $6.00 per share, for approximately 36% of the shares of the
Common Stock to be outstanding after completion of this Offering, for a
corporation with a net tangible book value of approximately $2,601,208, or $1.17
per share, after giving effect to this Offering. See "DILUTION." Also, the
Company has a contingent obligation to issue up to 178,420 additional shares to
one of its shareholders in connection with the Company's previous acquisition of
Software Associates. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Acquisition of Software Associates and Megascore."
Non-Cash Charges to Earnings. The Company intends to use a portion of the
net proceeds of this Offering to repay its outstanding indebtedness from its
April 1997 Financing and its August 1997 Financing. Because those financings
involve a material amount of debt discount and deferred financing fees, the
Company has amortized and charged to operations $720,000 through September 30,
1997, and will incur approximately $310,500 of additional non-cash expense
through the date of, and upon the repayment of, those financings. See "INTERIM
FINANCINGS."
Broad Discretion in Use of Proceeds. Management of the Company has broad
discretion to utilize the proceeds of this Offering, and the
presently-anticipated uses may be materially changed, in management's
15
<PAGE> 20
discretion. For example, management could elect to utilize proceeds to pursue a
significant acquisition opportunity, should one arise, or could shift
expenditures among the marketing, technical operations, and purchase or lease of
capital equipment or software categories to respond to market needs and
opportunities or other needs of the Company which arise in the future. See "USE
OF PROCEEDS."
Settled NASD Investigation of Underwriter. On July 16, 1996, the National
Association of Securities Dealers, Inc. issued a Notice of Acceptance, Waiver
and Consent (the "AWC") whereby the Underwriter was censured and ordered to pay
fines and restitution to retail customers in the amount of $250,000 and
approximately $1.025 million, respectively. The AWC was issued in connection
with claims by the NASD that the Underwriter charged excessive markups and
markdowns in connection with the trading of four securities originally
underwritten by the Underwriter. The activities in question occurred between
December 1990 and October 1993. The Underwriter has informed the Company that
the fines and refunds will not have a material adverse effect on the
Underwriter's operations and that the Underwriter has effected remedial measures
to help ensure that the subject conduct does not recur.
USE OF PROCEEDS
Based upon an assumed public offering price of $6.00 per share, the net
proceeds to be received by the Company from the sale of the Common Stock offered
hereby, after deducting underwriting commissions and other estimated expenses of
the Offering are estimated to be approximately $3,668,000 ($4,295,000, if the
Underwriters' overallotment option is exercised in full). The Company intends to
use the net proceeds of the Offering approximately as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Selling and Marketing.................................. $ 871,000 24%
Technical Operations................................... 672,000 18
Purchase or Lease of Equipment......................... 67,000 2
Repayment of Indebtedness.............................. 1,463,000 40
Working Capital........................................ 595,000 16
---------- ---
Totals....................................... $3,668,000 100%
========== ===
</TABLE>
In general, the Company plans to hire additional personnel in sales and in
technical operations in order to implement the Company's plan of expanding its
core EDI business. The salaries, benefits and other expenses associated with the
Company's present employees and those additional employees are expected to cause
the Company to operate at a deficit on a monthly basis for approximately 13
months after the consummation of this Offering. The Company believes that its
current and anticipated future revenue should be sufficient to pay its expected
general and administrative expenses and a portion of its other expenses. The
Company has attributed its expected operating deficits to its activities in
sales and marketing and in technical operations; and a material amount of the
net proceeds of this Offering will be used to fund such deficits, as described
below.
SELLING AND MARKETING
The Company intends to use approximately $871,000 of the net proceeds of
the Offering to fund selling and marketing activities. Approximately $519,000 of
that total will be used to fund the salaries and benefits of the Company's
marketing personnel including two additional salespeople intended to be hired;
and the Company also intends to develop and implement an advertising program and
to attend trade shows and conventions. The Company expects to use approximately
$352,000 of the net proceeds for those costs. See "BUSINESS -- Selling and
Marketing."
TECHNICAL OPERATIONS
The Company intends to use approximately $672,000 of the net proceeds from
the Offering for the salaries and benefits for personnel involved in technical
operations, customer service, and research and development activities. The
Company intends to hire up to two new technical staff to develop and enhance the
16
<PAGE> 21
Company's software. A portion of the net proceeds attributed to technical
operations will also support the cost of the Company's existing technical staff.
Included in that staff are Steve Vanechanos, Sr., Steven L. Vanechanos, Jr., and
Kenneth Konikowski. The aggregate compensation payable to those three
individuals for the two fiscal years ended September 30, 1999 is expected to be
approximately $580,000. The Company has budgeted $475,000 to complete five
present product development initiatives. See "BUSINESS -- Product Development."
PURCHASE OR LEASE OF CAPITAL EQUIPMENT AND SOFTWARE
The Company intends to use approximately $67,000 of the net proceeds of the
Offering to purchase or lease additional equipment and software, including mini
computers and computer servers for internal and external use ($40,000), software
licenses ($27,000), and facilities management equipment.
REPAYMENT OF INDEBTEDNESS
The Company intends to use approximately $600,000 plus accrued interest of
approximately $36,000 of the proceeds from the Offering to repay the promissory
notes issued in the April 1997 Financing, and up to $500,000 plus accrued
interest of approximately $17,000 of the proceeds to repay the promissory notes
issued in the August 1997 Financing. See "INTERIM FINANCINGS." Further, the
Company intends to use approximately $207,000 to repay short-term loans made by
the officers of the Company and approximately $6,000 of accrued interest, see
"CERTAIN TRANSACTIONS -- Officer Loans," and approximately $97,000 to repay
amounts borrowed under its bank lines of credit.
The April 1997 Financing matures and is required to be repaid upon the
later of the consummation of this Offering or March 31, 1999. The effective
interest rate applicable to the April 1997 Financing is 191 percent. The net
proceeds of the April 1997 Financing were $492,000, and were used in the manner
described below under "INTERIM FINANCINGS." The August 1997 Financing matures
and is required to be repaid upon the later of the consummation of this Offering
or September 30, 1999. The effective interest rate applicable to the August 1997
Financing is 525 percent. The net proceeds of the August 1997 Financing were
$427,500, and were used in the manner described below under "INTERIM
FINANCINGS."
The officers' loans are payable on demand. The interest rate on all the
officers' loans is 8% per annum. The proceeds of the officers' loans were used
as follows: Approximately $195,000 was use to pay accounts payable and employee
salaries, approximately $7,000 was used for trade show expenses, and
approximately $5,000 was used to purchase equipment and furniture.
The bank lines of credit are also payable on demand. The interest rates on
the lines of credit are 10.5% per annum and 13.25% per annum. The proceeds of
the advances under the lines of credit were used to pay payroll expenses. See
"INTERIM FINANCINGS."
WORKING CAPITAL
The Company intends to use $595,000 of the net proceeds for working capital
and general corporate purposes. One possible use of the proceeds allocated to
working capital is payment of compensation to James Conners, the President of
the Company. Mr. Conners' aggregate compensation for the two fiscal years end
September 30, 1999 is expected to be approximately $320,000.
It should be noted that the Company's planned uses of proceeds for Selling
and Marketing, Technical Operations, and Working Capital expenditures set forth
above are based upon its present estimates of the staffing necessary to execute
its business plan, plus its estimates of revenues and other expenses in the two-
year period subsequent to the Offering. Accordingly, if actual operations differ
from the Company's present estimates, the Company may need to reallocate its use
of the proceeds among those categories of expenditures. It is also possible that
a portion of the net proceeds may also be used, in part, to fund strategic joint
ventures or acquisitions. The Company presently has no commitments with respect
to any joint venture or acquisition.
Based on the Company's operating plan, management believes that the
proceeds from this Offering and anticipated cash flow from operations will
provide the Company with sufficient funds to operate its business for
17
<PAGE> 22
approximately 13 months. The Company will need to raise substantial additional
capital in order to complete its present business plan. In the event the Company
is unable to obtain additional funding in a timely manner, it will be unable to
complete its present business plan, it may need to significantly scale down its
operations, or it may be required to cease its business operations. There can be
no assurance that the Company will be able to obtain the additional capital
required in a timely manner or that it will be able to complete its business
plan. See "RISK FACTORS -- Future Capital Needs; Uncertainty of Additional
Financing."
Proceeds not immediately required for the purposes described above will be
invested principally in U.S. government securities, short-term certificates of
deposit, money market funds, collateralized investment agreements with
commercial banks or investment banks, or other high-grade, short-term,
interest-bearing investments.
18
<PAGE> 23
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of the date of this Prospectus, a portion of the Company's Common Stock
which is not restricted is traded on the National Association of Securities
Dealers ("NASD") Over the Counter ("OTC") Bulletin Board Service under the
symbol "DWEB."
The range of high and low bid quotations for the Company's Common Stock for
the two most recently completed fiscal years and the current fiscal year to date
were obtained from the NASD and are provided below. The volume of trading in the
Company's Common Stock has been limited during the entire period presented, and
the bid prices reported may not be indicative of the value of the Common Stock
or the existence of an active trading market. These over-the-counter market
quotations reflect interdealer prices without retail markup, markdown or
commissions and do not necessarily represent actual transactions. All prices in
the table below are adjusted on a pro forma basis (rounded to the nearest 1/8)
to take into account the 0.2608491-for-one Reverse Stock Split whereby each
share of Common Stock became 0.2608491 of a share on January 9, 1998. See
"RECENT DEVELOPMENTS -- Reverse Stock Split." The prices in the table below are
not adjusted to reflect the Contribution of Stock. See "RECENT DEVELOPMENTS --
Contribution of Stock By Certain Shareholders." If the prices were adjusted to
reflect the reduction in the number of outstanding shares by 32% in the
Contribution of Stock, the prices set forth below would increase by
approximately 46%.
<TABLE>
<CAPTION>
BID(1)(3)
----------------
QUARTER ENDED HIGH LOW
---------------------------------------------------------------- ---
<S> <C> <C>
December 31, 1995............................................ 11 1/2 4
March 31, 1996(2)............................................ 19 1/8 4
June 30, 1996................................................ 17 1/4 16 3/4
September 30, 1996........................................... 15 7/8 14 7/8
December 31, 1996............................................ 14 3/8 11 1/2
March 31, 1997............................................... 13 12
June 30, 1997................................................ 12 1/2 4 1/8
September 30, 1997........................................... 6 3/4 3 7/8
December 31, 1998............................................ 5 1/8 3 6/8
</TABLE>
- ---------------
(1) All prices in the table have been adjusted on a pro forma basis to reflect
the Reverse Stock Split. The above prices do not represent actual bid prices
during the periods indicated.
(2) On March 5, 1996, the Company effectuated a one-for-100 reverse stock split
whereby each 100 shares of Common Stock were combined into one share of
Common Stock. The information for the periods preceding March 31, 1996, was
retroactively adjusted to reflect that combination of shares.
(3) The last bid price of the Common Stock on January 14, 1998, was $6. January
14, 1998 was after both the date of the Contribution of Stock and the
effective date of the Reverse Stock Split. Accordingly, it appears that the
trading market reflected the effects of both the Contribution of Stock and
the Reverse Stock Split by adjusting the bid price upwards on a
proportionate basis.
As of January 1, 1998, and after giving effect to the Contribution of Stock
by certain of the Company's existing shareholders, there were 1,420,113 shares
of the Company's Common Stock outstanding, held by approximately 3,255 holders
of record. "RECENT DEVELOPMENTS -- Contribution of Stock By Certain
Shareholders."
The Company did not declare or pay cash dividends on the Common Stock
during 1995 or 1996. The Company currently intends to retain any earnings for
use in the business and does not anticipate paying any cash dividends in the
foreseeable future.
19
<PAGE> 24
CAPITALIZATION
The table below sets forth the capitalization of the Company as of
September 30, 1997: (i) on an actual basis, (ii) on a pro forma basis to reflect
the contribution of 654,597 shares of Common Stock to the Company by certain
shareholders in exchange for 125,000 warrants to purchase the Company's Common
Stock, and (iii) pro forma as adjusted to reflect the sale and issuance of the
Common Stock offered hereby at the offering price of $6.00 per share and the
receipt of the estimated net proceeds of this Offering as set forth in "USE OF
PROCEEDS." The information set forth below should be read in conjunction with
the Company's financial statements and notes thereto.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long-term debt.................................... $ 185,811 $ 185,811 $ 185,811
----------- ----------- -----------
Stockholders' equity (capital deficiency):
Preferred stock, assignable par value, 5,000,000
shares authorized; no shares issued and
outstanding
Common Stock, $.0001 par value, 50,000,000
shares authorized; 2,141,370 issued and
outstanding(1)(3); as adjusted 2,941,370
issued and outstanding(1)(3)................. 214 214 294
Additional paid in capital...................... 3,530,324 7,137,153 10,805,233
Unearned portion of compensatory stock
options...................................... (204,000) (204,000) (204,000)
Accumulated deficit............................. (3,577,989) (3,577,989) (3,888,349)
----------- ----------- -----------
Total........................................... (251,451) 3,355,378 6,713,178
Treasury stock, at cost -- 66,660 shares;
721,257 shares pro forma and pro forma as
adjusted(2).................................. (400,000) (4,006,829) (4,006,829)
----------- ----------- -----------
Total stockholders' equity (capital
deficiency)........................... (651,451) (651,451) 2,706,349
----------- ----------- -----------
Total capitalization.............................. $ (465,640) $ (465,640) $ 2,892,160
=========== =========== ===========
</TABLE>
- ---------------
(1) Gives effect to the .2608491-for-one Reverse Stock Split which took effect
on January 9, 1998. See Note G[5] to the Company's financial statements, and
"RECENT DEVELOPMENTS." Includes shares held as treasury stock.
(2) Gives pro forma effect to the Contribution of Stock which occurred on
December 23, 1997. See Note G[6] to the Company's financial statements and
"RECENT DEVELOPMENTS -- Contribution of Stock By Certain Shareholders."
(3) Excludes (a) up to 178,420 shares of Common Stock which may be issuable to a
certain shareholder as a result of the acquisition by the Company of
Software Associates, Inc. (See "CERTAIN TRANSACTIONS"); (b) up to 80,000
shares of Common Stock which are issuable upon the exercise of warrants
granted to the Representative in connection with this Offering (See
"UNDERWRITING"); (c) up to 120,000 shares of Common Stock issuable in this
Offering to cover over-allotments, if any (See "UNDERWRITING"); (d) up to
234,764 shares issuable to employees under the Company's 1997 Employee Stock
Option Plan (See "MANAGEMENT -- Stock Option Plans"); or (e) up to 78,254
shares issuable to non-employee directors under the Company's 1997 Stock
Option Plan for Outside Directors (See "MANAGEMENT -- Stock Option Plans")
and (f) up to 125,000 shares of Common Stock issuable to certain of the
Company's existing shareholders upon the exercise of common stock purchase
warrants granted in exchange for the contribution to the Company's capital
of an aggregate of 654,597 shares of Common Stock. See "RECENT
DEVELOPMENTS -- Contribution of Stock By Certain Shareholders."
20
<PAGE> 25
DILUTION
At September 30, 1997, the negative net tangible book value of the Company
was $(936,134) or $(.45) per share. The pro forma negative net tangible book
value of the Company was $(.66) per share after giving effect to the
contribution of 654,597 shares of Common Stock by certain existing shareholders
in exchange for 125,000 warrants. Net tangible book value per share represents
the Company's total tangible assets less total liabilities divided by the total
number of shares of Common Stock outstanding. Net tangible book value dilution
per share represents the difference between the amount per share paid by the
purchasers of Common Stock in this Offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of this Offering.
After giving effect to the sale by the Company of the 800,000 shares of Common
Stock offered hereby, at the assumed public offering price of $6.00 per share,
and receipt by the Company of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company at September 30, 1997, would have
been approximately $2,601,208, or $1.17 per share. This represents an immediate
increase in net tangible book value of $1.62 per share to existing holders of
Common Stock and an immediate dilution of $4.83 per share to purchasers of
shares of Common Stock in this Offering, as illustrated by the following:
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1).......................... $6.00
Negative net tangible book value per share at September 30, 1997.... $ (.45)
Increase in pro forma negative net tangible book value attributable
to the reduction of shares caused by certain shareholders
contribution of shares............................................ $ (.21)
------
Pro forma negative net tangible book value.......................... (.66)
Increase per share attributable to this Offering.................... $ 1.62
------
Pro forma net tangible book value per share after this Offering..... $1.17
-----
Dilution per share to new investors(2).............................. $4.83
=====
</TABLE>
- ---------------
(1) Before deducting the estimated underwriting discounts, commissions and
expenses of this Offering.
(2) Excludes (a) up to 178,420 shares of Common Stock which may be issuable to a
certain shareholder as a result of the acquisition by the Company of
Software Associates, Inc. (See "CERTAIN TRANSACTIONS"); (b) up to 80,000
shares of Common Stock which are issuable upon the exercise of warrants
granted to the Representative in connection with this Offering (See
"UNDERWRITING"); (c) up to 120,000 shares of Common Stock issuable in this
Offering to cover over-allotments, if any (See "UNDERWRITING"); (d) up to
234,764 shares issuable to employees under the Company's 1997 Employee Stock
Option Plan (See "MANAGEMENT -- Stock Option Plans"); (e) up to 78,254
shares issuable to non-employee directors under the Company's 1997 Stock
Option Plan for Outside Directors (See "MANAGEMENT -- Stock Option Plans")
or (f) up to 125,000 shares of Common Stock issuable to certain of the
Company's existing shareholders upon the exercise of common stock purchase
warrants granted in exchange for the contribution to the Company's capital
of an aggregate of 654,597 shares of Common Stock. See "RECENT
DEVELOPMENTS -- Contribution of Stock By Certain Shareholders."
The above discussions and table assume no exercise of the over-allotment
option, the exercise of which in full would reduce the dilution to investors in
this Offering to $4.62 per share as the pro forma net tangible book value per
share after this Offering would increase from $1.17 to $1.38.
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, the Financial Statements and the Notes
thereto and the Selected Financial Data included in this Prospectus, and the
description of the Company's business located elsewhere in this Prospectus. This
discussion contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. 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 "RISK FACTORS" as well as those discussed elsewhere in this
Prospectus. Historical operating results and percentage relationships among any
amounts included in the Financial Statements are not necessarily indicative of
trends in operating results.
The following discussion relates to the combined operations of DWTS and
Megascore for all periods presented, plus Software Associates, Inc. which was
acquired by the Company on November 30, 1996 from December 1, 1996. See
"BUSINESS -- Background of the Company."
SUMMARY
The following table summarizes the Results of Operations of the Company
that are discussed below:
RESULT OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 % 1996 %
----------------- ------ ----------------- ------
<S> <C> <C> <C> <C>
Net Sales:
Systems.............................................. $ 116,106 18.2% $ 147,337 32.0%
Services............................................. 521,071 81.8 312,730 68.0
--------- ------ --------- ------
Total................................................ 637,177 100.0 460,067 100.0
========= ====== ========= ======
Cost of Sales:
Systems.............................................. 40,323 6.3 71,205 15.5
Services............................................. 213,180 33.5 81,194 17.6
--------- ------ --------- ------
Total................................................ 253,503 39.8 152,399 33.1
--------- ------ --------- ------
Expenses:
Selling, general and administrative.................... 1,854,686 291.1 719,443 156.3
Research and development............................... 234,808 36.8 28,990 6.3
--------- ------ --------- ------
Total................................................ 2,089,494 327.9 748,433 162.6
--------- ------ --------- ------
Purchased research and development..................... 713,710 112.0 --
Interest expense....................................... 770,041 120.8 23,271 5.1
Interest income........................................ (5,068) (0.8) (8,806) (1.9)
--------- ------ --------- ------
Total expenses....................................... 3,821,680 599.8 915,297 198.9
--------- ------ --------- ------
Loss before income taxes............................... $(3,184,503) (499.8)% $(455,230) (98.9)%
========= ====== ========= ======
</TABLE>
- ---------------
* Expense percentages are based upon a percentage of Total Net Sales.
THE YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996
Net sales increased by $177,110, or 38%, from $460,067 for the fiscal year
ended September 30, 1996 ("fiscal 1996"), to $637,177 for the fiscal year ended
September 30, 1997 ("fiscal 1997"). The increase in net sales was attributable
primarily to sales of EDI outsourcing services offered through Software
Associates, which was acquired by the Company on November 30, 1996, as well as
to increased sales of the Company's
22
<PAGE> 27
EDI/Internet products and royalty payments the Company received for licensing a
propriety list of internet domain names. Software Associates' EDI outsourcing
revenues totaled $179,650. Net sales from the Company's EDI/Internet products
increased by $52,696 or 85% from $61,832 in fiscal 1996 to $114,528 in fiscal
1997. The Company's royalty revenue was $33,828 in fiscal 1997 compared to
$13,963 in fiscal 1996.
Overall system sales declined $31,231, or 21%, from $147,337 in fiscal 1996
to $116,106 in fiscal year 1997. The decline was attributable to ongoing efforts
to migrate away from some of the Company's historical system integration and
software consulting activities and to focus on the Company's electronic commerce
services. Computer hardware and computer software sales associated with the
Company's system integration business declined by $47,943, or 53%. This decline
was offset by an increase of $21,712 in system sales associated with the
Company's EDI products.
Service sales increased $208,341 or 67%, from $312,730 in fiscal 1996 to
$521,071 in fiscal 1997. The increase was due largely to new revenues of
approximately $115,000 derived from transaction processing through the Company's
new EDI Service Bureau, additional revenues of $71,775 from EDIxchange and
ECbridgeNet, and $19,865 in increased royalty payments for licensing of the
Company's internet domain list.
Cost of system sales was $40,323 for fiscal 1997 for a gross profit
percentage of approximately 65%. This compares to cost of system sales of
$71,205 for a gross profit percentage of 51% for fiscal 1996. The increase in
gross profit percentage on system sales is attributable to sales of higher
margin customized EDI software as part of EDIxchange and ECbridgeNet.
Cost of services was $213,180 for fiscal 1997, for gross profit percentage
of approximately 59%. This compares to cost of services of approximately
$81,194, for a gross profit percentage of approximately 74% fiscal 1996. The
decrease in profit margins on service sales is attributable to increased costs
associated with the hiring of additional employees to increase the Company's
EDI/Internet capabilities, in anticipation of the growth in demand for the
Company's EDI/Internet services. These additional employees are two programmers
acquired through the purchase of Software Associates, and an additional
programmer and an operator for its EDI/Internet services hired in fiscal 1997.
Selling, general, and administrative expenses increased by $1,135,243, from
$719,443 for fiscal 1996 to $1,854,686 for fiscal 1997, an increase of
approximately 158%; $518,604 of the increase, or 46% is attributable to the
higher marketing expenses, salaries and office expenses associated with the
Company's increased effort to market its EDI/Internet services; $290,000, or 25%
of the increase is attributable to a charge for compensation expense in
connection with granting options to employees under the 1997 Employee Plan in
which the fair value of the stock exceeded the exercise price; $155,481, or 14%
of the increase is attributable to the overhead expenses associated with
maintaining eight new employees, $127,206, or 11% of the increase is
attributable to legal, accounting and consulting fees, and $43,952, or 4%, is
attributable to write off of non-performing receivables. The $518,604 increase
in marketing expenses is composed of the expansion of the Company's marketing
and sales staff by three employees, development of a marketing program with
assistance from outside consultants, attendance at nine trade shows, and
implementation of an outreach program consisting of public relations and
services directed at the electronic commerce community. Management expects the
outreach program to provide the Company with access and introductions to talent
and expertise within the electronic commerce community, with a goal of assisting
the Company in its marketing, recruiting, and operations. There is no assurance
that the outreach program will be successful.
Research and development expense increased $205,818 or 710% for fiscal
1997, from $28,990 in fiscal 1996 to $234,808 in fiscal 1997. The increase is
attributable to expanded development of existing services and increased expenses
in the ongoing development of the Company's product development initiatives. See
"BUSINESS -- Product Development." The Company restructured its research and
development staff and hired three full time programmers in fiscal 1997 for its
software development program.
Purchased research and development for fiscal 1997 of $713,710 resulted
from the allocation of a portion of the purchase price for Software Associates.
Interest expense increased from $23,271 for fiscal 1996 to $770,041 for
fiscal 1997. The increase is primarily attributable to the amortization of debt
discount and deferred financing fees of $720,000 and interest
23
<PAGE> 28
expense of $23,726. Both are related to the April and August 1997 financings.
The Company expects interest expense to decrease materially, to approximately
$351,000 for the fiscal year ended September 30, 1998, due to the anticipated
repayment of the Company's short-term indebtedness from a portion of the
proceeds of this Offering.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash of $188,270, total current
assets of $309,433 and a working capital deficit of $1,043,923.
