SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30,
1998, or
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to ____________.
Commission File Number 0-10039
DYNAMICWEB ENTERPRISES, INC.
(Name of Small Business Issuer in its Charter)
New Jersey 22-2267658
(State or Other Juris- (I.R.S. Employer
diction of Incorporation) Identification No.)
Fairfield Commons
271 Route 46 West
Building F
Suite 209
Fairfield, New Jersey 07004
(Address of Principal Executive Offices)
Registrant's Telephone Number: (973) 244-1000
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value .0001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained herein, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended September 30, 1998:
$1,187,000.
As of January 8, 1999, the aggregate market value of the Common
Stock (based upon the average sales price on such date) of the
Registrant held by nonaffiliates was $7,653,861.
Number of Shares of Common Stock Outstanding at January 8, 1999:
2,351,737.
Transitional Small Business Disclosure Format: Yes ___ No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company is involved in the business of "electronic
commerce." The term "electronic commerce" is a shorthand
expression for how businesses use computers to electronically
send and receive business documents. This allows businesses to
reduce or eliminate the paperwork involved in buying and selling
their products.
The Company develops and sells computer software products
and provides services to businesses to help them engage in
electronic commerce.
BACKGROUND OF THE INDUSTRY
In electronic commerce, computers and telecommunications
take the place of paper documents, mail and faxes. Businesses
now use computers to electronically send and receive a wide
variety of business documents. These include, for example,
product catalogs, price lists, purchase orders and invoices.
Electronic Data Interchange ("EDI") is a specific form of
electronic commerce. It refers to the transmission of data
between a business and its customers or its vendors in the course
of a business transaction. A typical example of EDI is
electronically placing a purchase order for merchandise with a
vendor, and having the vendor electronically confirm the order
and produce an invoice when the goods are shipped. The computers
of the buyer and the seller communicate and exchange the relevant
information. They use an agreed-upon or standard format to do
so.
In an earlier stage of electronic commerce, companies that
wanted to do business electronically needed to have an
arrangement with special type of computer network. That network
is referred to as a value-added computer network, or "VAN." A
VAN provides standardized forms and acts as a kind of electronic
post office, where data and forms are exchanged, parties can
communicate via email, and funds can be electronically
transferred.
DYNAMICWEB'S PRODUCTS AND SERVICES
Primarily, our business is providing electronic commerce
services, including computer equipment and software for customers
who want to engage in electronic commerce. We function as the
customer's data service center in support of their electronic
commerce transactions. Second, we provide consulting services in
the area of electronic commerce.
We sell four principal electronic commerce packages:
<PAGE 1>
- Our first package is called EDIxchange(sm) Buy or
Sell. It is a service that allows businesses that already are
set up to conduct electronic commerce transactions to offer
electronic commerce capability to their customers or suppliers
who do not yet have that capability.
- Our second package is called EDIxchange(sm). It is
a service that allows businesses to deal with each other
electronically through a document exchange network. We sell this
package primarily to customers who do not have an internal
electronic commerce capability.
- Our third package