The Company had a net loss of $3,162,803 and negative operating cash flow
of $(1,083,279) for the year ended September 30, 1997. The Company funded that
negative cash flow exclusively through its financing activities. Those consisted
of a $250,000 private placement of common stock that closed in November, 1996,
the April 1997 Financing of $600,000, the August 1997 Financing of $500,000,
loans from officers of $117,000, and loans under the Company's two lines of
credit of $14,049. The terms of the April 1997 Financing, the August 1997
Financing, and the lines of credit are discussed below under "INTERIM
FINANCINGS." Although the Company owes $1.1 million in principal under the
promissory notes issued in the April 1997 and August 1997 Financings, for
financial accounting purposes only $250,000 was allocated to the principal
amount of those notes which are reported on the Company's balance sheet at
amortized amount of $840,873. The difference is treated as debt discount and is
being amortized over the life of the indebtedness. See "INTERIM FINANCINGS." The
terms of the officers' loans are discussed below under "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
The net proceeds to the Company from the April 1997 Financing totaled
approximately $492,000. Those net proceeds were used to fund Company operations
from April 1997 through August 1997. $50,000 was used to repay officer loans,
$60,000 was used to pay legal and accounting expenses associated with the
Company's filing of its periodic reports under the Securities and Exchange Act
of 1934 and the holding of its 1997 Annual Meeting of Stockholders, and the
balance, approximately $382,000, was used to fund operating deficits incurred by
the Company during that period. Of those operating deficits, the Company
believes that approximately $150,000 is allocable to the support of the
marketing activities of the Company, approximately $100,000 is allocable to the
compensation of personnel in operations and other costs of services, and the
balance of $132,000 is allocable to the support of the general and
administrative activities of the Company.
The net proceeds to the Company from the August Financing were
approximately $427,500, which were used for Company operations, including sales
and marketing expense, product development, operations, and working capital.
For financial accounting purposes, the Company has allocated the amounts
raised in each private placement between the Promissory Notes and the shares of
Common Stock included in the units, based upon the fair value of the Common
Stock at the time of issuance of the respective units. In the case of the April
1997 Financing, the Company allocated $450,000 to the shares and the remaining
$150,000 to the notes. In the case of the August 1997 Financing, the Company
allocated $400,000 to the shares and the remaining $100,000 to the notes. The
difference between the face amount of the notes and the aforesaid amounts
allocated to them represents debt discount. Thus, the debt discount for the
April notes is $450,000 and the debt discount for the August notes is $400,000.
The capital resources presently available to the Company are composed of
approximately $18,000 of cash. Those resources are not adequate to finance the
Company's activities beyond January 31, 1998. The Company needs capital to fund
its operations, as fully set forth under "USE OF PROCEEDS." The Company is
presently experiencing operating cash flow deficiencies of approximately
$160,000 per month. It expects that its operating cash flow deficiency for the
1998 fiscal year will be materially greater than in the 1997 fiscal year, as it
hires additional personnel and makes the other expenditures in connection with
its business plan which precede the realization of revenue. As discussed under
that caption, the Company believes that the net proceeds of this Offering should
be sufficient to support the anticipated funding needs of the Company for
approximately 13 months. The Company will need to raise substantial additional
capital in order to complete its business plan. In the event the Company is
unable to obtain additional funding in a timely manner, it will be unable to
complete its business plan, it may need to significantly scale down its
operations or it may be
24
<PAGE> 29
required to cease its business operations. There can be no assurance that the
Company will be able to obtain the additional capital required in a timely
manner or that it will be able to complete its business plan.
IMPACT OF INFLATION
Although no assurance can be given, increases in the inflation rate are not
expected to materially adversely affect the Company's business.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standings No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
issued by the Financial Accounting Standards Board ("FASB"), is effective for
financial statements for fiscal years beginning after December 15, 1995. The new
standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets and goodwill, should be recognized and how impairment losses
should be measured. The adoption of this standard did not have a material effect
on the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair-value-based
method beginning in the year ending September 30, 1997. The impact of these pro
forma adjustments for the fiscal year ended September 30, 1997 was to increase
the Company's net loss by approximately $287,000. See Note H to the Company's
financial statements for the fiscal year ended September 30, 1997.
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997. It will replace primary earnings per share with "basic"
earnings per share, and contains definitions of "basic" and diluted earnings per
share. SFAS No. 128 will apply to the Company's financial statements beginning
with the first fiscal quarter ending December 31, 1997. The Company does not
expect the adoption of this standard to have a material effect on its
calculation of earnings per share.
25
<PAGE> 30
BUSINESS
BACKGROUND OF THE COMPANY
The Company is a New Jersey corporation. It currently operates through
three separate wholly-owned subsidiaries: DynamicWeb Transaction Systems, Inc.,
a Delaware corporation ("DWTS"), Software Associates, Inc., a New Jersey
corporation ("Software Associates"), and Megascore, Inc., a Delaware corporation
("Megascore"). Present management joined the Company on March 26, 1996, when the
Company acquired all of the outstanding stock of DWTS and began, through DWTS,
to engage in the computer and electronic commerce business.
The Company was incorporated in 1979 under the name Seahawk Oil
International, Inc. Based upon Company records available to present management
of the Company, it appears that the Company initially engaged, or attempted to
engage, in the oil exploration business. In November, 1989 the Company changed
its name to Seahawk Capital Corporation. According to the Company's public
filings with the Commission, during the period from approximately 1992 through
1994, the Company engaged in two activities: First, the Company, through a
subsidiary named Eurohawk Corporation, owned an interest in a business that was
primarily engaged in production and marketing of frozen potato products through
a processing facility located in Scotland. Second, the Company owned
approximately 73% of the stock of Seahawk Overseas Exploration Corporation. The
Company disposed of its stock in Seahawk Overseas Exploration Corporation on
December 31, 1994, and disposed of its stock in Eurohawk Corporation in February
of 1996. Upon the disposition of the Eurohawk Corporation stock in February of
1996, the Company had no business operations. Then, on March 26, 1996, the
Company acquired DWTS.
Because in March of 1996 the Company had no operations but was a
publicly-traded reporting company, Messrs. Vanechanos, who then controlled DWTS,
concluded it would be advantageous for DWTS to be acquired by the Company.
Although structured legally as an acquisition of DWTS by the Company, after the
acquisition the former DWTS shareholders owned approximately 80% of the
Company's Common Stock, the management of DWTS assumed exclusive control of the
Company's Board of Directors and executive offices, and the sole business of the
Company became that of DWTS.
Later in 1996, the new management of the Company decided it would be
advantageous to combine with Megascore. Megascore had an established business in
the accounting software field. Megascore, like DWTS, had been founded by Steve
Vanechanos, Sr. and Steven L. Vanechanos, Jr. and was controlled by them. It was
believed that the Megascore business would provide a foundation on which to
attempt to build the EC software business that now is the Company's primary
emphasis. Accordingly, in November 1996 the Company acquired all of the
outstanding stock of Megascore in exchange for the issuance of additional shares
of the Company's Common Stock to Megascore's shareholders.
At that same time, the Company became acquainted with the owner of Software
Associates, Kenneth Konikowski. Software Associates was actively conducting an
electronic commerce service bureau. Management believed that the business of
Software Associates would be a natural complement to the software
product -- NetCat -- that had been developed by DWTS. Accordingly, in November
1996 the Company acquired all of the outstanding stock of Software Associates in
exchange for the issuance of additional shares of the Company's Common Stock to
Kenneth Konikowski. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Acquisition of Software Associates and Megascore" for additional
information regarding the terms of those acquisitions.
The description of the Company's business contained in this Prospectus
relates exclusively to the electronic commerce software and service business
conducted through DWTS, Software Associates, and Megascore. Further, the
financial information contained elsewhere in this Prospectus represents the
combined operations of DWTS and Megascore for all periods presented and those of
Software Associates (which was acquired by the Company on November 30, 1996)
from December 1, 1996. The basis for such presentation is discussed in Note A to
the Company's financial statements.
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<PAGE> 31
INTRODUCTION
The Company is engaged in the business of developing, marketing and
supporting year 2000-compliant software products and services that enable
businesses to engage in electronic commerce utilizing the Internet and
traditional Electronic Data Interchange ("EDI") technologies.
Electronic commerce ("EC") involves the automation of business transactions
using telecommunications and computers to exchange and process commercial
information and transactional documents. According to the Aberdeen Group, an
information technology research and consulting organization, as broadly defined,
electronic commerce is considered to represent a growing, potentially
multi-billion dollar market. EDI, a form of EC, is the
application-to-application transmission of business documents such as purchase
orders and invoices using industry-standard formats. Businesses utilizing
electronic commerce have found EDI to be a vital component of their enterprises.
EDI differs from more elementary forms of communication because it provides for
truly integrated information flow. For example, manufacturers of goods can
create electronic catalogues of their products and prices such that their
customers will have the ability to electronically enter purchase orders and
complete the purchase, payment and other documentation of a purchase
transaction. The Internet is a worldwide communications system that allows users
to transmit and receive messages and information over telephone and other
communications lines using terminals and computers.
Electronic commerce has traditionally involved the use of a third-party or
private value-added computer network ("VAN") to perform EDI, e-mail, and
electronic funds transfers and to provide services related to electronic forms,
bulletin board and electronic catalogues. Users of private or third-party VANs
may also have access through the VAN to directories or on-line information
services. A VAN is, in effect, an electronic post office which electronically
receives and delivers mail, in this case commercial documents, to the intended
recipient. The major operators of VANs include Harbinger Corporation, GEIS,
Sterling Commerce, IBM/Advantis, MCI, AT&T and Kleinschmidt. The Company's
products and services work with all major VAN providers.
EDI can create commercial advantages for its users, including one-time data
entry, reduced clerical workload and the elimination of paper records. EDI also
allows for the rapid, accurate and secure exchange of business data, and reduced
operating and inventory carrying costs. EDI facilitates uniform communications
with different trading partners, including customers, suppliers, common
carriers, and banks or other financial institutions.
The Company's present business strategy is to focus upon the following
types of markets and customers:
- EDI-enabled suppliers of goods, such as manufacturers, that want to
engage in electronic commerce with customers which are not EDI-enabled.
- EDI-enabled purchasers, such as retailers or distributors of goods, that
want to engage in electronic commerce with suppliers which are not
EDI-enabled.
- Any businesses that want to engage outside service providers to manage
or to assist in the management of their EDI function ("EDI
outsourcing").
- Businesses or groups of businesses that want to create "electronic
storefronts" for goods and services on the "World Wide Web." The World
Wide Web or "Web" is a series of computers called servers, which allow
individuals, groups and businesses to publish and exchange information
over the Internet to the general public.
The Company has four principal software and service packages for the
markets and customers described above:
ECBRIDGENET SERVICE(SM) -- ECbridgeNET is the Company's electronic commerce
service bureau. ECbridgeNET is a service provided by the Company that
allows for the transfer of information between trading partners. The
service includes EDI mapping and the translation and routing of business
documents between third party EDI (VAN) networks, the Internet and the
private computer networks maintained by the parties to the business
transaction. Generally referred to as "EDI outsourcing," this service
offers businesses cost-effective alternatives to investing in an in-house
EDI System.
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<PAGE> 32
EDIXCHANGE PROGRAM(SM) -- The Company's EDIxchange Program is a combination
of ECbridgeNET service and NetCat(TM) software. NetCat is the Company's
software program which allows a seller of goods to create an electronic
catalogue on the World Wide Web to offer and sell products electronically.
NetCat allows a customer to browse through the catalogue, to place an
order, and to be billed for, or to pay for, the order. The EDIxchange
Program provides a seamless and cost effective way for EDI-enabled
suppliers or retailers to conduct electronic commerce with their non-EDI
trading partners. EDIxchange bridges the Internet with traditional EDI
networks such as VANs by using the Company's service bureau, ECbridgeNET.
This product allows businesses which do not have in-house EDI capability to
communicate electronically with EDI-enabled business partners, using only
Internet access and a standard Web browser. A Web browser, such as Netscape
or Internet Explorer, allows Internet users to access various Web Sites on
the Internet.
SHIPTRAC(TM) -- ShipTrac is the Company's Windows-based software
application designed for manufacturers and suppliers of goods. It
electronically creates a shipping manifest or list of products that are
being shipped to a particular customer or distribution center. The ShipTrac
software receives an electronic purchase order into a database, and the
shipper then can print bar-coded shipping compliance labels. ShipTrac
generates EDI standard advanced shipping notice documents (the manifest)
which are sent electronically to a supplier's customers. When the goods are
received, the bar codes on the products can be verified against the
advanced shipping notice which has been electronically forwarded by
ShipTrac.
ECINTEGRATOR(TM) -- The Company has developed application interface modules
for two third party mid-range accounting software systems, RealWorld and
Synchronics. Designed for businesses using those systems, EC Integrator
allows a business to import and export business documents electronically
from those software applications. Generally, the Company sells this product
through distributors of Real World and Synchronics software.
All of the foregoing products and services currently have somewhat limited
applications and are continuing to be developed by the Company, although there
can be no assurance that such development will be successful. See "Product
Development."
OVERVIEW OF ELECTRONIC COMMERCE AND ELECTRONIC DATA INTERCHANGE
Trading Communities. Groups of companies that regularly trade with each
other generate significant repetitive business transactions. These existing
trading communities are natural prospects for implementation of EDI. Certain
trading communities are defined by trading standards, protocols, rules or
procedures adopted through trade organizations. The adoption of EDI as an
accepted means of transmitting business documents and data is occurring, in
part, because many trade organizations or groups and many large companies within
a trading community increasingly recommend or require their member organizations
or trading partners to adopt and use EDI as the primary method of transmitting
business documents. Large companies within a trading community often are
described as "hubs" and their trading partners as "spokes." A hub company and
its trading partners communicate through electronic networks, generally either
third party networks or a private network owned and operated by the hub company.
Hub companies decide to implement EDI generally for one or more of the following
reasons:
- To enable a reduction in inventories by reducing the time required to
notify vendors and replenish stocks.
- To reduce the administrative handling costs of documents that they send
or receive from their suppliers or customers by requiring that
information be manually entered only once.
- To improve customer support and service levels by reducing data entry
errors by requiring that information be manually entered only once.
For the above stated reasons, a hub company often adopts as a stated
business objective that all of its trading partners use EDI as the principal
means of transferring business documents. Spoke companies, in turn, often expand
the electronic commerce community by acting as hub companies with their trading
partners, requesting or requiring that they transmit business documents using
EDI.
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<PAGE> 33
Typical EDI Transactions. In a typical EDI transaction, a trading partner
(the "sending partner") first creates with its computer, either manually or
electronically, the business data used for the completion of a particular set of
documents, described by EDI standards as a "transaction set." Transaction sets
include requests for quotes, quotes, purchase orders, invoices, shipping
notices, and other related documents and messages. Second, a translation
software program on the sending partner's computer converts the document or
transaction set into a standard EDI format. Third, this information is
electronically transmitted through telecommunications links from the sending
partner's computer to either the receiving partner's computer or to a central
computer system (similar to a mailbox at a post office) that serves as a
value-added network shared by many trading partners.
Value Added Networks. VANs receive documents for subsequent delivery to the
intended trading partner (the "receiving partner"), connect many types of
computer hardware and communications devices, convert multiple transaction sets
from one industry standard to another, and maintain security by reducing the
possibility of one trading partner accessing another's computer. EDI partners
use VAN services because it eases the burden of having to install and maintain
communication configurations for each trading partner. The connection to a VAN
is a single connection no matter how many trading partners the recipient has.
The VAN "normalizes" the issues of protocols, time zones, hardware and software
differences in that all participants in the EDI transaction do not need the same
software applications or hardware.
EDI Industry Standards. EDI has been further promoted through the adoption
of EDI standards within various industries and trading communities. These
standards define the content and format of business documents, such as the data
required to be included in purchase orders, invoices, shipping notices, and
other business documents. Before these standards were adopted, electronic
document transmission was based on various proprietary formats agreed to by
trading partners. However, incompatible computer systems and differing
proprietary formats limited widespread adoption of EDI.
Existing VAN Services. The Company does not operate a VAN and does not
intend to operate a VAN. The Company's products and services are designed both
to interface with existing VAN's and also to operate without a VAN (point to
point EDI over the Internet without the need for a VAN as a midpoint), thereby
permitting EDI-enabled trading partners to conduct electronic commerce with
their non-EDI-enabled trading partners.
INTERNET STRATEGY
The Company's Internet strategy focuses on using the Internet to complement
existing VANs and proprietary EDI networks, or possibly to replace the use of
VANs and proprietary EDI networks with point to point EDI over the Internet. The
Company believes that EDI-enabled companies can reach a much wider range of
their trading partners by using an Internet-based approach, as a result of the
increasing availability and general use of the Internet and the cost advantages
of an Internet-based approach over VANs and proprietary EDI networks. The
success of that strategy will depend, among other things, upon continued and
expanded acceptance of the Internet as an accepted vehicle for electronic
commerce and communication among businesses.
The Internet is an interconnected global network of computer networks
linked together through a common protocol. Unlike other public
telecommunications networks, the Internet is not managed by a single
corporation, government agency or other entity. The market for software to
access the Internet and related services is rapidly emerging and standards and
technologies for communicating information over the Internet are constantly
evolving. Businesses can exchange documents and electronic mail, access a wide
range of commercial information, and establish a presence on the World Wide Web.
The Web is the part of the Internet where information and documents reside in a
standard format thereby enabling them to be easily displayed and linked for
access by other Internet users on the Web. By using a special programming
language called hypertext markup language (HTML), a user can establish a
presence on the Web known as a Web Page or Home Page and can link with other
users of the Web. To date, the Internet has not been accepted as a medium for
processing routine business transactions between organizations, in part due to
perceived or actual security and reliability issues. See "RISK FACTORS -- Risks
Associated with Encryption Technology."
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<PAGE> 34
CUSTOMERS AND MARKETS
EDI has been used since the mid-1970's. Nevertheless, the Company believes
that the electronic commerce market is still in its early stages, in that
relatively few companies engage in EC. The Company believes that a significant
barrier for businesses to join the electronic commerce network has been the cost
of maintaining standard translation software, modifications to those businesses'
computer systems, dedicated proprietary VANs, and resources required to maintain
EDI. The industry, and more importantly, EDI-enabled suppliers and retailers,
have continued to look for solutions to lower existing EDI-related costs and at
the same time spawn increased EDI utilization.
To date, the Company has had a limited number of customers using these new
EDI/Internet technologies. The types of customers on which the Company intends
to focus are discussed below.
THE EDI-ENABLED SUPPLIER. The Company believes that a significant number of
suppliers now using EDI would like to increase the utilization of EDI with their
customers. However, a significant investment in hardware and software at each
customer location is required in the proprietary equipment and software
necessary for a customer to link with the supplier either directly or through a
VAN. A smaller customer may not have the resources to make such an investment,
or the investment may not be cost-justified based upon the customer's
transaction volume with the supplier.
The Company's EDIxchange software provides a cost-effective solution for
this situation. The Company can assist the supplier to create a secure
Web-enabled Internet site with an electronic system for customer orders and
development of an electronic catalog by use of NetCat, all using the supplier's
existing EDI system and documents. The system will allow non-EDI customers to
view the supplier's product catalogs, place orders on-line, and send an
EDI-standard purchase order to the supplier. The customer will need only
Internet access and a Web browser to engage in those transactions.
THE HUB MODEL. The Hub Model is similar to the EDI-Enabled Supplier Model,
but is targeted at the purchaser rather than the supplier. The Company believes
that a significant number of wholesalers and retailers which are now using EDI
would like to increase the utilization of EDI with their suppliers, by expanding
the number of "spoke" companies. This can be accomplished primarily by reaching
a Hub company's smaller suppliers with a cost-justified mechanism for electronic
commerce transactions.
In the Hub Model, the Company's EDIxchange Suite can be configured for a
retailer, effectively reversing the functions of the Supplier Model described
above. The Company can assist the retailer or other purchaser to create a secure
Web-enabled Internet site with NetCat, again using the purchaser's existing EDI
system and documents. The system will allow non-EDI-enabled suppliers to receive
purchase orders electronically using only a Web browser and Internet access.
THE ELECTRONIC COMMERCE SERVICE BUREAU. The Company believes that a
significant number of businesses may want to "outsource" all or a part of their
electronic commerce functions. That outsourcing is one of the services
historically provided by Software Associates and which the Company intends to
market. This market includes presently EDI-enabled businesses, as well as
businesses that do not presently conduct electronic commerce. Using Software
Associates' experience in that area, combined with the Company's software
products, the Company offers its services as an EC service bureau through its
EDIbridgeNET Program.
SUPPLIERS REQUIRED TO SEND ADVANCE SHIPPING NOTICES. ShipTrac is marketed
to EDI-capable suppliers, which become mandated by their customers to use
bar-coded shipping labels and to send EDI standard documents such as advance
shipping notices. This process is complex and cumbersome for suppliers to
integrate into their existing systems, and the Company believes ShipTrac will
reduce the complexity for implementing this requirement and complying with the
requests of such trading partners.
BUSINESSES USING REALWORLD OR SYNCHRONICS ACCOUNTING SYSTEMS. A significant
number of businesses use RealWorld or the Synchronics accounting systems
software products, but are not EDI capable. The Company will target those
businesses to use the Company's existing products to begin electronic commerce.
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<PAGE> 35
To date, the above target markets are undeveloped and largely untested. Due
to the limited sales by the Company to date, there can be no assurance as to the
degree, if any, that these markets and target customers will develop generally
or will be receptive to the Company's products and services.
As of January 1, 1998, the Company's EDIxchange customers include Linens
N' Things (an EDI-enabled purchaser), and Great American Knitting Mills, makers
of Goldtoe socks, and ICXpress (both EDI-enabled sellers). Customers using the
Company's ECbridgeNET Service include Church & Dwight, manufacturers of Arm &
Hammer baking soda, Royal Dalton, makers of fine china, and Kings Supermarket, a
supermarket chain in the Northeast United States.
During the fiscal year ended September 30, 1997, one customer accounted for
approximately 18% of the Company's sales. The Company provided systems
integration services to that customer, Unique Music, a retailer of recorded
music. If the Company were to lose that customer, it would not be expected to
have a material adverse effect on the Company, because the Company's business
plan focuses on its EDI business rather than on the general computer consulting
business.
SALES AND MARKETING
The Company's goal is to establish and expand the number of trading
partners using the Company's service bureau and complimentary electronic
commerce software solutions. To reach this goal, the Company plans to market and
sell its electronic commerce business solutions to enterprises which are
EDI-capable, and whose trading partners lack EDI capability. Additionally, the
Company will focus its marketing efforts for EDI outsourcing on EDI-capable
suppliers, which the Company believes often do not have sufficient resources in
their management information system ("MIS")/EDI group to respond to customers'
requests on a sufficiently timely basis.
Certain of the Company's marketing strategies are discussed below.
IDENTIFY KEY BUSINESS PARTNERS -- The Company has introduced its Business
Partners Program to establish alliances between the Company and key business
partners who specialize in business automation and electronic commerce. Those
key business partners are expected to be VANs, EDI software companies, EC
consultant groups, Web content developers, business re-engineering consultants,
and accounting software providers.
The objective of the Business Partners Program is to integrate the
Company's products and services with those of its business partners and to
promote Company services along with products and services sold by its business
partners.
EXPAND MARKETING AND SALES EFFORTS NATIONALLY -- As of January 1, 1998,
the Company employs four people in sales and marketing, two of whom directly
sell the Company's software and services. Compensation of sales personnel is in
the form of a base salary and commissions. To reach a broader market, the
Company plans to expand the number of sales people it employs, by adding up to
six additional sales people through the end of fiscal 1998, and possibly more
thereafter.
Lead generation and advertising will focus on national electronic
commerce/EDI trade shows, journal advertisements in national electronic commerce
publications, and public speaking engagements in EDI/Internet forums. The
Company will also evaluate which industry specific trade shows/journals warrant
participation. The Company has recently joined national electronic commerce/EDI
trade groups such as CommerceNet and DISA, which represent both users and
providers of EDI-related services.
Expansion of sales efforts will be implemented in stages, as market trends
indicate acceptance of the emerging electronic commerce marketplace and as the
Company's capital availability allows.
The Company is a party to several co-marketing and strategic alliances. EMJ
("EMJ"), located in Apex, North Carolina, is an Internet Web content developer
working with many large businesses in the Raleigh/Durham Research Triangle Park
area. The Company was chosen as the exclusive Internet-EDI solution provider for
EMJ Internet, a division of EMJ. Further, the Company has developed a strategic
relationship with ER Enterprises of Columbus, Ohio, an EDI consulting group that
assists retailers in implementing
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<PAGE> 36
electronic commerce strategies; with AFTEC Corporation of Livingston, New
Jersey, a developer of a manufacturing and distribution software package, which
plans to build an electronic commerce interface into their application and offer
the Company's Service Bureau as a turnkey EC solution for their clients; and
with ID2000, of Berlin, New Jersey, which is a management information consulting
firm offering turnkey information systems solutions to its clients.
At present, the Company's alliances have not produced a material amount of
revenue for the Company. Those alliances presently consist of agreements to
cross-market one another's services from time to time when the appropriate
situation presents itself. All agreements presently in effect may be cancelled
upon 30 days' notice by either party.
PRODUCT DEVELOPMENT
The Company presently has several product development initiatives. One
initiative involves "point-to-point EDI." This technology would permit
electronic document interchange directly over the Internet, avoiding the use of
a VAN. The Company is working on modifications to its NetCat software and the
EDIxchange System, which would allow these products to interface with the
Templar product from Premenos Technology Corp. and permit point-to-point EDI.
Another initiative involves an upgrade of NetCat to a "Version 3.0."
Presently, NetCat can use only ASCII files and HTML. The Company is working on
making NetCat compatible with SQL databases (such as Oracle and Sybase), which
would allow NetCat to function with a larger group of customer databases. Also,
the Company is working on making NetCat capable of creating a wider variety of
presentation graphics, and on increasing the efficiency of NetCat's order
processing.
Another initiative involves an upgrade of the Company's EDIxchange Program
suite to permit the creation of an "Integrated UPC Catalogue." Presently, under
the Company's EDIxchange Program suite, as utilized in the Hub Model, the Hub
company/purchaser is required to input manually its suppliers' catalogues on the
Hub company's Web Site. The Company is working on an upgrade to that software
which would allow suppliers to maintain their own catalogue information,
including the UPC (Universal Product Code) information, electronically on the
Hub company's Web Site, thus permitting the Hub company to browse that database
or catalogue for purchasing.
Another initiative involves the upgrade of the Company's ECIntegrator.
Presently, that software allows for the electronic import and export of business
documents from RealWorld and Synchronics accounting systems only. The Company is
working on an upgrade which would permit interface with additional accounting
systems. The new product would be Windows-based and would function with the
Company's EDI service bureau ECbridgeNET.
The Company's final major initiative at present involves an upgrade of the
Company's ECbridgeNET communications network. Presently, the Company administers
its own communications network relating to ECbridgeNET, such as the modems and
other hardware necessary to communicate with its EDI customers. The Company is
evaluating the feasibility of outsourcing that core communication function to a
telecommunications company.
The Company has budgeted $475,000 to complete the above five product
development initiatives, to be funded from the proceeds of this Offering. Each
of the foregoing product development initiatives is subject to risk. The Company
cannot predict when any of them will be completed, if at all. There is no
assurance that the Company will develop successfully or in a cost-effective
manner any of the products, services, or product enhancements discussed, or that
they will find market acceptance if developed. The Company's cost estimates to
complete the above product development initiatives are subject to the risks and
uncertainties of complex technical development projects.
COMPETITION
The electronic commerce and EDI network services and computer software
markets are highly competitive. The principal competitors in EDI and
specifically in the delivery of EDI over the Internet are, at present, Harbinger
Corporation, Sterling Commerce, GEIS, Netscape, Open Market, Premenos, Icat,
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<PAGE> 37
Interworld Technology Ventures, Elcom International, Broadvision, Connect, IBM,
Microsoft, EDS, and MCI, each of which has announced plans to design and develop
software products and to provide services that facilitate electronic commerce
over the Internet.
Aside from the Internet, numerous companies supply electronic commerce
network services, and several competitors target specific vertical markets such
as the pharmaceutical, agribusiness, retail and transportation industries.
Competitors provide software designed to facilitate electronic commerce and EDI
communications. Existing VANs provide network services and related software
products and services. Other competitors provide PC-based computer programs and
network services specifically targeted to facilitate electronic banking
transactions. These competitors include banks and financial institutions that
operate privately-owned computer networks that link directly to their commercial
customers. The Company believes that many of its competitors have significantly
greater financial and personnel resources than the Company.
Competition from Internet-based competitors is also significant. The market
for Internet software and services is emerging and highly competitive, ranging
from small companies with limited resources to large companies with
substantially greater financial, technical and marketing resources than the
Company. The Company believes that existing competitors are likely to expand the
range of their electronic commerce services to include Internet access, and that
new competitors, which may include telephone companies and media companies, are
likely to increasingly offer services which utilize the Internet to provide
business-to-business data transmission services. A group of computer companies
including some competitors of the Company, and the Company itself, have formed
CommerceNet, a consortium which has announced an intention to explore the use of
the Internet for commercial applications. Additionally, several competitive
network service providers allow their subscribers access to the Internet, and
several major software and telecommunications companies, including Sprint, MCI,
AT&T and Microsoft, either have or are expected to have Internet access
services. Similarly, the major on-line service companies, such as America
On-Line, Compuserve and Prodigy, also offer Internet services, and the Company
expects them to enhance their services in the future to include certain aspects
of electronic commerce.
COMPETITIVE STRATEGY
The Company's competitive strategy is to offer electronic commerce
solutions using Internet and EDI technology through designs that can be
customized to fit a customer's specific needs.
The Company intends to apply its Internet and EDI technology products, its
development efforts, and its marketing efforts, at the "application layer" of
electronic commerce. The application layer addresses the customers' immediate
need to work with product catalogues and to exchange useful business documents.
The application layer is distinguished from the "core" or "infrastructure"
layer, which addresses the basic elements of transmitting an EDI document over
the Internet. At the application layer, one assumes that a properly-formatted
EDI document can be securely transmitted over the Internet.
The Company intends to avoid competing at the EC core or basic
infrastructure technology layer. In that regard, it does not intend to compete
in technical and product categories such as encryption and authentication
schemes, secure transport methods, EDI mailboxing services, secure browsers and
servers, or low-level communication protocols.
Further, the Company intends to market products that require the EDI
trading partners to have only a standard Web browser with standard enhancements
or "plug-ins" (like Adobe Acrobat and Sun's Java). The Company will centralize
EDI translation and mapping from its application interface to the EDIbridgeNet
outsource service bureau.
The Company hopes to differentiate itself in the marketplace for
Internet/EDI solutions with NetCat. The Company believes that its existing
competition currently offers generic, form-based software solutions with limited
functionality. In contrast, EDIxchange provides both product catalog and order
facilitation. When combined with the Company's service bureau, the Company can
offer customers a complete, turnkey electronic commerce solution that is
compatible with their existing EDI system.
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<PAGE> 38
The Company may, in order to acquire new technology, additional products,
market share or other business opportunity, enter into strategic joint ventures
or mergers or make strategic acquisitions. Such transactions may be funded by
using the proceeds of this Offering, issuing stock of the Company, incurring
debt, or any combination of the foregoing. The Company is not presently
negotiating any such transactions, nor does it have any commitments to do so.
There can be no assurance that the Company will be successful in its effort
or that it will not be materially adversely affected by competitive factors.
INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on a combination of copyright, patent and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company has filed an
application for a patent covering its NetCat software, which is presently
pending before the United States Patent and Trademark Office ("PTO"). The
Company also has filed federal trademark registration applications for its
DynamicWeb, NetCat, ECbridgeNET, and EDIxchange trademarks. Those trademark
registration applications are presently pending before the PTO.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate or that competitors will not independently develop similar or
superior technology. The Company believes that, due to the rapid pace of
innovation within the electronic commerce, EDI and related software industries,
factors such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within the
electronic commerce industry than are the various legal protections of its
technology. The Company does not believe that any of its products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. From time to time, the Company has received notices which
allege, directly or indirectly, that the Company's products or services infringe
the rights of others. The Company generally has been able to address these
allegations without material cost to the Company. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in electronic commerce grows and the
functionality of products in different industry segments overlaps. Any such
claims, irrespective of their merit, could be time-consuming, result in costly
litigation, cause product shipment delays, require the Company to enter into
royalty or licensing agreements, or prevent the Company from using certain
technologies. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company.
The Company currently has in place confidentiality and non-competition
agreements with certain of its employees. The Company has adopted a policy of
requiring that all future employees sign appropriate confidentiality agreements
and, where appropriate, non-competition agreements.
The Company currently licenses proprietary data encryption and
authentication software of RSA Data Security ("RSA"). The RSA software is
incorporated in certain other software licensed to the Company from Community
Connexion related to the Web server utilized by the Company. The RSA software is
available on a non-exclusive basis. No assurance can be given that the
encryption software presently available to the Company will continue to be
available to the Company on commercially reasonable terms, or at all.
Additionally, there is no assurance that if a new encryption technology
develops, that it will be available to the Company on commercially acceptable
terms, if at all.
The Company also licenses Cybercash software, which is credit card
verification software, on a non-exclusive basis.
The Company's proprietary software is written in Practical Extraction and
Reporting Language ("PERL"), which is the computer program language utilized for
Internet applications. Because the Internet is not controlled or supervised by
any one person or group, the evolution and continued utilization of PERL
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<PAGE> 39
cannot be controlled or predicted. Changes in or the elimination of PERL could
cause the Company to have to assume responsibility for support and development
of that software.
GOVERNMENTAL REGULATIONS
The Company's network services are transmitted to its customers over
dedicated and public telephone lines. These transmissions are governed by
regulatory policies establishing charges and terms for communications. Changes
in the legislative and regulatory environment relating to on-line services, EDI
or the Internet access industry, including regulatory or legislative changes
which directly or indirectly affect telecommunication costs or increase the
likelihood of competition from regional telephone companies or others, could
have an adverse effect on the Company's business; as could potential
governmental actions outside of the United States. Management believes that the
Company is in material compliance with all applicable regulations.
EMPLOYEES
As of January 1, 1998, the Company had 24 full-time employees.
Approximately seven are technical personnel engaged in maintaining or developing
the Company's products or performing related services, approximately five are
marketing and sales personnel, approximately six are engaged in customer support
and operations, and approximately six are involved in administration and
finance. None of the Company's employees are represented by a union.
FACILITIES
The Company's corporate offices are located at 271 Route 46 West, Building
F, Suite 209, Fairfield, New Jersey. The Company has entered into two leases for
approximately 5,400 square feet for its executive and administrative staff at an
aggregate monthly rental of approximately $6,600. The Company believes that such
space will be sufficient for its needs for the foreseeable future and that
alternative space is available at rental rates which would not materially
adversely affect the Company. See "CERTAIN TRANSACTIONS -- Office Lease."
The Company owns its former offices (at 1033 Route 46 East, Clifton, New
Jersey, which it acquired in its acquisition of Megascore, Inc. in September of
1996). It has vacated those premises, which are listed for sale. Those premises
are mortgaged for approximately $190,000.
LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
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<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS.
The following table contains certain information with respect to the Board
of Directors and the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------
<S> <C> <C>
Steven L. Vanechanos, Jr.(1) 43 Chairman of the Board and Chief
Executive Officer
James D. Conners 58 President and Chief Operating Officer
Steve Vanechanos, Sr.(1) 67 Director, Vice President, Treasurer and
Secretary
Kenneth R. Konikowski 50 Director and Executive Vice President
F. Patrick Ahearn, Jr.(2) 49 Director
Denis Clark 53 Director
Frank T. DiPalma(3) 51 Director
Robert Droste(2)(3) 43 Director
</TABLE>
- ---------------
(1) Steve Vanechanos, Sr. is the father of Steven L. Vanechanos, Jr. and Michael
Vanechanos. As of January 1, 1998, and after giving effect to the
contribution of certain shares of Common Stock to the capital of the
Company, Michael Vanechanos beneficially owns approximately 7% of the
Company's outstanding Common Stock. See "RECENT DEVELOPMENTS -- Contribution
of Stock By Certain Shareholders," "PRINCIPAL STOCKHOLDERS" and "CERTAIN
TRANSACTIONS -- Significant Shareholder."
(2) Member of the Audit Committee of the Board of Directors. The Audit Committee
recommends an outside auditor for the year and reviews the financial
statements and progress of the Company. This Committee was formed in 1997.
(3) Member of the Compensation Committee. The Compensation Committee meets on an
as-needed basis between meetings of the Board of Directors to discuss
compensation related matters. This Committee was formed in 1997.
STEVEN L. VANECHANOS, JR. became President and Chairman of the Board of
Directors of the Company on March 26, 1996. On August 26, 1997, he assumed the
office of Chief Executive Officer and Mr. Conners became the President. Mr.
Vanechanos has been President of DynamicWeb Transaction Systems, Inc. ("DWTS"),
a wholly-owned subsidiary of the Company, since its incorporation in October
1995. He also was a co-founder of Megascore, Inc. ("Megascore"), a wholly-owned
subsidiary of the Company, in 1981 and has served as its President since April
1985. He has a Bachelor of Science Degree in Finance and Economics from
Fairleigh Dickinson University, Rutherford, New Jersey Campus. In 1981, he
received a Certificate in Computer Programming and in 1982, he received a
Certificate in Data Processing from The Institute for the Certification of
Computer Professionals.
JAMES D. CONNERS became President and Chief Operating Officer of the
Company on August 26, 1997. Prior to joining the Company, Mr. Conners served as
the Vice President of Strategic Planning of Sterling Commerce in 1996 and the
Vice President of its Internet Business Unit in 1997. Prior to joining Sterling
Commerce, Mr. Conners spent 15 years at General Electric Information Services
(GEIS) in various sales and marketing positions, most recently as the General
Manager in charge of the Ameritech Alliance. Mr. Conners graduated from the
University of Detroit with a BS degree in Mathematics with a minor in Physics.
STEVE VANECHANOS, SR. became Vice President, Secretary, Treasurer and a
Director of the Company on March 26, 1996. He was a co-founder of Megascore in
1981 and of DWTS in 1995. He has served as a Vice President of Megascore since
April 1985 and of DWTS since October 1995. He attended Newark College of
Engineering in Newark for two years. He continued his education with
certifications from PSI Programming
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<PAGE> 41
Institute in New York City and with courses in principles of accounting at ABA
Institute, Hudson County Chapter.
KENNETH R. KONIKOWSKI became the Executive Vice President and a Director of
the Company on December 1, 1996. Prior to that date, Mr. Konikowski was
President of Software Associates, which he founded in 1985. Software Associates
is currently a wholly-owned subsidiary of the Company. See "CERTAIN
TRANSACTIONS."
F. PATRICK AHEARN, JR. became a Director of the Company on March 26, 1996.
Mr. Ahearn has served as a director of Megascore since 1985 and of DWTS since
February 1996. Since 1993, Mr. Ahearn has served as the Chairman of the Board of
E.C.M. Group, Inc., White Plains, New York. From 1992 to 1995, Mr. Ahearn served
as Managing Director for Continental Bank and the President of 22 of its
subsidiaries. He is also a Colonel in the United States Marine Corps. Mr. Ahearn
has a Bachelor of Arts Degree from the College of Holy Cross.
DENIS CLARK became a Director of the Company on June 12, 1997. Mr. Clark
has served as Vice President of Sterling Commerce, Inc. from 1993 to 1996 and
was employed by IBM Corporation as a Director of Consulting from 1991 to 1992
and as a Director of Software Marketing from 1989 to 1991.
FRANK T. DIPALMA became a Director of the Company on March 26, 1996. Since
January 1997, Mr. DiPalma has been employed as Vice President of Operations and
Engineering for Energy Corporation of America, Mountaineer Gas Division. Prior
to that time, and during the past five years, he held various management
positions for Public Service Electric and Gas, a public utility located in
Newark, New Jersey. In 1995 and 1996, he was the owner of Palmer Associates, a
management consulting company. Mr. DiPalma graduated from New Jersey Institute
of Technology with a Bachelor of Science in Mechanical Engineering, Fairleigh
Dickinson University with a Masters in Business Administration, and the
University of Michigan's Executive Development Program.
ROBERT DROSTE became a Director of the Company on March 26, 1996. Mr.
Droste has served as a director of Megascore since 1985 and of DWTS since
February 1996. During the past five years, Mr. Droste has been the Director of
Administration and Manager of Internal Audit for Russ Berrie & Co., Inc.,
Oakland, New Jersey. He has a Bachelor of Science Degree in Accounting from
Fairleigh Dickinson University, Rutherford, New Jersey.
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the Board of Directors is divided into three classes which shall
be as nearly equal in number as possible. The Directors in each class will hold
office following their initial appointment to office for terms of one year, two
years and three years, respectively and, upon reelection, will serve for terms
of three years thereafter. Each Director will serve until his or her successor
is elected and qualified. Presently, Directors Ahearn, DiPalma and Clark are
Class I Directors to hold office until the annual shareholder election of
Directors in 1998; Directors Konikowski and Vanechanos, Sr. are Class II
Directors to hold office until the annual shareholder election of Directors in
1999; and Directors Droste and Vanechanos, Jr., are Class III Directors to hold
office until the annual shareholder election of Directors in 2000.
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, a Director may be removed by shareholders only upon the
affirmative vote of at least a majority of the votes which all shareholders
would be entitled to cast. The Board of Directors shall have the exclusive power
to fill any vacancy occurring in the Board of Directors, including a vacancy
created by an increase in the number of Directors, by a majority vote of the
Directors then in office. Any Director so elected shall serve until the next
annual meeting of shareholders.
Although Michael Vanechanos is the owner of approximately 7 percent of the
presently-outstanding Common Stock and is related to Steven L. Vanechanos Jr.
and Steve Vanechanos, Sr., Michael Vanechanos does not participate in the
business affairs of the Company, including its operations, financing and
strategy.
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<PAGE> 42
EXECUTIVE COMPENSATION
General
There were no executive officers of the Company or any of its subsidiaries
whose salary and bonus exceeded $100,000 for the fiscal year ended September 30,
1996. The following table sets forth the compensation paid to Steven L.
Vanechanos, Jr., the Company's President from March 26, 1996 to August 26, 1997
(when he continued in the role of Chief Executive Officer, and James Conners
became President). Jonathan B. Lassers served as the Company's President and
Chief Executive Officer from May 1995 until March 26, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
------------------------------------------ ---- ------- ------------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr. 1997 $61,000 $ 4,750(1)
Chief Executive Officer 1996(2) $58,762(3) $ 10,300(4)
Jonathan B. Lassers 1996(5) $ 0(6) $ 0(6)
Former President and Chief Executive
Officer
</TABLE>
- ---------------
(1) Consists of lease payments totalling $4,750 made by the Company for an
automobile used by Mr. Vanechanos, Jr.
(2) Mr. Vanechanos, Jr. commenced his employment with the Company on March 26,
1996, the date upon which Seahawk Oil International, Inc. acquired
DynamicWeb Transaction Systems, Inc. and changed its name to DynamicWeb
Enterprises, Inc. Prior to such time, he had been President of DWTS.
(3) This amount includes salary paid by Megascore during the year ended
September 30, 1996. Megascore was acquired by the Company on September 30,
1996.
(4) Consists of (a) lease payments totaling $4,300 made by the Company for an
automobile used by Mr. Vanechanos, Jr., and (b) travel and entertainment
expenses of approximately $6,000 paid by the Company. Mr. Vanechanos, Jr.
did not receive any long-term compensation.
(5) Mr. Lassers terminated his employment with the Company on March 26, 1996,
the date upon which Seahawk Oil International, Inc. acquired DynamicWeb
Transaction Systems, Inc. and changed its name to DynamicWeb Enterprises,
Inc.
Stock Options
There were no executive officers of the Company or any of its subsidiaries
who received or exercised stock options, stock appreciation rights or other
stock awards from the Company during the fiscal year ended September 30, 1996.
As of September 30, 1996, except for the Company's 1992 Stock Option Plan, the
Company did not have in place any stock option, stock appreciation right, or
similar compensation plan, nor were any options or stock appreciation rights
outstanding and exercisable as of such date under the 1992 Stock Option Plan or
otherwise. On March 7, 1997, the Company terminated the 1992 Stock Option Plan.
On June 12, 1997, the shareholders of the Company approved the 1997 Employee
Stock Option Plan and the 1997 Stock Option Plan for Outside Directors
(collectively, the "1997 Plans").
EMPLOYMENT AGREEMENTS
On December 1, 1996, Kenneth R. Konikowski, Executive Vice President of the
Company, entered into an Employment Agreement with the Company (the "Konikowski
Agreement"). Under the terms of the Konikowski Agreement, Mr. Konikowski serves
as Executive Vice President and a member of the Company's Board of Directors and
is entitled to an annual salary of $135,600. The Konikowski Agreement provides
that this amount may be increased based on annual performance reviews pursuant
to the Company's policies and practices. Mr. Konikowski is also eligible to be
paid an annual bonus based on the Company's to-be-established incentive bonus
plan. Mr. Konikowski also receives certain employee benefits, including $500,000
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<PAGE> 43
of life insurance, disability and health insurance, vacation days, and use of an
automobile. He is also eligible to participate in the Company's 1997 Employee
Stock Option Plan.
The Konikowski Agreement provides that if Mr. Konikowski's employment is
terminated by the Company other than for "Cause," "Disability" or "Material
Breach," each as defined therein, or if he terminates his employment for "Good
Reason," as defined therein, Mr. Konikowski is entitled to a lump sum amount
equal to the commuted value of his base salary in effect or authorized at the
time of termination for the period remaining until November 30, 2001 (determined
by discounting all payments at a rate equal to the bond equivalent yield of the
latest two-year Treasury Bill auction). The Company is also required to maintain
in full force and effect certain of Mr. Konikowski's employee benefits.
On August 26, 1997, the Company hired James D. Conners as President, and
the Company and Mr. Conners entered into an Employment Agreement (the "Conners
Agreement"). The Conners Agreement provides that he shall serve as President of
the Company for a term of 3 years, with automatic renewal unless either party
gives timely notice of its intent not to renew. The Conners Agreement provides
for a base salary of $160,000, and obligates the Company to grant options to
purchase 104,338 shares of the Company's Common Stock during his employment
period for a price of $3.83 per share, 45,648 of such shares to vest at August
25, 1998, 32,606 to vest at August 25, 1999, and the remaining 26,084 to vest at
August 25, 2000. On September 11, 1997, Mr. Connors was granted 104,338 options
under the 1997 Employee Plan. Further, Mr. Conners is entitled to a $1,000 per
month housing allowance and a $500 per month leased automobile allowance. He is
eligible to participate in the 1997 Employee Plan and the Company's other
employee benefit plans as may be implemented from time to time.
The Conners Agreement provides that if Mr. Conners employment is terminated
other than for "Cause" as defined therein, Mr. Conners is entitled to receive
his base salary, incentive compensation and options for the balance of his
employment period.
STOCK OPTION PLANS
1997 Employee Stock Option Plan
On June 12, 1997, the shareholders of the Company approved the Company's
1997 Employee Stock Option Plan (the "1997 Employee Plan"). The 1997 Employee
Plan authorizes the Compensation Committee (the "Committee") of the Board of
Directors to grant options for the purchase of up to 234,764 shares of Common
Stock. Any shares as to which an option expires, lapses unexercised, or is
terminated or canceled may be subject to a new option.
Under the 1997 Employee Plan, both "Incentive Stock Options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")),
which qualify for certain tax benefits, and options which do not qualify for
such tax benefits ("Nonqualified Stock Options") may be granted to eligible
employees of the Corporation and its subsidiaries. All current employees of the
Company are eligible to participate in the 1997 Employee Plan.
The Committee has the authority to grant options to employees under the
1997 Employee Plan, based upon the recommendation of the Corporation's Chief
Executive Officer and subject to the approval of a majority of the disinterested
members of the Board. Option grants to employees are anticipated to be made
annually. Eligible employees generally include all key employees of the
Corporation and its subsidiaries. This would include the executive officers.
Recent Grants. On August 8, 1997, the Committee made an initial grant of
options to purchase a total of approximately 99,054 shares to employees under
the 1997 Employee Plan, and on September 11, 1997, the Committee granted options
to purchase 104,338 shares to James Conners in connection with his commencing
employment with the Company.
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<PAGE> 44
1997 Stock Option Plan for Outside Directors
Also on June 12, 1997, the shareholders of the Company approved the 1997
Stock Option Plan for Outside Directors (the "1997 Director Plan"). Each person
(i) who is a director of the Company and (ii) who is not, as of the grant date,
an employee of the Company shall, on the earlier of (a) the date on which this
Offering is completed, or (b) September 30, 1997, and thereafter on the date of
each succeeding annual meeting of shareholders at which directors are elected,
automatically be granted an option to purchase 3,912 shares of the Common Stock.
Future directors elected by the Board to fill a vacancy will also receive such a
grant on the date of such initial election as a director. Accordingly, on
September 30, 1997, Messrs. Ahearn, Clark, DiPalma and Droste each received
options under the 1997 Director Plan to purchase an aggregate of 3,912 shares of
the Company's Common Stock.
In addition to the automatic grants described above, the 1997 Director Plan
further authorizes the Committee to grant options for the purchase of an
aggregate amount up to 78,254 shares of the Common Stock. Any shares as to which
an option expires, lapses unexercised, or is terminated or canceled may be
subject to a new option. Only Nonqualified Stock Options may be granted under
the 1997 Director Plan. The exercise price for options granted under the 1997
Director Plan will be equal to the fair market value of the stock underlying the
option on the date the option is granted.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITIES AND INDEMNIFICATION;
DISCLOSURE OF COMMISSION POSITION OR INDEMNIFICATION OF SECURITIES ACT
LIABILITIES
In accordance with New Jersey law, the Company's Amended and Restated
Certificate of Incorporation eliminates in certain circumstances the liability
of directors of the Company for monetary damages for breach of their fiduciary
duty as directors. This provision does not eliminate the liability of a director
(i) for a breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for a
willful or negligent declaration of an unlawful dividend, stock purchase or
redemption or (iv) for transactions from which the director derived an improper
personal benefit. Insofar as limitation of liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the Amended and Restated Certificate of Incorporation,
the Company has been advised that, in the opinion of the Commission, (a) such
limitation is against public policy as expressed in the Securities Act, and is
therefore unenforceable, and (b) such limitation does not affect the
availability of equitable relief which otherwise may be available.
In addition, the Company's Bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
Bylaws shall be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
Insofar as limitation of, or indemnification for, liabilities arising,
under the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing, or otherwise, the Company has
been advised that, in the opinion of the Commission, such limitation or
indemnification is against public policy as expressed in the Securities Act, and
is therefore unenforceable.
DIRECTORS' COMPENSATION
The non-employee directors and the employee directors do not receive a fee
for attending meetings or other fees or retainers for serving on the board.
40
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of January 1, 1998, for (i) each person
who owns of record or is known by the Company to be the beneficial owner of more
than five percent (5%) of the Common Stock, (ii) each of the Company's current
Directors, (iii) each person named in the Summary Compensation Table set forth
above under "MANAGEMENT," and (iv) all current directors and executive officers
of the Company as a group, such person's name and address, the number of shares
of Common Stock beneficially owned by such person, and the percentage of the
outstanding Common Stock so owned. Unless otherwise indicated in a footnote,
each of the following persons holds sole voting and investment power over the
shares listed as beneficially owned.
<TABLE>
<CAPTION>
PRO FORMA
AMOUNT AND NATURE PERCENT
OF BENEFICIAL PERCENT OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1)(2) CLASS(3) CLASS(4)
--------------------------------------------- ----------------- ---------- ---------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr..................... 276,203 19.24% 12.35%
92 Clarken Drive
West Orange, New Jersey 07052
Steven Vanechanos, Sr........................ 273,288 19.03% 12.22%
96 Union Avenue
Rutherford, New Jersey 07082
Kenneth R. Konikowski(5)..................... 134,598 9.37% 6.02%
36 Pinebrook Road
Towco, New Jersey 07082
Michael Vanechanos........................... 102,133 7.11% 4.57%
129 S. Telegraph Hill Road
Holmdel, New Jersey 07703
Sierra Growth & Opportunity.................. 71,994(6) 5.01% 3.22%
551 Fifth Avenue, Suite 605
New York, New York 10017
James D. Conners............................. 0(7) 0% 0%
5506 Carnoustie Court
Dublin, Ohio 43017
F. Patrick Ahearn, Jr........................ 6,067(8) 0.42% 0.27%
107 Maple Street
Rutherford, New Jersey 07070
Frank T. DiPalma............................. 10,697(8)(9) 0.75% 0.48%
179 Claremont Road
Ridgewood, New Jersey 07450
Robert Droste................................ 6,067(8) 0.42% 0.27%
24 Summit Road
Clifton, New Jersey 07012
Denis Clark.................................. 3,912(8) 0.27% 0.17%
8417 Greenside Drive
Dublin, Ohio 43017
All directors and executive officers as a
group (8 in number).......................... 710,832 49.51% 31.79%
</TABLE>
- ---------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
("SEC") and may include securities owned by or for the individual's spouse
and minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within sixty (60) days of
the date of this Prospectus. Beneficial ownership may be disclaimed as to
certain of the securities. Steven L. Vanechanos, Jr. and Michael Vanechanos
are brothers, and are the sons of Steve Vanechanos, Sr. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Significant Shareholder." Each of
the foregoing disclaims beneficial ownership of the shares of Common Stock
owned by the others.
41
<PAGE> 46
(2) Information furnished by the directors and executive officers of the
Company. All numbers of shares reflect the 0.2608491-for-one Reverse Stock
Split and the Contribution of Stock by certain of the Company's existing
shareholders of the Company. See "RECENT DEVELOPMENTS."
(3) Percentages based upon (a) 1,420,113 shares outstanding on January 1, 1998,
after giving effect to the Contribution of Stock and the Reverse Stock
Split, plus (b) an additional 15,648 shares issuable within 60 days of the
date of this Prospectus to the named outside directors under the 1997
Director Plan. See Footnote (8) below.
(4) Percentages based upon 2,220,113 shares to be outstanding at the completion
of this Offering, plus the additional 15,648 shares currently issuable
under the 1997 Director Plan.
(5) Does not include additional shares of Common Stock that may be issuable in
connection with the prior acquisition of Software Associates. See "CERTAIN
TRANSACTIONS -- Acquisition of Software Associates and Megascore."
(6) Based upon information available to the Company, it is believed that a Mr.
John Figliolini exercises sole voting and investment powers over the
Company's Common Stock on behalf of Sierra Growth & Opportunity.
(7) Mr. Conners has been granted options to purchase 104,338 shares on
September 11, 1997 under the 1997 Employee Plan, none of which can be
acquired within 60 days of this Prospectus. See "MANAGEMENT -- Employment
Agreements."
(8) Includes options to purchase 3,912 shares granted in 1997 under the 1997
Director Plan.
(9) All of such shares are held jointly by Mr. DiPalma and his spouse.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF SOFTWARE ASSOCIATES AND MEGASCORE
On November 30, 1996, pursuant to a Stock Purchase Agreement dated such
date among the Company, Software Associates and Kenneth R. Konikowski, the sole
shareholder of Software Associates (the "SA Agreement"), the Company exchanged
224,330 shares with Mr. Konikowski of the Company's Common Stock for all of the
issued and outstanding capital stock of Software Associates. Accordingly,
Software Associates is presently a wholly owned subsidiary of the Company.
Pursuant to the SA Agreement, Kenneth R. Konikowski was named Executive
Vice President and a director of the Company and his Employment Agreement was
executed. Pursuant to the SA Agreement, as amended by letter agreements dated
April 17, 1997, November 20, 1997, and December 15, 1997, between the Company
and Mr. Konikowski, the Company is obligated to issue to Mr. Konikowski up to
178,420 additional shares of its Common Stock in the event the average closing
bid price of the Common Stock does not equal $21.565 per share for the five
trading days immediately prior to January 30, 2000. If any such additional
shares are issued, the ownership interest of all other holders of Common Stock
will be diluted in favor of Mr. Konikowski. On a pro forma basis assuming all of
such shares were issued to Mr. Konikowski as of the date of the Closing of this
Offering, Mr. Konikowski would own approximately 5% of the outstanding Common
Stock, and each of Steven L. Vanechanos, Jr. and Steve Vanechanos, Sr. would own
approximately 10% of the outstanding Common Stock, respectively.
On September 30, 1996, pursuant to a Stock Purchase Agreement dated such
date among the Company, Megascore and Megascore's shareholders, the Company
acquired all of the issued and outstanding capital stock of Megascore in
exchange for 13,042 shares of Common Stock. Prior to such acquisition, Steven L.
Vanechanos, Jr. and Steve Vanechanos, Sr. were the President and Vice President,
Treasurer and Secretary, respectively, and collectively owned of record
approximately 86% of the outstanding capital stock of Megascore. Megascore is
presently a wholly-owned subsidiary of the Company. Megascore is a full-service
systems integrator specializing in distribution, accounting and point-of-sale
computer software consulting services for suppliers and retailers. The
consideration paid to the Megascore shareholders was determined by the Company's
Board of Directors, which was at that time composed of Mr. Vanechanos Sr., Mr.
Vanechanos,
42
<PAGE> 47
Jr., Robert Droste, and Patrick Ahearn. The Board of Directors ascribed a value
of $100,000 to Megascore, based upon the Board's evaluation of the fair value of
Megascore's assets. Also, the Board of Directors ascribed a value of $7.67 per
share to the shares of Common Stock of the Company to be issued to the
shareholders of Megascore in that transaction, meaning that the 13,042 shares
issued in the transaction had a total value of $100,000. The Board of Directors
made its determination that the shares of the Company's Common Stock had a value
of $7.67 per share by considering the following principal factors: (a) those
shares were not registered under the Securities Act, and therefore would not be
freely tradable, (b) the quoted bid price for the Company's publicly traded
Common Stock during the quarter ended September 30, 1996 was in the range of
$14 7/8 to $15 3/4 per share, and (c) in April of 1996 the Company sold 89,601
shares of Common Stock in a private placement transaction at the price of $5.56
per share. Each of Mr. Vanechanos Sr. and Mr. Vanechanos, Jr. received 3,912
shares of Common Stock in the Megascore transaction. Steve Vanechanos, Sr. had
paid a total of $12,443.43 for the shares of Megascore that he exchanged in that
transaction, and Steven L. Vanechanos, Jr. had paid a total of $9,250 for the
shares of Megascore that he exchanged in that transaction.
SIGNIFICANT SHAREHOLDER
As of January 1, 1998 (after giving effect to the contribution of Common
Stock by certain of the Company's existing Shareholders to the capital of the
Company) Michael Vanechanos is the beneficial owner of 102,134 shares of Common
Stock representing approximately 7% of the issued and outstanding Common Stock
of the Company as of such date. He received 85,448 of those shares from the
Company in March, 1996 in exchange for shares he owned in DWTS, as part of the
Company's acquisition of DWTS, and received 71,734 of those shares as a finder's
fee from Berkshire Financial Corp. in connection with the Company's acquisition
of DWTS. He purchased 13,042 of those shares in an open market transaction on
April 30, 1997. Mr. Vanechanos is presently employed as a securities trader at
H.J. Meyers & Co., Inc., the Representative in this Offering and the placement
agent in the Interim Financings. Michael Vanechanos is the brother of Steven L.
Vanechanos, Jr., the Company's Chairman of the Board and Chief Executive
Officer, and is the son of Steve Vanechanos, Sr., the Company's Vice President,
Treasurer, Secretary and a director. See "PRINCIPAL STOCKHOLDERS." Each of the
foregoing individuals disclaims beneficial ownership of the shares of Common
Stock owned by the others.
OFFICE LEASE
The Company leases a portion of its office facility from the Mask Group, a
partnership in which Kenneth R. Konikowski, the Executive Vice President of the
Company and a director, and his wife are partners. The annual rent for the year
ended September 30, 1997 under such lease is approximately $42,000, subject to
fixed annual increases of 3%, plus the payment of condominium maintenance fees.
The lease expires on December 31, 2002. The Company believes that the rent
charged by the Mask Group approximates fair market rents in the area and is no
less favorable to the Company than would have been obtained from an unaffiliated
third party for similar office space. The Company is jointly obligated with the
Mask Group on approximately $246,000 of indebtedness (as of September 1, 1997)
to a third party lender to the Mask Group relating to a mortgage loan on those
premises. The Mask Group is making the payments on that loan, and has informed
the Company that the loan is current.
OFFICER LOANS
Steven L. Vanechanos, Jr. has loaned $167,675 to the Company, $23,000 of
which was advanced on July 11, 1997, $35,000 of which was advanced on July 28,
1997, $875 of which was advanced on August 1, 1997, $16,000 of which was
advanced on August 11, 1997, $2,800 of which was advanced on September 26, 1997,
$25,000 of which was advanced on December 9, 1997, $50,000 of which was advanced
on December 10, 1997 and $15,000 of which was advanced on December 11, 1997.
Steve Vanechanos, Sr. has loaned $40,000 to the Company, $7,000 of which was
advanced on July 23, 1997, $30,000 of which was advanced on July 28, 1997, and
$3,000 of which was advanced on August 20, 1997. These loans bear interest at 8%
per annum, and will be repaid from the proceeds of this Offering. See "USE OF
PROCEEDS."
43
<PAGE> 48
FUTURE TRANSACTIONS
All future transactions between the Company and its officers, directors,
principal shareholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and will have terms no less
favorable to the Company than could be obtained from unrelated third parties.
SHAREHOLDINGS OF CERTAIN PRINCIPALS
In connection with August 1997 Financing, the placement agent, H.J. Meyers
& Co., Inc., required that Steven L. Vanechanos, Jr. and Steve Vanechanos, Sr.
make a contribution to the capitalization of the Company. That contribution was
in the form of a relinquishment of a portion of their previously outstanding
Common Stock. In particular, on October 31, 1997, Steven L. Vanechanos, Jr. and
Steve Vanechanos, Sr. each contributed to the Company, for a total of $1.00 paid
to each, 33,330 shares of Common Stock of the Company owned by them. Steven L.
Vanechanos, Jr. and Steve Vanechanos, Sr. also participated in the Contribution
of Stock. See "RECENT DEVELOPMENTS -- Contribution of Stock By Certain
Shareholders."
44
<PAGE> 49
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.0001 par value per share, and 5,000,000 shares of undesignated
Preferred Stock. As of the date of this Prospectus (and giving effect to the
Reserve Stock Split and the Contribution of Stock to the capital of the Company,
each as described in this Prospectus), there were issued and outstanding
1,420,113 shares of Common Stock and no shares of Preferred Stock. As of January
1, 1998, the Common Stock is held of record by approximately 3,255 stockholders.
COMMON STOCK
Holders of Common Stock have the right to cast one vote, in person or by
proxy, for each share owned of record on the record date (as defined in the
Company's by-laws) on all matters submitted to a vote of the holders of Common
Stock, including the election of directors. Holders of Common Stock do not have
cumulative voting rights, which means that holders of more than 50% of the
outstanding shares voting for the election of the class of directors to be
elected by the Common Stock can elect all of such directors, and, in such event,
the holders of the remaining shares of Common Stock will be unable to elect any
of the Company's directors.
Holders of the Common Stock are entitled to share ratably in such dividends
as may be declared by the Board of Directors out of funds legally available
therefor, when, as and if declared by the Board of Directors and are also
entitled to share ratably in all of the assets of the Company available for
distribution to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the affairs of the Company. Holders of Common Stock
do not have preemptive, subscription or conversion rights. All outstanding
shares of Common Stock are, and those shares of Common Stock offered hereby will
be, validly issued, fully paid and non-assessable.
REPRESENTATIVE'S WARRANTS
In connection with this Offering, the Company issued to the Representative
warrants to purchase an aggregate of 80,000 shares of Common Stock. See
"UNDERWRITING" for a description of the material terms of the Representative's
Warrant.
STOCK OPTION PLANS
The Company has adopted a 1997 Employee Stock Option Plan pursuant to which
it may issue options to purchase up to 234,764 shares of Common Stock. The
Company has granted 203,392 options under the 1997 Employee Plan. The Company
also has adopted the 1997 Stock Option Plan for Outside Directors, pursuant to
which it may issue options to purchase up to 78,254 shares of Common Stock. The
Company has granted 15,648 options under the 1997 Director Plan. See
"MANAGEMENT -- Stock Option Plans."
WARRANTS TO CONTRIBUTING SHAREHOLDERS
In connection with the contribution of Common Stock to the Company by
certain of the Company's existing shareholders, the Company has granted common
stock purchase warrants to purchase an aggregate of 125,000 shares of Common
Stock at $6.00 per share. See "RECENT DEVELOPMENTS -- Contributions of Stock by
Certain Shareholders."
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of undesignated
Preferred Stock ("Undesignated Preferred Stock"). The Undesignated Preferred
Stock may be issued in series, and shares of each series will have such rights
and preferences as are fixed by the Board of Directors in the resolutions
authorizing the issuance of that particular series. In designating any series of
Undesignated Preferred Stock, the Board of
45
<PAGE> 50
Directors may, without further action by the holders of Common Stock, fix the
number of shares constituting that series and fix the dividend rights, dividend
rate, conversion rights, voting rights (which may be greater or lesser than the
voting rights of the Common Stock), rights and terms of redemption (including
any sinking fund provisions), and the liquidation preferences of the series of
Undesignated Preferred Stock. The holders of any series of Undesignated
Preferred Stock, when and if issued, are expected to have priority claims to
dividends and to any distributions upon liquidation of the Company, and they may
have other preferences over the holders of the Common Stock.
The Board of Directors may issue series of Undesignated Preferred Stock
without action by the stockholders of the Company. Accordingly, the issuance of
Undesignated Preferred Stock may adversely affect the rights of the holders of
the Common Stock. In addition, the issuance of Undesignated Preferred Stock may
be used as an "anti-takeover" device without further action on the part of the
stockholders. Issuance of Undesignated Preferred Stock may dilute the voting
power of holders of Common Stock (such as by issuing Undesignated Preferred
Stock with super-voting rights) and may render more difficult the removal of
current management, even if such removal may be in the shareholders' best
interest. The Company has no present intention to issue any shares of
Undesignated Preferred Stock. In addition, the Company has, pursuant to the
Underwriting Agreement, agreed with the Representative that the Company will not
sell or otherwise issue any shares of preferred stock for two years following
this Offering, without the Representative's prior written consent.
CERTAIN ANTI-TAKEOVER PROVISIONS IN THE CERTIFICATE OF INCORPORATION AND BYLAWS
Classified Board of Directors and Related Provisions
The Company's Certificate of Incorporation provides that the Board of
Directors is to be divided into three classes which shall be as nearly equal in
number as possible. The directors in each class will hold office following their
initial appointment to office for terms of one year, two years and three years,
respectively and, upon reelection, will serve for terms of three years
thereafter. Each director will serve until his or her successor is elected and
qualified.
The Company's Certificate of Incorporation provides that a director may be
removed by shareholders only upon the affirmative vote of at least a majority of
the votes which all shareholders would be entitled to cast. The Company's
Certificate of Incorporation further provides that the Board of Directors shall
have the exclusive power to fill any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, by a majority vote of the directors then in office. Any director so
elected shall serve until the next annual meeting of shareholders.
A classified board of directors makes it more difficult for shareholders,
including those holding a majority of the outstanding shares of Common Stock, to
force an immediate change in the composition of a majority of the Board of
Directors. Because the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the shareholders to
change a majority, whereas a majority of a non-classified board may be changed
in one year. In the absence of the provisions of the Company's Certificate of
Incorporation classifying the Board, all of the directors would be elected each
year.
Other Antitakeover Provisions
The Company's Certificate of Incorporation contains certain other
provisions that may also have the effect of deterring or discouraging, among
other things, a non-negotiated tender or exchange offer for the Common Stock, a
proxy contest for control of the Company, the assumption of control of the
Company by a holder of a large block of the Common Stock and the removal of the
Company's management. These provisions: (i) empower the Board of Directors,
without shareholder approval, to issue preferred stock, the terms of which,
including voting power, are set by the Board; (ii) restrict the ability of
shareholders to remove directors; (iii) require that shareholders with at least
80% of total voting power approve mergers and other similar transactions if the
transaction is not approved, in advance, by the Board of Directors; (iv)
prohibit shareholders' actions without a meeting; (v) require that shareholders
with at least 80%, or in certain instances a majority, of total voting power
approve the repeal or further amendment of the Certificate of Incorporation;
46
<PAGE> 51
(vi) limit the right of a person or entity to vote more than 10% of the
Corporation's voting stock; and (vii) require that shares with at least 66 2/3%
of total voting power approve any repeal or amendment of the Bylaws.
TRANSFER AGENT
The Company has appointed American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York, 10005 as Transfer Agent for its Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 2,220,113 shares of
Common Stock outstanding. Of those shares, a total of 992,656 shares, including
the 800,000 shares offered hereby will be freely tradeable without further
registration under the Securities Act.
Up to 80,000 additional shares of Common Stock may be purchased by the
Representative after the first anniversary date of this Prospectus through the
exercise of the Representative's Warrant. Any and all shares of Common Stock
purchased upon exercise of the Representative's Warrant will be freely
tradeable, provided that the Company satisfies certain securities registration
and qualification requirements in accordance with the terms of the
Representative's Warrant. See "UNDERWRITING."
Of the expected 2,220,113 shares of Common Stock outstanding upon
completion of this Offering, approximately 1,227,000 shares of Common Stock are
"restricted securities" within the meaning of Rule 144 of the Securities Act. Of
those shares, approximately 697,000 shares are held by the Company's officers
and directors and therefore are subject to the 24 month resale restriction (the
"lock-up") imposed by the Representative (see "UNDERWRITING"), and approximately
369,000 shares may be sold pursuant to Rule 144 immediately after the effective
date of the Registration Statement. Four months after the effective date of the
Registration Statement, an additional 44,000 shares may be sold pursuant to Rule
144. If the lock-up were waived, all 697,000 shares subject to the lock-up could
be sold immediately after the effective date of the Registration Statement. As
of six months after the date of this Prospectus, approximately 39,000 shares
will continue to be "restricted securities" under Rule 144. See "UNDERWRITING,"
"RISK FACTORS -- Shares Eligible For Future Sale."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares
beneficially owned for at least one year that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock, or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice, and the availability of current public information about
the Company. However, a person who is not deemed to have been an affiliate of
the Company during the 90 days preceding a sale by such person, and who has
beneficially owned shares of Common Stock for at least two years, may sell such
shares without regard to the volume, manner of sale, or notice requirements of
Rule 144.
Prior to this Offering, there has been a limited public market for the
Company's securities. Following this Offering, the Company cannot predict the
effect, if any, that sales of Common Stock pursuant to Rule 144 or otherwise, or
the availability of such shares for sale, will have on the market price
prevailing from time to time. Nevertheless, sales by the current stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Common Stock. In addition, the availability for
sale of a substantial amount of Common Stock acquired through the exercise of
the Representative's Warrant could adversely affect prevailing market prices for
the Common Stock. The Company's officers, Directors and holders of 5% of the
outstanding shares of Common Stock have agreed not to sell the shares
beneficially owned by such persons for a period of 24 months from the date of
this Prospectus without the Representative's written consent. In addition, the
Company has agreed that it will not issue any shares of Common Stock for a
period of 12 months following the date of this Prospectus without the
Representative's written consent, except for shares of Common Stock issuable
upon exercise of stock options that have been or may be granted under the
Employee Plans.
47
<PAGE> 52
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company and H.J. Meyers &
Co., Inc., as Representative of the Underwriters, to purchase from the Company
the number of shares of Common Stock set forth opposite their names. The 10%
underwriting discount set forth on the cover page of this Prospectus will be
allowed to the Underwriters at the time of delivery to the Underwriters of the
shares of Common Stock so purchased.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
NAME OF UNDERWRITER PURCHASED
------------------------------------------------------------------ ---------
<S> <C>
H.J. Meyers & Co., Inc............................................
--------
TOTAL................................................... 800,000
========
</TABLE>
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the front cover page of this Prospectus, and at such price less a
concession not in excess of $ per share of Common Stock to certain
dealers who are members of the National Association of Securities Dealers, Inc.,
of which the Underwriters may allow and such dealers may reallow concessions not
in excess of $ per share of Common Stock to certain other dealers. The
public offering price and concession and discount may be changed by the
Underwriters after the initial public offering.
The Company has granted to the Underwriters an over-allotment option
expiring at the close of business on the 45th day subsequent to the date of this
Prospectus, to purchase up to an additional 120,000 shares of Common Stock at
the public offering price, less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option only to
satisfy over-allotments in the sale of the shares of Common Stock.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 3% of the total proceeds of this Offering, or
$144,000 (and 3% of the total proceeds from the sale of any shares of Common
Stock pursuant to the exercise of the over-allotment option, or $165,600 if the
Underwriters exercise the over-allotment option in full). In addition to the
Underwriters' commissions and the Representative's expense allowance, the
Company is required to pay the costs of qualifying the shares of Common Stock
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with this Offering.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration, the Representative's Warrant to
purchase up to 80,000 shares of Common Stock of the Company. The shares of
Common Stock subject to the Representative's Warrant are identical to the shares
of Common Stock sold to the public, except for the purchase price and certain
registration rights. The Representative's Warrant will be exercisable for a
four-year period commencing one year from the date of this Prospectus, at an
exercise price of $9.90 per share of Common Stock (that being 165% of the
initial public offering price per share of Common Stock). The Representative's
Warrant will be restricted from sale, assignment, pledge or hypothecation prior
to their initial exercise date except to successors in interest to the
Representative and/or one or more officers of the Representative.
The Representative's Warrant will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transactions. The
Representative's Warrant does not entitle the Representative to any rights as a
shareholder of the Company until such warrants are exercised and the shares of
Common Stock are purchased thereunder.
48
<PAGE> 53
The Representative's Warrant and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance with
the applicable provisions of the Act. The Company has agreed that if it causes a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, or a new registration statement or offering statement under
Regulation A, to be filed with the Securities and Exchange Commission
("Commission"), the Representative shall have the right during the life of the
Representative's Warrant to include therein for registration the
Representative's Warrant and/or the shares of Common Stock issuable upon their
exercise at no expense to the Representative. Additionally, the Company has
agreed that, upon demand by the holder(s) of at least 50% of the (i) total
unexercised Representative's Warrant and (ii) shares of Common Stock issued upon
the exercise of the Representative's Warrant, made on no more than two separate
occasions during the exercise period of the Representative's Warrant, the
Company shall use its best efforts to register the Representative's Warrant
and/or any of the shares of Common Stock issuable upon the exercise thereof,
provided that the Company has available current financial statements, the
initial such registration to be at the Company's expense and the second at the
expense of the holder(s).
For the period during which the Representative's Warrant are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder(s) of the Representative's
Warrant can be expected to exercise the warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Representative's Warrant. Such facts may materially
adversely affect the terms on which the Company can obtain additional financing.
The Company has agreed to enter into a one year consulting agreement with
the Representative, pursuant to which the Representative will act as financial
consultant to the Company, commencing upon the closing date of this Offering.
Under the terms of this agreement, the Representative, to the extent reasonably
required in the conduct of the business of the Company and at the prior written
request of the President of the Company, has agreed to evaluate the Company's
managerial and financial requirements, assist in the preparation of budgets and
business plans, advise with regard to sales planning and sales activities, and
assist in financial arrangements. The Representative will make available
qualified personnel for this purpose. The non-refundable consulting fee of
$60,000 will be payable, in full, on the closing date of this Offering.
The Company has agreed that it will engage a public relations firm
acceptable to the Representative and the Company. The Company also has agreed to
maintain a relationship with such public relations firm for minimum period of
two years and on such other terms as are acceptable to the Representative.
The Company has also agreed that, for a period of two years from the
closing of this Offering, if it participates in any merger, consolidation or
other transaction which the Representative has brought to the Company (including
an acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities), which transaction is
consummated within three years of the closing of this Offering, then it will pay
for the Representative's services an amount equal to 5% of the first $3.0
million of value paid or value received in the transaction, 3.5% of any
consideration above $3.0 million and less than $5.0 million and 2% of any
consideration in excess of $5.0 million. The Company has also agreed that if,
during this two-year period, someone other than the Representative brings such a
merger, consolidation, or other transaction to the Company, and if the Company
in writing retains the Representative for consultation or other services in
connection therewith, than upon consummation of the transaction the Company will
pay to the Representative as a fee the appropriate amount as set forth above or
as otherwise agreed to between the Company and the Representative.
The Company has agreed that for a period of one year from the date of this
Prospectus the Company will not sell or otherwise dispose of any securities
without the prior written consent of the Representative, which consent shall not
be unreasonably withheld, with the exception of shares of Common Stock issued
pursuant to the exercise of options, warrants or other convertible securities
outstanding prior to the date of this Prospectus. The Company will not sell or
issue any securities pursuant to Regulation S under the Securities Act without
the Representative's prior written consent.
49
<PAGE> 54
The Company's officers, directors and 5% shareholders have agreed that for
a period of 24 months from the date of this Prospectus they will not offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock
acquired prior to this Offering, without the prior written consent of the
Representative.
For a period of 36 months from the closing of this Offering, the
Representative is entitled to designate one member as a nominee for election to
the Company's Board of Directors. Steven L. Vanechanos, Jr. and Steve
Vanechanos, Sr. have agreed to vote their shares in favor of such nominee. If
the Representative elects not to nominate a Board Member, then it shall have the
right to select a person to act as an observer to attend all meetings of the
Board of Directors. The Company has agreed to hold at least four meetings and to
indemnify the Representative's observer against any claims arising out of his
participating at meetings.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Act.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The offering price of the securities being offered hereby was determined by
negotiation between the Company and the Representative. Factors considered in
determining such price include the Reverse Stock Split, contributions of Common
Stock to the capital of the Company, the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the future prospects of the Company, the ability of the Company's
management, the earnings, net worth and financial condition of the Company, the
general condition of the securities markets at the time of this Offering, the
recent trading price of the Common Stock, and the prices of similar securities
of comparable companies. On December 16, 1997, prior to both the Contribution of
Stock and the Reverse Stock Split, the bid price of the Common Stock was $ 31/32
per share. If that bid price was adjusted in proportion to both the Contribution
of Stock and the Reverse Stock Split, that price would have adjusted to $5 3/8.
That pro forma bid price compares to the initial public offering price in this
Offering of $6 per share. That comparison was taken into account by the Company
and the Underwriters as one of the factors involved in determining the public
offering price per share. The last bid price of the Common Stock on January 14,
1998, was $6. January 14, 1998 was after both the date of the Contribution of
Stock and the effective date of the Reverse Stock Split. Accordingly, it appears
that the trading market reflected the effects of both the Contribution of Stock
and the Reverse Stock Split by adjusting the bid price upwards on a
proportionate basis. The Representative confirmed the $6 per share public
offering price for the Common Stock in this Offering on the basis of that actual
trading price.
On July 16, 1996, the NASD issued a Notice of Acceptance, Waiver and
Consent (the "AWC") whereby the Underwriter was censured and ordered to pay
fines and restitution to retail customers in the amount of $250,000 and
approximately $1.025 million, respectively. The AWC was issued in connection
with claims by the NASD that the Underwriter charged excessive markups and
markdowns in connection with the trading of four securities originally
underwritten by the Underwriter. The activities in question occurred between
December 1990 and October 1993. The Underwriter has informed the Company that
the fines and refunds will not have a material adverse effect on the
Underwriter's operations and that the Underwriter has effected remedial measures
to help ensure that the subject conduct does not recur.
INTERIM FINANCINGS
In April, 1997, the Company completed a private placement of $600,000 of
unsecured subordinated Promissory Notes and 74,760 shares of Common Stock (the
"April 1997 Financing"). The April 1997 Financing consisted of the sale by the
Company of 24 units, each composed of a $25,000 unsecured, subordinated
Promissory Note and 3,115 shares of Common Stock. Those notes will be repaid
from the proceeds of this Offering.
The net proceeds to the Company from the April 1997 Financing totaled
approximately $492,000. Those net proceeds were used for Company operations from
April 1997 through August 1997. $50,000 was used to repay officer loans, $60,000
was used to pay legal and accounting expenses associated with the Company's
50
<PAGE> 55
filing of its periodic reports under the Securities and Exchange Act of 1934 and
the holding of its 1997 Annual Meeting of Stockholders, and the balance,
approximately $382,000, was used to fund operating deficits incurred by the
Company during that period. Of those operating deficits, the Company believes
that approximately $150,000 is allocable to the support of the marketing
activities of the Company, approximately $100,000 is allocable to the
compensation of personnel in operations and other costs of services, and the
balance of $132,000 is allocable to the support of the general and
administrative activities of the Company.
H.J. Meyers, Inc., the Representative, acted as placement agent in
connection with the April 1997 Financing and received commissions and a
non-accountable expense allowance in the aggregate amount of $78,000.
All of the investors in the August 1997 Financing and the April 1997
Financing have relinquished shares in the Contribution of Stock. See "RECENT
DEVELOPMENTS -- Contribution of Stock By Certain Shareholders." As a result,
there are now approximately 44,000 shares presently outstanding in respect of
the April 1997 Financing and approximately 39,000 shares presently outstanding
in respect of the August 1997 Financing.
In August, 1997, the Company completed a second private placement (the
"August 1997 Financing") of $500,000 of unsecured, subordinated Promissory Notes
and 66,660 shares of Common Stock divided into 20 units, each composed of a
$25,000 unsecured, subordinated Promissory Note and 3,333 shares of Common
Stock. Those notes will be repaid from the proceeds of this Offering.
The net proceeds to the Company from the August Financing were
approximately $427,500, which were used for Company operations, including sales
and marketing expense, product development, operations, and working capital.
H.J. Meyers, Inc. acted as placement agent in connection with the August
1997 Financing and received commissions and a non-accountable expense allowance
in the aggregate amount of $65,000.
For financial accounting purposes, the Company has allocated the amounts
raised in each private placement between the Promissory Notes and the shares of
Common Stock included in the units, based upon the "fair value" of the Common
Stock at the time of issuance of the respective units. In the case of the April
1997 Financing, the Company allocated $450,000 to the shares and the remaining
$150,000 to the notes. In the case of the August 1997 Financing, the Company
allocated $400,000 to the shares and the remaining $100,000 to the notes. The
difference between the face amount of the notes and the aforesaid amounts
allocated to them represents debt discount. Thus, the debt discount for the
April notes is $450,000 and the debt discount for the August notes is $400,000.
Further, the Company incurred deferred financing fees of $108,000 in the
April 1997 Financing and $72,500 in the August 1997 Financing.
The debt discount and deferred financing fees are amortized over the period
ending with the expected completion of this Offering and charged to operations.
A portion of the debt discount and deferred financing fees have been charged to
operations prior to the date of this Prospectus, and the unamortized balance
will be charged to operations when the debt is repaid, which is expected to be
out of the net proceeds of this Offering.
The Company presently has two lines of credit from commercial lenders.
Those lines of credit are personally guaranteed by Steve Vanechanos, Sr., Steven
L. Vanechanos, Jr., and Kenneth Konikowski.
One line of credit is in the maximum amount of $50,000 from Fleet Bank. The
interest rate on the Fleet Bank line of credit is 10.5% per annum. The Fleet
Bank line of credit has no stated maturity and is payable on demand. The other
line of credit is in the maximum amount of $47,000 from Wells Fargo Bank. The
interest rate on the Wells Fargo Bank line of credit is 13.25% per annum. The
Wells Fargo Bank line of credit also has no stated maturity and is payable on
demand.
As of the date of this Prospectus, the Company owes $49,750 on the Fleet
Bank line of credit. Approximately $15,000 was advanced to Software Associates
in November of 1996, prior to the Company's acquisition of Software Associates.
The balance was advanced during November of 1997, and was used by the
51
<PAGE> 56
Company to meets its payroll expense. Also, as of the date of this Prospectus,
the Company owes $47,400 on the Wells Fargo Bank line of credit. $10,000 was
advanced to the Company in March, 1997, and the balance was advanced in
November, 1997, and was used by the Company to meet its payroll expense.
LEGAL MATTERS
Certain legal matters relating to the Common Stock offered hereby have been
passed upon for the Company by the law firm of Stevens & Lee, Wayne,
Pennsylvania and Cherry Hill, New Jersey. Certain legal matters in connection
with the Offering will be passed upon for the Representative by Harter, Secrest
& Emery, LLP, Rochester, New York.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the securities offered hereby (the
"Registration Statement"). This Prospectus, which is a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and exhibits thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified by such reference. For further information with respect to the
Company and such securities, reference is hereby made to the Registration
Statement and the exhibits filed therewith. The Company hereby undertakes to
provide to each person to whom this Prospectus is delivered, upon written or
oral request, a copy of any and all of the information that has been
incorporated by reference in this Prospectus. Such request should be directed to
DynamicWeb Enterprises, Inc., 271 Route 46 West, Building F, Suite 209,
Fairfield, New Jersey, 07004; telephone (973) 244-1000; Attention: Corporate
Secretary.
In addition, the Company is subject to the informational requirements of
the Securities and Exchange Act of 1934 and, in accordance therewith, files
reports, proxy statements and other information with the Commission. All of
these documents may be inspected at the office of the Commission without charge,
450 Fifth Street, N.W., Washington, D.C. 20549 or certain regional offices of
the Commission, located at Seven World Trade Center, 13th Floor, New York, New
York 10048 or 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a Web Site at "http://www.sec.gov" where such material
filed electronically can be examined. Copies of such material may also be
obtained upon payment to the Commission of prescribed fees and rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
EXPERTS
The financial statements of the Company at September 30, 1997 and for each
of the fiscal years in the two year period then ended, and the financial
statements of Software Associates, Inc. at June 30, 1996 and for each of the
fiscal years in the two year period then ended, appearing in this Prospectus and
Registration Statement have been audited by Richard A. Eisner & Company, LLP,
independent auditors, as set forth in their reports thereon (both of which call
attention to substantial doubt as to the ability of the respective Companies to
continue as going concerns) appearing elsewhere herein, and are included herein
in reliance upon such reports given upon the authority of said firm as experts
in auditing and accounting.
52
<PAGE> 57
DYNAMICWEB ENTERPRISES, INC.
I N D E X
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES:
REPORT OF INDEPENDENT AUDITORS.................................................... F-2
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 1997............................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996............................................................. F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996.................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996............................................................. F-6
NOTES TO FINANCIAL STATEMENTS..................................................... F-7
SOFTWARE ASSOCIATES, INC:
REPORT OF INDEPENDENT AUDITORS.................................................... F-18
BALANCE SHEET AS AT JUNE 30, 1996................................................. F-19
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 AND JUNE 30, 1995....... F-20
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED JUNE 30, 1996
AND JUNE 30, 1995.............................................................. F-21
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995...... F-22
NOTES TO FINANCIAL STATEMENTS..................................................... F-23
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
DynamicWeb Enterprises, Inc.
Fairfield, New Jersey
We have audited the accompanying consolidated balance sheet of DynamicWeb
Enterprises, Inc. and subsidiaries as at September 30, 1997 and the related
consolidated statements of operations, changes in capital deficiency and cash
flows for the years ended September 30, 1997 and September 30, 1996. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the financial position of DynamicWeb
Enterprises, Inc. and subsidiaries as at September 30, 1997 and the results of
their operations and their cash flows for the years ended September 30, 1997 and
September 30, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A, the Company
had a loss of approximately $3,163,000 for the year ended September 30, 1997, a
working capital deficiency of approximately $1,044,000 and a capital deficiency
of approximately $651,000 and a substantial portion of its resources may be
depleted before it is able to market and derive significant revenues from its
products and services. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Richard A. Eisner & Company, LLP
New York, New York
November 11, 1997
With respect to Note F
December 12, 1997
With respect to Note G[6]
December 23, 1997
With respect to Note G[5]
January 9, 1998
F-2
<PAGE> 59
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 188,270
Accounts receivable, less allowance for doubtful accounts of $83,673.......... 100,425
Prepaid and other current assets.............................................. 20,738
------------
Total current assets.................................................. 309,433
Property and equipment (Notes D and E).......................................... 284,512
Patents and trademarks, less accumulated amortization of $4,851................. 21,808
Customer list, less accumulated amortization of $16,667 (Note L)................ 83,333
Deferred financing fees, less accumulated amortization of $129,127
(Notes G[3] and G[4])......................................................... 51,373
Deferred registration costs (Note M)............................................ 128,169
Other assets.................................................................... 9,088
------------
TOTAL................................................................. $ 887,716
============
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable.............................................................. $ 182,340
Accrued expenses -- professional fees......................................... 86,250
Accrued expenses -- other..................................................... 79,691
Current maturities of long-term debt (Note E)................................. 7,925
Loan payable -- banks (Note F)................................................ 24,049
Loans from stockholders (Note F).............................................. 117,163
Deferred revenue.............................................................. 15,065
Subordinated notes payable -- interim financing, less unamortized debt
discount of $259,127 (Notes G[3] and G[4])................................. 840,873
------------
Total current liabilities............................................. 1,353,356
Long-term debt, less current maturities (Note E)................................ 185,811
------------
Total liabilities..................................................... 1,539,167
------------
Commitments, contingencies and other matters (Notes K and M)
Capital deficiency (Notes A, G, H, L and M):
Preferred stock -- par value to be determined with each issue; 5,000,000
shares authorized; no shares issued
Common stock -- $.0001 par value; 50,000,000 shares authorized; 2,141,370
shares issued and to be issued............................................. 214
Additional paid-in capital.................................................... 3,530,324
Unearned portion of compensatory stock options................................ (204,000)
Accumulated deficit........................................................... (3,577,989)
------------
Total................................................................. (251,451)
Less treasury stock, at cost -- 66,660 shares................................. (400,000)
------------
Total capital deficiency.............................................. (651,451)
------------
TOTAL................................................................. $ 887,716
============
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-3
<PAGE> 60
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Net sales (Note J[3]):
System sales..................................................... $ 116,106 $ 147,337
Services......................................................... 521,071 312,730
--------- ---------
Total.................................................... 637,177 460,067
--------- ---------
Cost of sales:
System sales..................................................... 40,323 71,205
Services......................................................... 213,180 81,194
--------- ---------
Total.................................................... 253,503 152,399
--------- ---------
Gross profit....................................................... 383,674 307,668
--------- ---------
Expenses:
Selling, general and administrative.............................. 1,854,686 719,443
Research and development......................................... 234,808 28,990
--------- ---------
Total.................................................... 2,089,494 748,433
--------- ---------
Operating (loss)................................................... (1,705,820) (440,765)
Purchased research and development (Note L)........................ (713,710)
Interest expense (including amortization of debt discount and
deferred financing fees of $720,000 for the year ended September
30, 1997 (Notes G[3] and G[4])).................................. (770,041) (23,271)
Interest income.................................................... 5,068 8,806
--------- ---------
(Loss) before income tax benefit................................... (3,184,503) (455,230)
Income tax benefit -- deferred..................................... 21,700
--------- ---------
NET (LOSS)......................................................... $(3,162,803) $ (455,230)
========= =========
Net (loss) per common share (Note C[7])............................ $ (1.59) $ (.27)
========= =========
Weighted-average number of shares outstanding...................... 1,984,507 1,667,202
========= =========
Pro forma net (loss) per common share (Note C[7]).................. $ (2.28) $ (.39)
========= =========
Pro forma weighted average number of shares outstanding............ 1,386,383 1,158,905
========= =========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-4
<PAGE> 61
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(NOTES A, G, H, L AND M)
<TABLE>
<CAPTION>
COMMON STOCK -- RETAINED
PAR VALUE $.0001 ADDITIONAL UNEARNED PORTION EARNINGS TREASURY STOCK
----------------- PAID-IN OF COMPENSATORY (ACCUMULATED ------------------
SHARES AMOUNT CAPITAL STOCK OPTIONS DEFICIT) SHARES AMOUNT TOTAL
--------- ------ ---------- ---------------- ------------ ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- October 1, 1995...... 1,620,804 $162 $ 228,958 $ 40,044 $ 269,164
Issuance of common stock, net
of $52,250 of costs (Note
G[1])....................... 89,604 9 447,741 447,750
Net (loss).................... (455,230) (455,230)
--------- ---- ---------- ----------- -----------
Balance -- September 30, 1996... 1,710,408 171 676,699 (415,186) 261,684
Issuance of common stock (Note
G[2])....................... 65,212 7 249,993 250,000
Issuance of common stock to
acquire subsidiary (Note
L).......................... 224,330 22 859,978 860,000
Shares issuable with the
interim financings (Notes
G[3] and G[4]).............. 141,420 14 849,986 850,000
Payable to stockholders for
fractional shares........... (332) (332)
Contribution from
officers/stockholders (Note
G[4])....................... 400,000 400,000
Treasury stock acquired at
cost (Note G[4])............ 66,660 $(400,000) (400,000)
Unearned portion of
compensatory stock options
(Note H[2])................. 494,000 $ (494,000)
Compensation expense for stock
options (Note H[2])......... 290,000 290,000
Net (loss).................... (3,162,803) (3,162,803)
--------- ---- ---------- --------- ----------- ------ --------- -----------
BALANCE -- SEPTEMBER 30, 1997... 2,141,370 $214 $3,530,324 $ (204,000) $(3,577,989) 66,660 $(400,000) $ (651,451)
========= ==== ========== ========= =========== ====== ========= ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-5
<PAGE> 62
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)............................................................... $(3,162,803) $(455,230)
Adjustment to reconcile net (loss) to net cash (used in) operating
activities:
Depreciation and amortization.......................................... 46,742 23,644
Stock issued for compensation.......................................... 10
Stock options issued for compensation.................................. 290,000
Purchased research and development..................................... 713,710
Deferred income taxes.................................................. (21,700)
Amortization of debt discount and deferred financing fees.............. 720,000
Changes in operating assets and liabilities:
Decrease in accounts receivable...................................... 88,239 3,739
(Increase) decrease in prepaid expenses and other current assets..... 2,242 (6,923)
Increase in accounts payable......................................... 144,455 7,801
Increase in accrued expenses......................................... 92,101 15,293
Increase in deferred revenue......................................... 3,735 122
----------- ----------
Net cash (used in) operating activities........................... (1,083,279) (411,544)
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment.................................... (79,033) (23,838)
Proceeds from sale of equipment.......................................... 1,954
Acquisition of patents and trademarks.................................... (2,997) (21,220)
Cash acquired upon acquisition of subsidiary............................. 15,235
----------- ----------
Net cash (used in) investing activities........................... (64,841) (45,058)
----------- ----------
Cash flows from financing activities:
Payment of long-term debt................................................ (10,556) (11,909)
Proceeds from issuance of common stock................................... 250,000 597,750
Proceeds from loans -- banks............................................. 14,500
Repayment of loans -- banks.............................................. (451)
Loans from officer/stockholder........................................... 199,163
Payment of officer/stockholder loan...................................... (82,000)
Proceeds from sale of units consisting of notes and common stock......... 1,100,000
Payment of deferred registration costs................................... (128,169)
Payment of deferred financing fees....................................... (180,500)
----------- ----------
Net cash provided by financing activities......................... 1,161,987 585,841
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................. 13,867 129,239
Cash and cash equivalents, beginning of year............................... 174,403 45,164
----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $ 188,270 $ 174,403
=========== ==========
Supplemental schedule of noncash investing and financing activities:
On November 30, 1996 the Company acquired Software Associates, Inc. as
described in Note L
In connection with the August 27, 1997 interim financing as described
in Note G[4], certain officers/stockholders contributed 66,660 shares
of common stock to the Company valued at $400,000 which the Company
then placed in treasury
Supplemental disclosure of cash flow information:
Cash paid for interest during the year................................... $ 27,016 $ 21,271
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-6
<PAGE> 63
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) -- BASIS OF PRESENTATION:
The accompanying financial statements include the accounts of DynamicWeb
Enterprises, Inc. ("DWE") and its wholly owned subsidiaries, Megascore, Inc.
DynamicWeb Transactions Systems, Inc. ("DWTS") and Software Associates, from the
date of its acquisition (November 30, 1996) (Note L) (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated.
On March 26, 1996 DWTS was acquired by Seahawk Capital Corporation
("Seahawk"), a publicly held corporation which subsequently changed its name to
DynamicWeb Enterprises, Inc.; it had 114,759 shares of common stock outstanding
and no assets. Prior to the acquisition, Seahawk distributed all of its assets
to its shareholders. In the acquisition, the shareholders of DWTS received
1,281,716 shares of Seahawk's common stock. The acquisition is being accounted
for as if DWTS were the acquiring entity. The shares of Seahawk are accounted
for as being outstanding for all periods presented. In connection with the
acquisition, 191,724 shares were issued to a finder and 19,563 shares were
issued for legal fees. At the conclusion of this transaction, there were
1,607,762 shares outstanding.
DWTS, formerly a division of Megascore, Inc. was established as a separate
legal entity on October 31, 1995. On February 7, 1996 DWTS issued all of its
shares of its common stock to Megascore, Inc. On September 30, 1996, DynamicWeb
Enterprises, Inc. acquired all the common stock of Megascore, Inc. for 13,042
shares of its common stock. The transaction was accounted as a combination of
entities under common control. The accompanying financial statements retain the
historical accounting basis for the net assets of Megascore, Inc. and gives
effect to the operations of Megascore, Inc. for all periods presented.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The company had a
loss of approximately $3,163,000 for the year ended September 30, 1997, a
working capital deficiency of approximately $1,044,000 and a capital deficiency
of approximately $651,000. A substantial portion of its resources may be
depleted before the Company markets and derives significant revenues from its
products and services. These factors raise substantial doubts about the
Company's ability to continue as a going concern. The Company is planning to
raise additional equity through a proposed public offering of stock (Note M).
There is no assurance that the Company's products and services will be
commercially successful.
(NOTE B) -- THE COMPANY:
DWE is in the business of facilitating electronic commerce transactions
between business entities, developing, marketing and supporting software
products and other services that enable business entities to engage in
electronic commerce utilizing the Internet and traditional Electronic Data
Interchange ("EDI"). DWE offers electronic commerce solutions in EDI and
Internet-based transactions processing.
Megascore, Inc. is a full-service systems integrator specializing in
distribution, accounting and point-of-sale computer software consulting services
for suppliers and retailers.
Software Associates, Inc. is a service bureau engaged in the business of
helping companies realize the benefits of expanding their data processing and
electronic communications infrastructures through the use of EDI.
F-7
<PAGE> 64
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE C) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Revenue recognition:
Revenues are recognized when products are shipped, provided that no
significant vendor obligations remain and collection of the resulting receivable
is deemed probable by management. The Company provides customer support to
purchasers of its product and such revenues are recognized when services are
provided. The Company enters into contracts with customers whereby revenues are
earned based upon a per transaction fee.
Deferred revenue represents revenue billed in advance for consulting
support services.
[2] Cash equivalents:
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
[3] Depreciation:
Property and equipment are recorded at cost. Depreciation is provided on an
accelerated method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is provided over the shorter of the lease
term or the estimated useful life of the asset.
[4] Intangible assets:
a) Patents and trademarks:
Costs to obtain patents and trademarks have been capitalized. The Company
has submitted numerous applications which are currently pending. These costs are
being amortized over five years.
b) Customer list:
Customer list had been valued in connection with the acquisition of
Software Associates, Inc. (Note L) and is being amortized over five years.
The Company evaluates its long-lived assets for impairment based upon
undiscounted cash flows. When an impairment occurs, the Company would write down
its assets.
[5] Research and development:
Research and development costs are charged to expense as incurred.
[6] Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 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. The resulting asset for the expected future tax benefit to be
derived primarily from net operating loss carryforwards was fully reserved since
the likelihood of realization of the benefit cannot be established.
[7] Loss per share of common stock:
Net loss per share of common stock is based on the weighted average number
of shares outstanding and shares issuable. Contingent shares issuable in
connection with the acquisition of Software Associates, Inc. (Note L) are
excluded from the weighted average shares outstanding. Pro forma net loss per
share gives retroactive effect to the shares contributed to the Company in
exchange for warrants, see Note G[6].
F-8
<PAGE> 65
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE C) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[8] 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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[9] Fair value of financial instruments:
The Company considers its financial instruments and obligations, which are
carried at cost, to approximate fair value due to the near-term due dates.
[10] Recently adopted accounting pronouncements:
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of ("SFAS 121"), and
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 121 requires, among other things, that entities
identify events or changes in circumstances which indicate that the carrying
amount of a long-lived asset may not be recoverable.
SFAS 123 encourages companies, among other things, to establish a fair
value based method of accounting for stock-based compensation plans and requires
disclosure thereof on a fair value basis. The adoption of SFAS 121 and SFAS 123
did not have a material impact on the Company's financial statements. The
Company has elected to continue to account for employee stock-based compensation
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," using intrinsic values with appropriate disclosures
using the fair value based method.
[11] Recently issued accounting pronouncements:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share".
SFAS 128 is effective for financial statements issued for interim and annual
periods ending after December 15, 1997; after the effective date, all prior
period earnings per share data is required to be restated. The Company believes
that adoption of SFAS 128 will not have a material impact on its financial
statements.
F-9
<PAGE> 66
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE D) -- PROPERTY AND EQUIPMENT:
Property and equipment are as follows at September 30, 1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
-------------------
<S> <C> <C>
Office facility condominium............................. $156,600 20 years
Office equipment........................................ 31,047 5 years
Computer equipment (includes a capitalized lease of
$10,000).............................................. 118,084 5 years
Automobiles............................................. 16,221 5 years
Leasehold improvements.................................. 38,125 Shorter of life of
-------- lease or useful
life of asset
360,077
Accumulated depreciation and amortization............... 116,965
--------
243,112
Land.................................................... 41,400
--------
$284,512
========
</TABLE>
(NOTE E) -- LONG-TERM DEBT:
Long-term debt consists of the following at September 30, 1997:
<TABLE>
<S> <C>
*Mortgage payable -- due July 2015; payable in varying monthly
installments at an interest rate at the lower of prime (8.5% at
September 30, 1997) plus 2% or 14.25%................................... $187,285
Auto loan -- due June 1999 payable in monthly installments of $334 and
5.9% interest........................................................... 6,246
Other..................................................................... 205
--------
Total indebtedness................................................... 193,736
Less current maturities................................................... 7,925
--------
Noncurrent portion................................................... $185,811
========
</TABLE>
Maturities of long-term debt for the next five years at September 30, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------------------------
<S> <C>
1998............................................................ $ 7,925
1999............................................................ 6,526
2000............................................................ 4,000
2001............................................................ 4,000
2002............................................................ 4,000
Thereafter...................................................... 167,285
--------
Total................................................... $193,736
========
</TABLE>
- ---------------
* Collateralized by an office facility condominium and land with a net book
value of approximately $179,800 at September 30, 1997 and is guaranteed by the
Chief Executive Officer and the Vice President of the Company.
F-10
<PAGE> 67
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE F) -- OTHER DEBT:
[1] Lines of credit:
The Company has two lines of credit aggregating $97,500 which are
personally guaranteed by an officer of the Company and have interest rates of 2%
and 4 3/4% above the bank's lending rate (10.5% and 13.25%, respectively). The
Company borrowed $24,049 as at September 30, 1997 and subsequently borrowed
$73,000 in November, 1997.
[2] Loans from stockholders:
In February and March 1997, the Company received a loan from its Chief
Executive Officer ("CEO") of $50,000 which the Company repaid from the net
proceeds of the private placement described in Note G[3]. The Company received
additional loans from its Company's CEO and Vice President aggregating $149,163
bearing interest at 8% of which $32,000 was paid back to the CEO. On December
18, 1997, the Company received an additional loan of $25,000; the loan balance
of approximately $142,000 is expected to be repaid from the net proceeds of the
Company's proposed public offering described in Note M.
(NOTE G) -- STOCKHOLDERS' EQUITY AND INTERIM FINANCING:
[1] On March 26, 1996, the Company completed a stock offering under
Regulation S, whereby it sold 89,604 shares of its common stock for $500,000
less fees in connection with such offering of $52,250 for net proceeds of
$447,750.
[2] On November 21, 1996, the Company sold 65,212 shares of its common
stock for $250,000.
[3] On April 30, 1996, pursuant to Regulation D, the Company completed a
private placement whereby it sold 24 units for an aggregate amount of $600,000.
The placement agent received a fee and nonaccountable expense allowance
aggregating $78,000 or 13% of the private placement offering. Deferred financing
fees in this transaction were approximately $108,000. Each unit consists of a
$25,000 subordinated promissory note bearing interest at 8% and 3,115 shares of
the Company's common stock. The notes are due at the earlier of the closing of
the proposed public offering referred to in Note M; when the Company obtains an
aggregate financing of $2,000,000 excluding expenses or March 31, 1999. The
3,115 shares of common stock in each unit, issued on November 6, 1997, aggregate
to 74,760 shares of common stock.
The common stock was valued at a fair value of $450,000 and $150,000 was
allocated to the notes. Debt discount of $450,000 and deferred financing fees of
$108,000 are amortized over the expected completion of the Company's public
offering of securities. At September 30, 1997 $465,000 of amortization was
expensed and the remaining balance of $93,000 will be charged to operations
through October 31, 1997. The effective interest rate was approximately 191%.
[4] On August 27, 1997, pursuant to Regulation D, the Company completed a
private placement whereby it sold 20 units for an aggregate amount of $500,000.
The placement agent received a fee and nonaccountable expense allowance
aggregating $65,000 or 13% of the private placement offering. Deferred financing
fees in this transaction were approximately $72,500. Each unit consists of a
$25,000 subordinated promissory note bearing interest at 8% and 3,333 shares of
the Company's common stock. In connection with this transaction, two officers of
the Company agreed to contribute 66,660 shares of common stock valued at
$400,000 and the Company placed such shares in treasury. The notes are due at
the earlier of the closing of the proposed public offering referred to in Note
M; when the Company obtains an aggregate financing of $2,000,000 excluding
expenses or September 30, 1999. The 3,333 shares of common stock in each unit,
issued on November 6, 1997, aggregate 66,660 shares of common stock.
The common stock was valued at a fair value of $400,000 and $100,000 was
allocated to the notes. Debt discount of $400,000 and deferred financing fees of
$72,500 are amortized over the expected completion of the
F-11
<PAGE> 68
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE G) -- STOCKHOLDERS' EQUITY AND INTERIM FINANCING: (CONTINUED)
Company's public offering of securities. At September 30, 1997, $255,000 of
amortization was expensed and the remaining balance of $217,500 will be charged
to operations through October 31, 1997. The effective interest rate was
approximately 525%.
[5] On March 7, 1997, the Board of Directors approved a reverse stock split
for each share of common stock to be converted into .2608491 of one share and
authorized 5,000,000 shares of preferred stock. On June 12, 1997, the
shareholders approved such transaction which was completed on January 9, 1998.
Cash is to be issued to the shareholders for any fractional shares. The
accompanying financial statements give retroactive effect to this transaction.
[6] On December 23, 1997, certain of the Company's shareholders agreed to
contribute 654,597 shares of the Company's common stock in exchange for 125,000
warrants. The warrants expire on December 31, 2007; the warrantholders can
purchase the Company's common stock at $6.00 per share. The Company valued the
654,597 shares received at its market value. Also, contingent shares issuable
in connection with the acquisition of Software Associates, Inc. (Note L) were
reduced from 297,367 shares to 178,420 shares.
(NOTE H) -- STOCK OPTION PLANS:
[1] Director stock option plan:
On April 28, 1997, the Board of Directors adopted a stock option plan for
outside directors (the "Director Plan") under which nonqualified stock options
may be granted to its outside directors to purchase up to 78,254 shares of the
Company's common stock. The Director Plan was approved by the shareholders on
June 12, 1997. Pursuant to the Director Plan, directors are to be granted
options to purchase 3,912 shares of the Company's common stock at each annual
meeting of shareholders at which directors are elected. Options may be exercised
for ten years and one month after the date of grant and may not be exercised
during an eleven-month period following the date of grant unless there is a
change in control, as defined in the Director Plan or the compensation committee
waives the eleven-month continuous service requirement. On September 30, 1997,
15,648 options were granted to directors to purchase the Company's common stock
pursuant to the Director Plan; such options expire on October 31, 2007 and are
excercisable immediately.
[2] Employee stock option plan:
On March 7, 1997, the Board of Directors adopted the Company's 1997
employee stock option plan (the "Plan"), amended by the Board of Directors on
April 29, 1997, under which incentive stock option and nonqualified stock
options may be granted to purchase up to 234,764 shares of the Company's common
stock. The Plan was approved by the shareholders on June 12, 1997. Incentive
stock options are to be granted at a price not less than the fair market value,
or 110% of fair market value to an individual who owns more than ten percent of
the voting power of the outstanding stock. Nonqualified stock options are to be
granted at a price determined by the Company's compensation committee. On August
8, 1997, the Company granted 99,054 options to its employees including 6,521 to
employees of Software Associates, Inc. to purchase the Company's common stock
which had a fair value of $6.23 per share at the date of grant and expire on
August 7, 2007. See Note H[3] with respect to exercise price.
F-12
<PAGE> 69
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE H) -- STOCK OPTION PLANS: (CONTINUED)
[2] Employee stock option plan: (continued)
The Company recorded approximately $494,000 of compensation relating to
options issued to its employees in which the fair value exceeded the exercise
price, of which $290,000 was charged to operations in 1997 and $204,000 is to be
charged over the vesting periods as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
----------------------------------------------------------
<S> <C>
1998.................................................... $115,000
1999.................................................... 70,000
2000.................................................... 19,000
--------
Total........................................... $204,000
========
</TABLE>
Additionally, on September 11, 1997, the Company granted 104,338 options to
purchase the Company's common stock at $3.83 per share to its President. See
Note K[2].
[3] Accounting for stock based compensation:
As indicated in Note C[10], the Company elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Pro forma information regarding net loss and loss per share is presented
below as if the Company had accounted for its employee stock options under the
fair value method of that statement; such pro forma information is not
necessarily representative of the effects on reported net income for future
years due to, among other things: (1) the vesting period of the stock options
and the (2) fair value of additional stock options in future years.
Had compensation cost for the Company's stock option plans been determined
based upon the fair value at the grant date for awards under the plans
consistent with the methodology prescribed under SFAS No. 123, the Company's net
loss for the year ended September 30, 1997 would have been approximately
$(3,449,803) or $(1.74) per share and $(2.49) per share as adjusted to reflect
the contribution of shares by certain stockholders in exchange for warrants, see
Note G[6]. The weighted average fair value of the options granted during the
years ended September 30, 1997 are estimated as $3.06 on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
the year ended September 30, 1997: expected dividend yield of 0%, expected
volatility of .5%, risk free interest rates of 6.08%, 6.11% and 6.34% and
estimated life of seven years and ten years.
Additional information with respect to stock option activity is summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30, 1997
--------------------
WEIGHTED
AVERAGE
SHARES PRICE
------- --------
<S> <C> <C>
Balance outstanding -- September 30, 1996................ -0-
Options granted.......................................... 219,040 $ 3.06
------- -----
Balance outstanding -- September 30, 1997................ 219,040 $ 3.06
======= =====
Options exercisable -- September 30, 1997................ 77,723 $ 2.16
======= =====
</TABLE>
F-13
<PAGE> 70
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE H) -- STOCK OPTION PLANS: (CONTINUED)
[3] Accounting for stock based compensation: (continued)
The following table summarizes information about stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER
EXERCISE OF OPTIONS REMAINING EXERCISE OF OPTIONS
PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE
-------- ----------- --------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 6.23 9,388 9.9 $ 6.23
4.55 15,648 10.0 4.55 15,648
3.83 104,338 9.9 3.83
1.56 89,666 9.9 1.56 62,075
----- ------- ---- ----- ------
219,040 77,723
======= ======
</TABLE>
(NOTE I) -- INCOME TAXES:
[1] The Company has a federal and state net operating loss carryforward of
approximately $1,850,000 at September 30, 1997 which expires through 2012
including federal and state net operating loss carryovers of $50,000 and $29,000
attributable to Megascore, Inc. and Software Associates, Inc. which may be used
to offset income earned by those companies. The tax benefits of these deferred
tax assets are fully reserved since the likelihood of realization of the benefit
cannot be established.
The Tax Reform Act of 1986 contains provisions which limits the net
operating loss carryforwards available for use in any given year should certain
events occur, including significant changes in ownership interests. If the
Company is successful in completing a proposed public offering, the utilization
of its net operating loss carryover may be limited.
[2] The tax effects of principal temporary differences and net operating
loss carryforwards are as follows at September 30, 1997:
<TABLE>
<S> <C>
Asset:
Federal and state operating loss carryforwards................ $ 740,000
Debt discount and deferred financing fees..................... 230,000
Compensation expense -- stock options......................... 116,000
Accounts receivable allowance................................. 34,000
Accrued expenses.............................................. 4,000
Accrual basis to cash basis adjustments....................... 6,000
------------
Total................................................. 1,130,000
Valuation allowance............................................. (1,130,000)
------------
Net deferred tax asset.......................................... $ -0-
============
</TABLE>
The increase in the valuation allowance from September 30, 1996 to
September 30, 1997 was approximately $969,000.
F-14
<PAGE> 71
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE I) -- INCOME TAXES: (CONTINUED)
The differences between the statutory Federal income tax rate and the
effective (benefit) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1997 1996
----- -----
<S> <C> <C>
Statutory rate (benefit)..................................... (34.0)% (34.0)%
Nondeductible items.......................................... 8.0
Valuation allowance.......................................... 25.3 34.0
----- -----
Effective tax rate (benefit)................................. (.7)% 0%
===== =====
</TABLE>
(NOTE J) -- CONCENTRATION OF CREDIT RISKS:
[1] Cash and cash equivalents:
The Company places its cash and cash equivalents at various financial
institutions. At times, such amounts might be in excess of the FDIC insurance
limit.
[2] Accounts receivable:
The Company routinely evaluates the credit worthiness of its customers to
limit its concentration of credit risk with respect to its trade receivables.
[3] Significant customers:
The Company had one customer that accounted for 18% of net sales for the
year ended September 30, 1997 and two customers that accounted for 16% and 10%
of net sales for the year ended September 30, 1996.
(NOTE K) -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
[1] Leases:
On October 1, 1996, the Company signed an operating lease for office space
which expires in October 2001. In addition, a subsidiary occupies office space
which is described in Note L. The following are minimum annual rental payments:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
----------------------------------------------------------
<S> <C>
1998.................................................... $ 80,000
1999.................................................... 82,000
2000.................................................... 84,000
2001.................................................... 86,000
2002.................................................... 52,000
--------
Total........................................... $384,000
========
</TABLE>
Rent expense for the year ended September 30, 1997 was approximately
$67,600.
F-15
<PAGE> 72
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE K) -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: (CONTINUED)
[2] Employment contract:
On August 26, 1997, the Company entered into a three-year employment
contract with its President for an annual salary of $160,000. Upon expiration of
the employment contract, the term shall be automatically renewed for one year
unless either party gives written notice prior to ninety days before the
expiration date. In connection with this contract, on September 11, 1997, the
Company granted options to purchase 104,338 shares of common stock at $3.83 per
share which expire in ten years and vest over a three-year period. The fair
value of the stock at the date of grant was $4.55 per share. Included in Note
H[2] is the estimated compensation expense for the option grant.
[3] Late filings and annual report:
The Company was required to file with the Securities and Exchange
Commission Form 10-KSB for September 30, 1996, Form 10-QSB for the quarter ended
March 31, 1997 and December 31, 1996 and an amended Form 8-K for the acquisition
of Megascore, Inc. and Software Associates, Inc. The Company did not distribute
its year ended September 30, 1996 annual report to its shareholders within 120
days after year end. Management believes that the Company has subsequently
complied with all of its filing requirements and has distributed its year ended
September 30, 1996 report to the shareholders.
[4] Stockholders' equity (capital deficiency):
In connection with the acquisition of Software Associates, Inc., as
described in Note L, the Company agreed to issue up to 297,367 additional shares
(134,598 shares after the contribution of shares by certain stockholders. See
Note G[5]) of its common stock in the event that the average closing bid price
of the Company's common stock does not equal $12.939 per share (after the
contribution of shares by certain stockholders, see Note G[6], the price was
adjusted to $21.565 per share) for five trading days immediately prior to
January 30, 2000.
(NOTE L) -- ACQUISITION AND RELATED PARTY TRANSACTION:
On November 30, 1996, the Company entered into a stock purchase agreement
with Software Associates, Inc. and its sole shareholder (the "SA Agreement")
whereby the Company acquired all the issued and outstanding common stock of
Software Associates, Inc. The Company exchanged 224,330 (134,598 shares after
contributions of shares by certain stockholders, see Note G[6]) shares of its
common stock for all of the issued and outstanding shares of Software
Associates, Inc. The Company further agreed to issue up to 297,367 (178,420
shares after contributions of shares by certain stockholders, see Note G[6])
additional shares of its common stock in the event that the average closing bid
price of the Company's common stock does not equal $12.939 per share (after the
contribution of shares by certain stockholders, see Note G[6], the price was
adjusted to $21.565 per share) for the five trading days immediately prior to
January 30, 2000. In connection with this transaction, the Company incurred
approximately $25,000 of professional fees.
The SA Agreement also required the Company to issue options for the
purchase of 6,521 shares of its common stock to employees of Software
Associates, Inc., which were issued in August 1997.
In connection with the acquisition, the Company entered into a five-year
employment contract with the sole shareholder/president of Software Associates,
Inc. The agreement provides for an annual salary of approximately $136,000 and
includes a discretionary bonus as determined by the Company's Board of
Directors.
Software Associates, Inc., occupies its office space through December 31,
2002 from a partnership whose partners are the Executive Vice President of the
Company and his wife. The lease provides for an annual increase of three percent
and requires the Company to pay condominium maintenance fees. The partnership
and Software Associates, Inc. are jointly liable on the mortgage which was
approximately $246,000 as at
F-16
<PAGE> 73
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE L) -- ACQUISITION AND RELATED PARTY TRANSACTION: (CONTINUED)
September 30, 1997, the debt is being paid by the partnership, and matures in
August 2019. The Company is informed that the partnership's mortgage balance is
current.
The purchase price was recorded as follows at November 30, 1996:
<TABLE>
<S> <C>
Current assets.................................................... $133,381
Fixed assets...................................................... 5,167
Purchased research and development................................ 713,710
Customer list..................................................... 100,000
Current liabilities............................................... (67,258)
--------
$885,000
========
</TABLE>
Purchased research and development was charged to operations upon
acquisition. The acquisition was recorded as a purchase.
The condensed unaudited pro forma and as adjusted (gives effect to the
contribution of stock by certain shareholders in exchange for warrants, see Note
G[6]) information of the Company for the year ended September 30, 1997 and
September 30, 1996 are presented as if the acquisition of Software Associates,
Inc. occurred on October 1, 1996 and October 1, 1995. The pro forma and as
adjusted information are not necessarily indicative of the results that would
have been reported had the acquisition occurred on those dates nor is it
indicative of the Company's future results.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
SEPTEMBER 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Net sales.................................................. $ 764,144 $1,127,447
=========== ==========
Net (loss)................................................. (2,439,569)* (550,940)
=========== ==========
(Loss) per share........................................... $ (1.21) $ (.29)
=========== ==========
Weighted-average shares outstanding........................ 2,021,997 1,891,532
=========== ==========
(Loss) per share as adjusted............................... $ (1.73) $ (.43)
=========== ==========
Weighted-average shares outstanding as adjusted............ 1,408,877 1,293,503
=========== ==========
</TABLE>
- ---------------
* Excludes a charge of approximately $714,000 for purchased research and
development appearing in the historical financial statements for the year
ended September 30, 1997.
(NOTE M) -- CONTEMPLATED PUBLIC OFFERING:
On February 1, 1997, the Company signed a letter of intent with an
underwriter with respect to a contemplated public offering of the Company's
securities. The Company expects to incur significant additional costs in
connection therewith. In the event that the offering is not successfully
completed, such costs will be charged to expense.
F-17
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Software Associates, Inc.
Fairfield, New Jersey
We have audited the accompanying balance sheet of Software Associates, Inc.
as at June 30, 1996 and the related statements of operations, changes in
stockholder's equity and cash flows for the years ended June 30, 1996 and June
30, 1995. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Software Associates, Inc. as
at June 30, 1996 and the results of its operations and its cash flows for the
years ended June 30, 1996 and June 30, 1995, in conformity with generally
accepted accounting principles.
The Company has sustained a net loss in the year ended June 30, 1996 and
has only minimal capital and working capital. Also, as indicated in Note A, on
November 30, 1996, the Company was acquired by DynamicWeb Enterprises, Inc. a
substantial portion of whose resources may be depleted before it markets and
derives significant revenues from its products and services. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The acquiror's plan in regards to these matters are also described in Note A.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Richard A. Eisner & Company, LLP
New York, New York
May 12, 1997
With respect to Note F[1]
September 5, 1997
F-18
<PAGE> 75
SOFTWARE ASSOCIATES, INC.
BALANCE SHEET
AS AT JUNE 30, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash........................................................................... $12,455
Accounts receivable, less allowance for doubtful accounts of $6,938............ 61,209
-------
Total current assets................................................... 73,664
Equipment, less accumulated depreciation of $4,000............................... 6,000
-------
Total.................................................................. $79,664
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $13,548
Accrued expenses and other current liabilities................................. 13,955
Current maturities of long-term debt (Note C).................................. 3,350
Deferred taxes (Note D)........................................................ 1,000
-------
Total current liabilities.............................................. 31,853
Long-term debt, less current maturities (Note C)................................. 279
-------
Total liabilities...................................................... 32,132
-------
Commitments and contingencies (Note F)
Stockholder's equity (Note A):
Common stock -- no par value; 2,500 shares authorized, issued and
outstanding................................................................. 16,000
Additional paid-in capital..................................................... 23,641
Retained earnings.............................................................. 7,891
-------
Total stockholder's equity............................................. 47,532
-------
Total.................................................................. $79,664
=======
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-19
<PAGE> 76
SOFTWARE ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues (Note E[2]):
System sales, net.................................................... $380,397 $259,459
Services, net........................................................ 286,983 529,975
-------- --------
Total........................................................ 667,380 789,434
-------- --------
Cost of sales:
System sales......................................................... 108,361 78,680
Services............................................................. 79,944 84,016
-------- --------
Total........................................................ 188,305 162,696
-------- --------
Gross profit........................................................... 479,075 626,738
Selling, general and administrative.................................... 555,660 610,407
-------- --------
Operating (loss) income before interest and taxes...................... (76,585) 16,331
Interest expense....................................................... 125 130
-------- --------
(Loss) income before income taxes...................................... (76,710) 16,201
Income tax benefit (provision) -- deferred............................. 29,000 (11,000)
-------- --------
NET (LOSS) INCOME...................................................... $(47,710) $ 5,201
======== ========
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-20
<PAGE> 77
SOFTWARE ASSOCIATES, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(NOTE A)
<TABLE>
<CAPTION>
COMMON STOCK --
NO PAR VALUE ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance -- July 1, 1994................. 2,500 $16,000 $ 23,641 $ 50,400 $ 90,041
Net income............................ 5,201 5,201
----- ------- ------- -------- --------
Balance -- June 30, 1995................ 2,500 16,000 23,641 55,601 95,242
Net (loss)............................ (47,710) (47,710)
----- ------- ------- -------- --------
Balance -- June 30, 1996................ 2,500 $16,000 $ 23,641 $ 7,891 $ 47,532
===== ======= ======= ======== ========
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-21
<PAGE> 78
SOFTWARE ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................................... $(47,710) $ 5,201
Adjustment to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation...................................................... 2,000 2,000
Deferred income taxes............................................. (29,000) 11,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...................... 83,065 (76,753)
Increase (decrease) in accounts payable......................... (13,305) 11,003
Increase in accrued expenses and other liabilities.............. 5,342 7,024
-------- --------
Net cash provided by (used in) operating activities.......... 392 (40,525)
Cash flows from financing activities:
Payments of long-term debt........................................... (3,350) (3,021)
-------- --------
NET (DECREASE) IN CASH................................................. (2,958) (43,546)
Cash -- beginning of year.............................................. 15,413 58,959
-------- --------
CASH -- END OF YEAR.................................................... $ 12,455 $ 15,413
======== ========
Supplemental schedule of noncash investing and financing activities:
During the year ended June 30, 1995, the Company financed $10,000
of equipment.
Supplemental disclosures of cash flow information:
Cash paid for during the year:
Interest.......................................................... $ 125 $ 130
Taxes............................................................. 125
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-22
<PAGE> 79
SOFTWARE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) -- THE COMPANY:
Software Associates, Inc. (the "Company") is a New Jersey corporation
incorporated in March 1985. The Company is an Electronic Data Interchange
("EDI") service bureau engaged in the business of helping companies realize the
benefits of expanding their data processing and electronic communications
infrastructures through the use of EDI. The Company also resells hardware and
licensed software which is generally customized for its customers.
On November 30, 1996, the Company was acquired by DynamicWeb Enterprises,
Inc. ("DynamicWeb"). DynamicWeb expects to utilize the Company's expertise in
EDI to expand their business and product lines over the interest. A substantial
portion of DynamicWeb's resources may be depleted before it markets and derives
significant revenues from its products and services. DynamicWeb is planning to
raise additional equity through a proposed public offering of stock, the net
proceeds of which it intends to use, in part, to support future operations.
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Revenue recognition:
Revenues are recognized when products are shipped provided that no
significant obligations remain, and collection of the resulting receivable is
deemed probable by management. The Company provides customer support and
revenues are recognized when services are provided. The Company also enters into
contracts with customers whereby revenues are earned based on a transaction fee.
[2] Depreciation:
Equipment is recorded at cost. Depreciation is provided using the
straight-line method over five years.
[3] Income taxes:
The Company files its corporate income tax returns on a cash basis and
accounts for income taxes on an accrual basis in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 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.
[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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[5] Fair value of financial instruments:
The Company considers its financial instruments and obligations, which are
carried at cost, to approximate fair value due to the near term due dates.
F-23
<PAGE> 80
SOFTWARE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE C) -- LONG-TERM DEBT:
Long-term debt consists of a capitalized lease obligation as at June 30,
1996:
<TABLE>
<S> <C>
Equipment lease payable, due in July 1997; payable in monthly
installments of $291 including 4% interest........................ $3,629*
Less current maturities............................................. 3,350
------
Noncurrent portion........................................ $ 279
======
</TABLE>
- ---------------
* Collateralized by computer equipment with a net book value of approximately
$6,000.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $3,350
1998................................................................ 279
------
Total..................................................... $3,629
======
</TABLE>
(NOTE D) -- INCOME TAXES:
[1] The Company has federal and state net operating loss carryforwards of
approximately $30,000 that expires from 2009 to 2010.
The Tax Reform Act of 1986 contains provisions which limits the net
operating loss carryforwards available for use in any given year should certain
events occur, including significant change in ownership interests. The
utilization of the net operating loss may be limited due to the acquisition of
the Company as described in Note A.
[2] The tax effects of principal temporary differences and net operating
loss carryforwards are as follows as at June 30, 1996:
<TABLE>
<S> <C>
Asset:
Federal and state operating loss carryforwards.................. $ 12,000
Liability:
Accrual basis to cash basis adjustment.......................... (13,000)
--------
Net deferred tax liability...................................... $ (1,000)
========
</TABLE>
[3] The difference between the statutory federal income tax at the rate of
34% and the actual tax are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Statutory rate (benefit)................................ $(26,018) $ 5,508
State taxes (benefit) net of federal income tax
effect................................................ (4,603) 972
Nondeductible items..................................... 3,305 3,305
Other................................................... (1,684) 1,215
-------- -------
Total......................................... $(29,000) $11,000
======== =======
</TABLE>
F-24
<PAGE> 81
SOFTWARE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE E) -- CONCENTRATION OF CREDIT RISK:
[1] Accounts receivable:
The Company routinely evaluates the credit worthiness of its customers to
limit its concentration of credit risk regarding its trade receivables.
[2] Significant customers:
The Company had one customer that accounted for 15% of revenue for the year
ended June 30, 1996 and two customers that accounted for 19% and 22% of revenue
for the year ended June 30, 1995.
(NOTE F) -- COMMITMENTS AND CONTINGENCIES:
[1] Lease and related party transaction:
The Company occupies its office space, through December 31, 2002, pursuant
to a lease which was amended on September 5, 1997, from a partnership whose
partners are the sole stockholder of the Company and his wife. The lease
provides for an annual increase of three percent and condominium maintenance
fees. The partnership and the Company are jointly liable on the mortgage which
was approximately $250,000 as at June 30, 1996; the debt is being paid by the
partnership, and matures in August 2019. The Company is informed that the
partnership's mortgage balance is current.
The following are the future annual rental payments:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
----------------------------------------------------------
<S> <C>
1997...................................................... $ 42,000
1998...................................................... 42,800
1999...................................................... 44,000
2000...................................................... 45,400
2001...................................................... 46,700
Thereafter................................................ 72,500
----------
Total........................................... $293,400
==========
</TABLE>
Rent expense and related operating expense for the years ended June 30,
1996 and June 30, 1995 was approximately $46,400 and $44,400, respectively.
[2] Line of credit:
The Company has a line of credit of $50,000. No balances are outstanding as
at June 30, 1996. The stockholder of the Company has personally guaranteed the
debt under the line of credit. In May 1997, the Company borrowed $14,750 under
the line of credit at an interest rate of 2% above the bank's lending rate.
[3] Employment contract:
In connection with the acquisition of the Company as described in Note A,
the Company entered into a five-year employment contract with its then sole
stockholder. The agreement provides for an annual salary of approximately
$136,000 and includes a discretionary bonus as determined by DynamicWeb's Board
of Directors.
F-25
<PAGE> 82
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 1
Recent Developments................... 4
Summary Financial Information......... 6
Risk Factors.......................... 7
Use of Proceeds....................... 16
Market for Common Stock and Related
Stockholder Matters................. 19
Capitalization........................ 20
Dilution.............................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 26
Management............................ 36
Principal Stockholders................ 41
Certain Relationships and Related
Transactions........................ 42
Description of Securities............. 45
Shares Eligible for Future Sale....... 47
Underwriting.......................... 48
Interim Financings.................... 50
Legal Matters......................... 52
Additional Information................ 52
Experts............................... 52
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE LATER OF THE EFFECTIVE DATE OF
THE REGISTRATION STATEMENT OR THE FIRST DATE ON WHICH THE COMMON STOCK WAS
OFFERED TO THE PUBLIC) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
[DYNAMICWEB ENTERPRISES, INC. LOGO]
DYNAMICWEB
ENTERPRISES, INC.
800,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
H. J. MEYERS & CO., INC.
JANUARY , 1998
======================================================
<PAGE> 83
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides that the Registrant
shall indemnify any person who is or was a director, officer, employee or agent
of the Registrant to the fullest extent permitted by the New Jersey Business
Corporation Act (the "NJBCA"), and to the fullest extent otherwise permitted by
law. The NJBCA permits a New Jersey corporation to indemnify its directors,
officers, employees and agents against liabilities and expenses they may incur
in such capacities in connection with any proceeding in which they may be
involved, unless a judgment or other final adjudication adverse to the director,
officer, employee or agent in question establishes that his or her acts or
omissions (a) were in breach of his or her duty of loyalty (as defined in the
NJBCA) to the Registrant or its shareholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in the receipt by the
director, officer, employee or agent of an improper personal benefit.
Pursuant to the Registrant's Certificate of Incorporation and the NJBCA, no
director or officer of the Registrant shall be personally liable to the
Registrant or to any of its shareholders for damages for breach of any duty owed
to the Registrant or its shareholders, except for liabilities arising from any
breach of duty based upon an act or omission (i) in breach of such director's or
officer's duty of loyalty (as defined in the NJBCA) to the Registrant or its
shareholders, (ii) not in good faith or involving a knowing violation of law or
(iii) resulting in receipt by such director or officer of an improper personal
benefit.
In addition, the Registrant's Bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Registrant and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
Bylaws shall be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
The Underwriting Agreement, included as Exhibit 1.1 hereto, provides that,
in certain circumstances, each of the Underwriters will indemnify the directors
and officers of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
II-1
<PAGE> 84
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
filing this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 2,000
NASD Filing Fee................................................... 1,200
Printing and Engraving Expenses................................... 93,000
Accounting Fee and Expenses....................................... 100,000
Legal Fees and Expenses........................................... 105,000
Blue Sky Qualification Fees and Expenses.......................... 75,000
Underwriters Expense Allowance.................................... 144,000
Transfer Agent Fees and Expenses.................................. 10,000
Expenses of Selling............................................... 50,000
Miscellaneous..................................................... 71,500
--------
Total................................................... $651,700
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 1, 1994, the Company has sold the following securities
without registration under the Securities Act:
1. On May 8, 1995, the Company sold 15,000,000 previously unissued
shares of its Common Stock to Jonathan B. Lassers, Cherry Hill, New Jersey,
for $150,000 in cash. As part of the transaction, Mr. Lassers also acquired
a transferable warrant to purchase up to an additional 70,000,000 shares of
the Company's Common Stock, exercisable until December 31, 1997 at $0.01 a
share. Such warrant was terminated in exchange for the issuance to Mr.
Lassers on February 29, 1996 of 11,000,000 shares of the Company's Common
Stock.
2. On or about March 26, 1996, the Company issued 735,000 shares of
Common Stock to Berkshire International Finance, Inc., New York, New York
as a finder's fee and 75,000 shares of Common Stock to William N. Levy,
Esquire, Voorhees, New Jersey, as payment for legal services, each in
connection with the Company's acquisition of DynamicWeb Transaction
Systems, Inc., and issued 4,913,631 shares of its Common Stock to the
shareholders of DynamicWeb Transaction Systems, Inc., as a consideration
for that acquisition.
3. On April 3, 1996, the Company sold 343,511 shares of Common Stock
to Arista High Technology Growth Fund, Cayman Islands, British West Indies,
for an aggregate purchase price of $500,000.
4. On November 21, 1996, the Company sold 250,000 shares of Common
Stock to Michael Associates, Jersey City, New Jersey, for an aggregate
purchase price of $250,000.
5. On November 30, 1996, the Company issued 860,000 shares of Common
Stock to Kenneth R. Konikowski, Towaco, New Jersey, in exchange for all of
the outstanding capital stock of Software Associates, Inc., a New Jersey
corporation.
6. On November 30, 1996, the Company issued 50,000 shares of Common
Stock to the 27 shareholders of Megascore, Inc., a New Jersey corporation,
in exchange for all of the outstanding capital stock of Megascore, Inc.
7. In April of 1997, the Company sold 24 Units (each Unit consisting
of 3,115 shares of common stock and a $25,000 principal amount of
Subordinated, Unsecured 8% Promissory Note) to select accredited investors
for an aggregate purchase price of $600,000. H.J. Meyers & Co, Inc., a
registered broker-dealer and representative of the several underwriters in
this Offering, acted as placement agent for this offering and received a
placement agent fee of $60,000 and a non-accountable expense allowance of
$18,000. The sale of 8 of those Units closed on April 9, 1997; another 8 of
those Units closed on April 11, 1997; and the final 8 of those Units closed
on April 30, 1997.
II-2
<PAGE> 85
8. In August of 1997, the Company sold 20 Units (each Unit consisting
of 3,333 shares of common stock and a $25,000 principal amount of
Subordinated, Unsecured 8% Promissory Note) to select accredited investors
for an aggregate purchase price of $500,000. H.J. Meyers & Co, Inc., a
registered broker-dealer and representative of the several underwriters in
this Offering, acted as placement agent for this offering and received a
placement agent fee of $50,000 and a non-accountable expense allowance of
$15,000. The sale of all 20 of those Units closed on August 27, 1997.
9. On February 7, 1996, DynamicWeb Transaction Systems, Inc.
(predecessor to the Company) issued 23,878 shares of its common stock to
each of Frank T. DiPalma, Ridgewood, New Jersey (a director of the Company)
and Steve Sheiner, Studio City, California, in exchange for services
rendered.
10. On January 12, 1996, DynamicWeb Transaction Systems, Inc.
(predecessor to the Company) issued 327,577 shares of its common stock to
Michael Vanechanos, Holmdel, New Jersey, in exchange for an aggregate
purchase price of $100,000.
11. On January 24, 1996, DynamicWeb Transaction Systems, Inc.
(predecessor to the Company) issued 163,786 shares of its common stock to
John Helbock, Holmdel, New Jersey, in exchange for an aggregate purchase
price of $50,000.
Except for Number 3 above, all sales and issuances of securities in the
transactions described above were deemed to be exempt from registration under
the Securities Act of 1933, as amended, by virtue of Section 4(2) or Regulation
D promulgated thereunder. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Required disclosure was provided, or access to
information in lieu of disclosure was present. Required legends are affixed to
the stock certificates and other securities issued in such transactions. In the
case of Number 3 above, the sale and issuance of the securities were deemed to
be exempt from registration by virtue of Regulation S. The securities were sold
outside of the United States and required resale restrictions were imposed.
All numbers of shares indicated in this Item 26 are the actual original
numbers of shares issued in the respective transactions. Those numbers have not
been adjusted on account of any subsequent stock splits or combinations
(including the Reverse Stock Split discussed in the Prospectus which is a part
of this Registration Statement), nor have the shares issued by the predecessors
to the Company been adjusted to reflect their conversion into Common Stock of
the Company.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement**
3.1.1 Certificate of Incorporation of the Registrant as filed with the Secretary of
State of New Jersey on August 7, 1979 (incorporated by reference to Exhibit
3.1.1 filed with Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1991).
3.1.2 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on May 19, 1980 (incorporated by
reference to Exhibit 3.1.2 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.3 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on April 1981 (incorporated by
reference to Exhibit 3.1.3 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
</TABLE>
II-3
<PAGE> 86
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
3.1.4 Certificate of Amendment of Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on April 24, 1986 (incorporated by
reference to Exhibit 3.1.4 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.5 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on July 15, 1988 (incorporated by
reference to Exhibit 3.1.5 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.6 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on November 28, 1989 (incorporated by
reference to Exhibit 3.1.6 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.7 Certificate of Amendment to the Registrant's Certificate of Incorporation, as
filed with the Secretary of State of New Jersey on August 15, 1994
(incorporated by reference to Exhibit 3.1.7 filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
3.1.8 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on May 14, 1996, changing the name of
the Company to DynamicWeb Enterprises, Inc. (incorporated by reference to
Exhibit 3.2.3 filed with Registrant's Annual Report on Form 10-KSB for December
31, 1995).
3.1.9 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on January 6, 1998.*
3.2.1 Bylaws of the Registrant adopted August 7, 1979 (incorporated by reference to
Exhibit 3.2.1 filed with Registrant's Report on Form 10-K for the Year ended
December 31, 1991).
3.2.2 Amendments adopted March 8, 1982 to Bylaws of the Registrant (incorporated by
reference to Exhibit 3.2.2 filed with Registrant's Report on Form 10-K for the
Year ended December 31, 1991).
3.2.3 Amended and Restated Bylaws of the Registrant adopted March 7, 1997
(incorporated by reference to Exhibit 3.2.3 filed with Registrant's Annual
Report on Form 10-KSB for the year ended September 30, 1996).
3.2.4 Amendments adopted , 1998 to Bylaws of Registrant.***
4.1 Specimen Stock Certificate.**
4.2 Form of Representative's Warrant.**
5.1 Form of Opinion of Stevens & Lee re: legality.**
10.1 Release and Severance Agreement dated February 12, 1993 between Seahawk Capital
Corporation and Robert S. Friedenberg (incorporated by reference to Exhibit
10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.2 Agreement dated February 24, 1995 between the Registrant and Jonathan B.
Lassers as to the purchase of common stock (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated as of May 8,
1995).
10.3 Amendment Agreement dated May 1, 1995 between the Registrant and Jonathan B.
Lassers as to the purchase of common stock and common stock purchase warrants
(incorporated by reference to Exhibit 10.2 to Registrant's Current Report on
Form 8-K dated as of May 8, 1995).
10.4 Agreement dated February 29, 1996 between the Registrant and Jonathan B.
Lassers as to the exchange of common stock for his common stock purchase
warrants (incorporated by reference to Exhibit 10.4 filed with Registrant's
Report on Form 10-KSB for the year ended September 30, 1996).
10.5 Stock Exchange Agreement dated as of December 31, 1994 among the Registrant,
John C. Fitton and Seahawk Overseas Exploration Corporation (incorporated by
reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K dated as
of May 8, 1995).
</TABLE>
II-4
<PAGE> 87
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
10.6 Stock Purchase Agreement dated March 5, 1996 among the Registrant, DynamicWeb
Transaction Systems, Inc. ("DWTS") and the shareholders of DWTS (incorporated
by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995).
10.7 Amendment to Stock Purchase Agreement dated May 14, 1996 between the Registrant
and DWTS (incorporated by reference to Exhibit 10.14(A) to Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.8 Amendment to Stock Purchase Agreement dated June 13, 1996 between the
Registrant and DWTS (incorporated by reference to Exhibit 10.14(B) to
Registrant's Form 10-QSB for the period ended March 31, 1996).
10.9 Stock Purchase Agreement dated September 30, 1996 among the Registrant,
Megascore, Inc. and the shareholders of Megascore, Inc. (incorporated by
reference to Exhibit 1 to the Registrant's Current Report on Form 8-K dated
November 30, 1996).
10.10 Stock Purchase Agreement dated November 30, 1996 among the Registrant, Software
Associates, Inc. and Kenneth R. Konikowski (incorporated by reference to
Exhibit 2 to the Registrant's Current Report on Form 8-K dated November 30,
1996).
10.11 Amendment to Stock Purchase Agreement dated April 7, 1997 between the
Registrant and Kenneth R. Konikowski (incorporated by reference to Exhibit
10.11 filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.12 Lock-Up Agreement dated November 30, 1996 among the Registrant, Steve L.
Vanechanos, Jr. and Kenneth R. Konikowski (incorporated by reference to Exhibit
10.12 filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.13 Employment Agreement dated December 1, 1996 between the Registrant and Kenneth
R. Konikowski (incorporated by reference to Exhibit 10.13 filed with
Registrant's Report on Form 10-KSB for the year ended September 30, 1996).
10.14 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option Plan (incorporated by
reference to Annex B to the Registrant's Information Statement filed May 15,
1997, pursuant to Section 14(c) of the Securities Exchange Act of 1934).
10.15 DynamicWeb Enterprises, Inc. 1997 Stock Option Plan for Outside Directors
(incorporated by reference to Annex C to the Registrant's Information Statement
filed May 15, 1997, pursuant to Section 14(c) of the Securities Exchange Act of
1934).
10.16 Lease Agreement dated November 1, 1996 between Beauty and Barber Institute,
Inc. and DynamicWeb Transaction Systems, Inc. (incorporated by reference to
Exhibit 10.16 filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.17 Lease Agreement dated July 1, 1994 between Software Associates, Inc. and The
Mask Group (incorporated by reference to Exhibit 10.17 filed with Registrant's
Report on Form 10-KSB for the year ended September 30, 1996).
10.18 Amendment No. 1 to Lease Agreement between Software Associates, Inc. and The
Mask Group (incorporated by reference to Exhibit 3 to the Registrant's Form 8-K
dated September 9, 1997).
10.19 Employment Agreement dated August 26, 1997, between the Registrant and James D.
Conners (incorporated by reference to Exhibit 1 to Registrant's Form 8-K dated
September 9, 1997).
10.20 Form of Financial Consulting Agreement between the Registrant and H.J. Meyers &
Co., Inc.**
10.21 Form of Mergers and Acquisition Agreement between the Registrant and H.J.
Meyers & Co., Inc.**
10.22 Letter of Amendment dated November 20, 1997, amending Stock Purchase Agreement
dated April 7, 1997 between the Registrant and Kenneth R. Konikowski**
</TABLE>
II-5
<PAGE> 88
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
10.23 Letter of Amendment dated December 15, 1997, amending Stock Purchase Agreement
dated April 7, 1997 between the Registrant and Kenneth R. Konikowski.*
10.24 Form of Warrant and Warrant Agreement with certain shareholders of Registrant.*
16.1 Letter on change in certifying accountant (R. Andrew Gately & Co.)
(incorporated by reference to Exhibit 16.1 to Registrant's Current Report on
Form 8-K dated February 19, 1997 (to be filed by amendment)).
16.2 Letter on change in certifying accountant (Allen G. Roth, P.A.) (incorporated
by reference to Exhibit 16.2 to the Registrant's Current Report on Form 8-K
dated February 19, 1997, as amended by Amendment dated March 12, 1997).
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to
the Registrant's Form 10-KSB for the year ended September 30, 1996).
23.1 Consent of Stevens & Lee (included in Exhibit 5.1)
23.2 Consent of Richard A. Eisner & Company, LLP*
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** To be filed by amendment
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by its is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE> 89
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 4 to this registration statement
to be signed on its behalf by the undersigned in the City of Fairfield, State of
New Jersey on January 20, 1998.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ STEVEN L. VANECHANOS, JR.
------------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 4 to the Registration Statement was signed below by
the following persons and in the capacities and on the dates stated.
<TABLE>
<C> <S> <C>
/s/ STEVEN L. VANECHANOS, JR. Chief Executive Officer January 20, 1998
- --------------------------------------------- and Director
Steven L. Vanechanos, Jr.
/s/ STEVE VANECHANOS, SR. Treasurer, Chief Financial January 20, 1998
- --------------------------------------------- Officer, and Chief
Steve Vanechanos, Sr. Accounting Officer,
Director
/s/ F. PATRICK AHEARN* Director January 20, 1998
- ---------------------------------------------
F. Patrick Ahearn
/s/ DENIS CLARK* Director January 20, 1998
- ---------------------------------------------
Denis Clark
/s/ FRANK T. DIPALMA* Director January 20, 1998
- ---------------------------------------------
Frank T. DiPalma
/s/ ROBERT DROSTE* Director January 20, 1998
- ---------------------------------------------
Robert Droste
/s/ KENNETH R. KONIKOWSKI Director January 20, 1998
- ---------------------------------------------
Kenneth R. Konikowski
* By: /s/ STEVEN L. VANECHANOS, JR.
- ---------------------------------------------
Steven L. Vanechanos, Jr.
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGE
- ------ ---------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Underwriting Agreement**..............................................
3.1.1 Certificate of Incorporation of the Registrant as filed with the
Secretary of State of New Jersey on August 7, 1979 (incorporated by
reference to Exhibit 3.1.1 filed with Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1991).......................
3.1.2 Certificate of Amendment to Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on May 19, 1980
(incorporated by reference to Exhibit 3.1.2 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991)......
3.1.3 Certificate of Amendment to Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on April 1981
(incorporated by reference to Exhibit 3.1.3 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991)......
3.1.4 Certificate of Amendment of Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on April 24, 1986
(incorporated by reference to Exhibit 3.1.4 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991)......
3.1.5 Certificate of Amendment to Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on July 15, 1988
(incorporated by reference to Exhibit 3.1.5 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991)......
3.1.6 Certificate of Amendment to Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on November 28,
1989 (incorporated by reference to Exhibit 3.1.6 filed with
Registrant's Annual Report on Form 10-K for the Year ended December
31, 1991).............................................................
3.1.7 Certificate of Amendment to the Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
August 15, 1994 (incorporated by reference to Exhibit 3.1.7 filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994)....................................................
3.1.8 Certificate of Amendment to Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on May 14, 1996,
changing the name of the Company to DynamicWeb Enterprises, Inc.
(incorporated by reference to Exhibit 3.2.3 filed with Registrant's
Annual Report on Form 10-KSB for December 31, 1995)...................
3.1.9 Certificate of Amendment to Registrant's Certificate of Incorporation,
as filed with the Secretary of State of New Jersey on January 6,
1998.*................................................................
3.2.1 Bylaws of the Registrant adopted August 7, 1979 (incorporated by
reference to Exhibit 3.2.1 filed with Registrant's Report on Form 10-K
for the Year ended December 31, 1991).................................
3.2.2 Amendments adopted March 8, 1982 to Bylaws of the Registrant
(incorporated by reference to Exhibit 3.2.2 filed with Registrant's
Report on Form 10-K for the Year ended December 31, 1991).............
3.2.3 Amended and Restated Bylaws of the Registrant adopted March 7, 1997
(incorporated by reference to Exhibit 3.2.3 filed with Registrant's
Annual Report on Form 10-KSB for the year ended September 30, 1996)...
3.2.4 Amendments adopted , 1998 to Bylaws of Registrant.***.......
4.1 Specimen Stock Certificate.**.........................................
4.2 Form of Representative's Warrant.**...................................
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGE
- ------ ---------------------------------------------------------------------- ------------
<S> <C> <C>
5.1 Opinion of Stevens & Lee re: legality.**..............................
10.1 Release and Severance Agreement dated February 12, 1993 between
Seahawk Capital Corporation and Robert S. Friedenberg (incorporated by
reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).................................
10.2 Agreement dated February 24, 1995 between the Registrant and Jonathan
B. Lassers as to the purchase of common stock (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K
dated as of May 8, 1995)..............................................
10.3 Amendment Agreement dated May 1, 1995 between the Registrant and
Jonathan B. Lassers as to the purchase of common stock and common
stock purchase warrants (incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated as of May 8, 1995)......
10.4 Agreement dated February 29, 1996 between the Registrant and Jonathan
B. Lassers as to the exchange of common stock for his common stock
purchase warrants (incorporated by reference to Exhibit 10.4 filed
with Registrant's Report on Form 10-KSB for the year ended September
30, 1996).............................................................
10.5 Stock Exchange Agreement dated as of December 31, 1994 among the
Registrant, John C. Fitton and Seahawk Overseas Exploration
Corporation (incorporated by reference to Exhibit 10.4 to Registrant's
Current Report on Form 8-K dated as of May 8, 1995)...................
10.6 Stock Purchase Agreement dated March 5, 1996 among the Registrant,
DynamicWeb Transaction Systems, Inc. ("DWTS") and the shareholders of
DWTS (incorporated by reference to Exhibit 10.14 to Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1995)....
10.7 Amendment to Stock Purchase Agreement dated May 14, 1996 between the
Registrant and DWTS (incorporated by reference to Exhibit 10.14(A) to
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1995).............................................................
10.8 Amendment to Stock Purchase Agreement dated June 13, 1996 between the
Registrant and DWTS (incorporated by reference to Exhibit 10.14(B) to
Registrant's Form 10-QSB for the period ended March 31, 1996).........
10.9 Stock Purchase Agreement dated September 30, 1996 among the
Registrant, Megascore, Inc. and the shareholders of Megascore, Inc.
(incorporated by reference to Exhibit 1 to the Registrant's Current
Report on Form 8-K dated November 30, 1996)...........................
10.10 Stock Purchase Agreement dated November 30, 1996 among the Registrant,
Software Associates, Inc. and Kenneth R. Konikowski (incorporated by
reference to Exhibit 2 to the Registrant's Current Report on Form 8-K
dated November 30, 1996)..............................................
10.11 Amendment to Stock Purchase Agreement dated April 7, 1997 between the
Registrant and Kenneth R. Konikowski (incorporated by reference to
Exhibit 10.11 filed with Registrant's Report on Form 10-KSB for the
year ended September 30, 1996)........................................
10.12 Lock-Up Agreement dated November 30, 1996 among the Registrant, Steve
L. Vanechanos, Jr. and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.12 filed with Registrant's Report on Form
10-KSB for the year ended September 30, 1996).........................
10.13 Employment Agreement dated December 1, 1996 between the Registrant and
Kenneth R. Konikowski (incorporated by reference to Exhibit 10.13
filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996)...................................................
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGE
- ------ ---------------------------------------------------------------------- ------------
<S> <C> <C>
10.14 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option Plan
(incorporated by reference to Annex B to the Registrant's Information
Statement filed May 15, 1997, pursuant to Section 14(c) of the
Securities Exchange Act of 1934)......................................
10.15 DynamicWeb Enterprises, Inc. 1997 Stock Option Plan for Outside
Directors (incorporated by reference to Annex C to the Registrant's
Information Statement filed May 15, 1997, pursuant to Section 14(c) of
the Securities Exchange Act of 1934)..................................
10.16 Lease Agreement dated November 1, 1996 between Beauty and Barber
Institute, Inc. and DynamicWeb Transaction Systems, Inc. (incorporated
by reference to Exhibit 10.16 filed with Registrant's Report on Form
10-KSB for the year ended September 30, 1996).........................
10.17 Lease Agreement dated July 1, 1994 between Software Associates, Inc.
and The Mask Group (incorporated by reference to Exhibit 10.17 filed
with Registrant's Report on Form 10-KSB for the year ended September
30, 1996).............................................................
10.18 Amendment No. 1 to Lease Agreement between Software Associates, Inc.
and The Mask Group (incorporated by reference to Exhibit 3 to the
Registrant's Form 8-K dated September 9, 1997)........................
10.19 Employment Agreement dated August 26, 1997, between the Registrant and
James D. Conners (incorporated by reference to Exhibit 1 to
Registrant's Form 8-K dated September 9, 1997)........................
10.20 Form of Financial Consulting Agreement between the Registrant and H.J.
Meyers & Co., Inc.**..................................................
10.21 Form of Mergers and Acquisition Agreement between the Registrant and
H.J. Meyers & Co., Inc.**.............................................
10.22 Letter of Amendment dated November 20, 1997, amending Stock Purchase
Agreement dated April 7, 1997 between the Registrant and Kenneth R.
Konikowski**..........................................................
10.23 Letter of Amendment dated December 15, 1997, amending Stock Purchase
Agreement dated April 7, 1997 between the Registrant and Kenneth R.
Konikowski.*..........................................................
10.24 Form of Warrant and Warrant Agreement with certain shareholders of
Registrant.*..........................................................
16.1 Letter on change in certifying accountant (R. Andrew Gately & Co.)
(incorporated by reference to Exhibit 16.1 to Registrant's Current
Report on Form 8-K dated February 19, 1997 (to be filed by
amendment))...........................................................
16.2 Letter on change in certifying accountant (Allen G. Roth, P.A.)
(incorporated by reference to Exhibit 16.2 to the Registrant's Current
Report on Form 8-K dated February 19, 1997, as amended by Amendment
dated March 12, 1997).................................................
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Registrant's Form 10-KSB for the year ended September 30,
1996).................................................................
23.1 Consent of Stevens & Lee (included in Exhibit 5.1)....................
23.2 Consent of Richard A. Eisner & Company, LLP*..........................
27.1 Financial Data Schedule**.............................................
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** To be filed by amendment
<PAGE> 1
EXHIBIT 3.1.9
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF CERTIFICATE OF INCORPORATION
OF
DYNAMICWEB ENTERPRISES, INC.
Pursuant to the provisions of N.J.S.A. 14A:9-5(5), the undersigned
corporation, for the purpose of amending and restating its Certificate of
Incorporation, hereby executes this Certificate:
1. The name of the corporation is DynamicWeb Enterprises, Inc. (the
"Corporation").
2. The Amended and Restated Certificate of Incorporation of the
Corporation (the "Amended and Restated Certificate"), as adopted by the Board of
Directors and shareholders of the Corporation, is attached hereto in full as
Exhibit "A."
3. The Amended and Restated Certificate was approved and adopted,
pursuant to the provisions of N.J.S.A. 14A:9-5(3), by the Corporation's
shareholders, at a meeting duly called and held on June 12, 1997.
4. There were 7,667,270 shares of the common stock, $.0001 par value
(the "Common Stock"), of the Corporation entitled to vote on the approval and
adoption of the Amended and Restated Certificate, of which 4,937,189 shares were
voted for approval of the Amended and Restated Certificate and no shares were
voted against such approval.
5. The Amended and Restated Certificate provides for a reverse stock
split (the "Reverse Split"), pursuant to which each share of Common Stock
outstanding on the effective date (the "Effective Date") of the Amended and
Restated Certificate will be converted into 0.2608491 of one share (the "New
Common Stock"). No fractional shares or scrip will be issued; rather,
shareholders who would otherwise be entitled to a fractional share as a result
of the Reverse Split will receive cash in an amount equal to the fraction
multiplied by the average of the mean between the high and low bid quotation per
share for the Common Stock for the ten trading days immediately preceding the
Effective Date. As soon as practicable after the Effective Date, the
shareholders of the Corporation will be notified and requested to surrender
their certificates representing shares of Common Stock to the Corporation's
transfer agent so that certificates representing the appropriate number of
shares of New Common Stock, together with a cash payment in lieu of any
fractional share, may be issued in exchange therefor.
1
<PAGE> 2
6. The Effective Date shall be January 9, 1998 at 12:01 A.M.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by a duly authorized officer as of the 5th day of January, 1998.
DYNAMICWEB ENTERPRISES, INC.
BY /s/ Steve L. Vanechanos, Jr.
-------------------------------
Steve L. Vanechanos, Jr.,
Chairman
2
<PAGE> 1
Exhibit 10.23
December 15, 1997
Mr. Kenneth R. Konikowski
271 Route 46 West
Suite F-10
Fairfield, NJ 07004
Re: Stock Purchase Agreement dated November 20, 1996, as amended
on April 7, 1997, and on November 20, 1997, among DynamicWeb
Enterprises, Inc. (the "Company"), Software Associates, Inc.
and Kenneth R. Konikowski
Dear Ken:
As you are aware, under Section 3 of the above-referenced Stock
Purchase Agreement (the "Agreement"), you may receive additional shares of the
common stock, $.0001 par value per share (the "Common Stock"), of the Company,
depending on the trading price of the Common Stock immediately prior to January
30, 2000.
As you are further aware, the Agreement was amended pursuant to a
letter agreement dated April 7, 1997, between the Company and you and another
letter agreement dated November 20, 1997 between the Company and you (the
"Amendments").
The purpose of this letter is to further amend the Agreement to modify
the number of additional shares the Company is obligated to issue to you, and
the average closing bid price of the Company's Common Stock per share for the
five trading days immediately prior to January 30, 2000, which would trigger
such obligation. This amendment will be mutually beneficial to the Company and
you, as it will facilitate the Company's planned public offering of shares of
the Common Stock. Therefore, the Company and you hereby agree as follows:
1. The Agreement is hereby modified and amended as follows:
(a) to change the average trading price set forth in
Section 3 of the Agreement to $21.565; and
(b) to change the maximum number of additional shares set
forth in Section 3 to 178,420 (such number and price
<PAGE> 2
Mr. Kenneth R. Konikowski
December 15, 1997
Page 2
reflecting the Contribution of Stock and the Reverse Stock Split as such terms
are defined in the Company's Securities and Exchange Commission Registration
Statement No. 333-35579).
2. The Agreement, as previously amended and further amended by this
letter amendment, is hereby ratified and affirmed.
Please indicate your acceptance and agreement with the terms of this
letter below, and return one copy to me. Thank you for your assistance in this
matter.
Very truly yours,
DYNAMICWEB ENTERPRISES, INC.
By /s/ Steve L. Vanechanos, Jr.
----------------------------------
Steve L. Vanechanos, Jr.,
Chairman and Chief Executive
Officer
AGREED TO AND ACCEPTED, intending to be legally bound hereby, as of this 15th
day of December, 1997.
/s/ Kenneth R. Konikowski
- ------------------------------
Kenneth R. Konikowski
<PAGE> 1
EXHIBIT 10.24
WARRANT AGREEMENT
AGREEMENT, dated as of this ___ day of December, 1997, by and
amount DynamicWeb Enterprises, Inc, a New Jersey corporation ("Company"),
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
WITNESSETH
WHEREAS, in connection with the contribution of Common Stock
to the Company to assist in the completion of the Company's proposed public
offering of stock, the Company has agreed to issue Warrants to purchase 125,000
shares of the Common Stock of the Company at an exercise price of $6.00 per
share; and
WHEREAS, each Warrant initially entitles the Registered Holder
thereof to purchase one share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants, and the rights of the Registered Holder thereof,
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certifies representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certifies representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
Section 1. Definitions. As used herein, the following
terms shall have the following meanings, unless the context shall
otherwise require.
(a) "Common Stock" shall mean Common Stock of the
Company, whether now or hereafter authorized.
(b) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date hereof at 40
Wall Street, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant,
the date on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in case, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
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<PAGE> 2
(d) "Purchase Price" shall mean the purchase price to
be paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $6.00.
(e) "Registered Holder" shall mean as to any Warrant
and as of any particular date the person in whose name the certificate
representing the Warrant shall be registered on that date on the books
maintained by the Warrant Agent.
(f) "Transfer Agent" shall mean American Stock
Transfer Company, as the Company's transfer agent, or its authorized successor,
as such.
(g) "Warrant Expiration Date" shall mean 5:00 P.M.
(New York time) on December 31, 2007.
Section 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase on share
of Common Stock in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants issued to the Registered
Holders shall be executed by the Company and delivered to the Warrant Agent.
(c) From time to time, up to the Warrant Expiration
Date, the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing up to an aggregate of 125,000
shares of Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration
Date, the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those initially
issued hereunder, (ii) upon the exercise of fewer than all Warrants represented
by any Warrant Certificate, to evidence any unexercised Warrants held by the
exercising Registered Holder, (iii) those issued upon any transfer or exchange
pursuant to Section 6, (iv) those issued in replacement of lost, stolen,
destroyed or mutilated Warrant Certificates pursuant to Section 7, (v) at the
option of the Company, in such form as may be approved by the its Board of
Directors, to reflect any adjustment the number of shares of Common Stock
purchasable upon exercise of the Warrants.
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<PAGE> 3
Section 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A.
(b) Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, President or any Vice President and
by its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have by annually countersigned by the
Warrant Agent and shall not be valid for any purpose unless to countersigned.
Section 4. Exercise.
(a) Each Warrant may be exercised by the Registered
Holder thereof at any time on or after its issuance, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder of those securities upon the
exercise of the Warrant as of the close of business on the Exercise Date. As
soon as practicable on or after the Exercise Date the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant and shall notify
the Company in writing of the exercise of the Warrants. Promptly following, and
in any event within five days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a Warrant Certificate for any remaining unexercised Warrants of
the Registered Holder) unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants.
Section 5. Reservation of Shares; Payment of Taxes; etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
(b) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, provided, however, that if the shares of Common Stock
are to be delivered
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<PAGE> 4
in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(c) The Warrant Agent is hereby irrevocably
authorized to requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock issuable upon exercise of the
Warrants, and the Company will authorized the Transfer Agent to comply with all
such property requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Warrants.
Section 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books
in which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment of registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates
presented for registration or transfer, or for exchange or exercise, the
subscription form on the reverse thereof shall be duly endorsed, or be
accompanied by a written instrument or instruments of transfer and
subscription,in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder or his attorney-in-fact duly authorized in
writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
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<PAGE> 5
(e) All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, disposed of
or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
Section 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and\or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
Section 8. Dilution Protection.
(a) In the event that Company shall, sell any shares
of Common Stock for a consideration per share less than the Market Price of the
Common Stock (as defined below) on the date of the sale or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision or combination being herein
called a "Change of Shares"), then and thereafter upon each further Change of
Shares, the Warrants issued thereunder shall be increased as follows:
Market Price of One Share of Common Stock
one warrant x __________________________________________________
Sale Price of Common Stock
= Number of Warrants resulting from Change of Shares
For the purposes of this Warrant Agreement, the
term "Market Price" shall mean the average closing price of the Common Stock,
for 10 consecutive business days ending on the day
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<PAGE> 6
before any sale, issuance of stock or transaction described herein. If the
Common Stock is traded on the NASD Bulletin Board or Nasdaq Small Cap Market the
closing price shall be the closing bid price of the Common Stock. If the Common
Stock is trading on the Nasdaq National Market exchange or other national
securities exchange, the closing price shall be the last reported sale price of
the Common Stock.
(b) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale\leaseback,
mortgage or other financing transaction), a Company shall cause effective
provision to be made so that each holder of a Warrant than outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including case)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be nearly equivalent as may be
practicable to the adjustments provided for in this Section 8.
(c) No adjustment to the Purchase Price of the
Warrants or to the number of shares of Common Stock purchasable upon the
exercise of each Warrant will be made, however,
(i) upon the exercise of any of the options
presently outstanding under the Company's stock option plan for officers,
directors and certain other key personnel of the Company (the "Plans"); or
(ii) upon the issuance or exercise of any
other securities which may hereafter be granted or exercised under the Plans or
under any other employee benefit plan of the Company; or
(iii) upon the sale or exercise of the
Warrants; or
(iv) upon the sale of any shares of Common
Stock or Convertible Securities in a firm commitment underwritten public
offering, including, without limitation, shares sold upon
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<PAGE> 7
the exercise of any overallotment option granted to the underwriters in
connection with such offering; or
(v) upon the issuance or sale of Common
Stock or Convertible Securities upon the exercise of any rights or warrant to
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or options were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(vi) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible Securities, whether or not
any adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(vii) in the contemplated public offering of
1,200,000 shares of Common Stock by and through H.J. Meyers and Co., Inc.
Section 9. Fractional Warrants and Fractional Shares. If the
number of shares of Common Stock purchasable upon the exercise of each Warrant
is adjusted pursuant to Section 8. hereof, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional share. With
respect to any fraction of the share called for upon the exercise of any
Warrant, the Company shall pay to the Holder an amount in case equal to such
fraction multiplied by the current market value of such fractional share.
Section 10. Warrant Holders Not Deemed Stockholders. No holder
of Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, not shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of the stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change or par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive notice of meetings,
or to receive dividends or subscription rights, until such holder shall have
exercised such Warrants and been issued shares of Common Stock in accordance
with the provisions hereof.
Section 11. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective
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<PAGE> 8
Registered Holder of the Warrants, and any Registered Holder of a Warrant,
without consent of the Warrant Agent or of the holder of any other Warrant, may,
in his own behalf and for his own benefit, enforce against the Company his right
to exercise his Warrants for the purchase of shares of Common Stock in the
manner provided in the Warrant Certificate and this Agreement.
Section 12. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance of the Warrant Certificate which is governed by this
Agreement, consents and agrees with the Company and the Warrant Agent that:
(a) The Warrants are transferable only on the
registry books of the Warrant Agent by the Registered Holder thereof in person
or by his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office of the
Warrant Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole discretion,
together with payment of any applicable transfer taxes, and
(b) The Company and the Warrant Agent may deem and
treat the person in whose name the Warrant Certificate is registered as the
holder and a the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice or knowledge to the contrary, except as otherwise
expressly provided in Section 7 hereof.
Section 13. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and canceled by it and retired. The Warrant Agent
shall also cancel the Warrant Certificate or Warrant Certificates following
exercise of any or all of the Warrants represented thereby or delivered to it
for transfer or exchange
Section 14. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to
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<PAGE> 9
determine whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same, It shall not (i) be liable
for any recital or statement of facts contained herein or for any actin taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company) and shall incur
no liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, President, any Vice President,
its Secretary or Assistant Secretary, (unless other evidence in respect thereof
is herein specifically prescribed). The Warrant Agent shall not be liable for
any action taken, suffered or omitted by it in accordance wit such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder, it further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful misconduct),
after giving 30 days' prior written notice to the Company. At least 15 days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of 15 days after it has been notified
in writing of such resignation by the resigning
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<PAGE> 10
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by is last published report to its stockholder, of not less than $10,000,000 or
a stock transfer company that is a registered transfer agent under the
Securities Exchange Act of 1934. After acceptance in writing of such appointment
by the new warrant agent is received by the Company, such new warrant agent
shall be vested with the same powers, rights, duties, and responsibilities as if
it had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any
new warrant agent may be converted to merged or any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the Trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant agent, its subsidiaries and affiliates,
and any of its or their officers or directors, may buy and hold or sell Warrants
or other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effects as thought it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
Section 15. Modification of Agreement. Subject to the
provisions of Section 4(b), the parties hereto and the Company may be
supplemental agreement make any charges or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely effect the interests of the holders of Warrant Certificates;
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<PAGE> 11
Section 16. Notice. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follow; if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent: If to the Company, at 271 Route 46 West, Building F, Suite 209,
Fairfield, New Jersey 07004, Attention: Corporate Secretary, or at such other
address as may have been furnished to the Warrant Agent in writing by the
Company; it to the Warrant Agent, at its Corporate Office.
Section 17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
reference to principles of conflict of laws.
Section 18. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
Section 19. Termination. This Agreement shall terminate at the
close of business on the earlier of the Warrant Expiration Date or the date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 4
hereof shall survive termination.
Section 20. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
DYNAMICWEB ENTERPRISES, INC.
By:_______________________________
President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:_______________________________
Authorized Officer
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EXHIBIT A
No. W Warrants
VOID AFTER DECEMBER 31, 2007
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK DYNAMICWEB ENTERPRISES, INC.
This certifies that FOR VALUE RECEIVED
___________________________________________ or registered assigns (the
"Registered Holder") is the owner of the number of Warrants ("Warrants")
specified above. Each Warrant represented hereby initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, $.0001 per value ("Common
Stock"), of DynamicWeb Enterprises, Inc., a New Jersey corporation (the
"Company"), the Company at any time between the date hereof, and 5:00 P.M. (New
York time) on December 31, 2007, or if a holiday, the next day which is not a
holiday in the State of New York (the "Expiration Date"), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form attached
hereto duly executed, at the corporate office of American Stock Transfer & Trust
Company as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $6.00 (the "Purchase Price") in lawful money of the United States of
America in case or by official bank or certified check made payable to the
Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to an are subject in all respects to the terms and
conditions set forth herein and in the Warrant Agreement (the "Warrant
Agreement"), dated __________________, by and among the Company and the Warrant
Agent.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any applicable
transfer fee per certificate in addition to any
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<PAGE> 13
tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject tot he limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New Jersey.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually of in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
DYNAMICWEB ENTERPRISES, INC.
Dated:__________________ By:_______________________________
By:_______________________________
[seal]
Countersigned:
_______________________
as Warrant Agent
By:____________________
Authorized Officer
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SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _________________ Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________
_______________________
_______________________
[please print or type name and address]
and be delivered to
_______________________
_______________________
_______________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below.
__________________________________
(Name of NASD Member)
Date:___________________ X_________________________________
__________________________________
__________________________________
Address
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__________________________________
Taxpayer Identification Number
__________________________________
Signature Guaranteed
__________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
15
<PAGE> 16
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,_______________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OR TRANSFEREE
_____________________________
_____________________________
_____________________________
[please print or type name and address]
______________ of the Warrants represented by this Warrant Certification, and
hereby irrevocably constitutes and appoints _____________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Date:___________________ X_________________________________
Signature Guaranteed
__________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FROM MUST CORRESPOND TO THE
NAMES AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
16
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement (No. 333-35579)
on Form SB-2 of our report dated November 11, 1997 (December 12, 1997 with
respect to Note F, December 23, 1997 with respect to Note G[6] and January 9
with respect to Note G[5]) relating to the consolidated financial statements of
DynamicWeb Enterprises, Inc. as at September 30, 1997 and for each of the fiscal
years in the two-year period then ended and our report dated May 12, 1997
(September 5, 1997 with respect to Note F[1]) relating to Software Associates,
Inc. Each report calls attention to substantial doubt existing as to the ability
of the respective Companies to continue as going concerns. We also consent to
the reference to our firm under the captions "Experts" and "Summary Financial
Information" in the prospectus.
/s/ RICHARD A. EISNER & COMPANY, LLP
New York, New York
January 15, 1998
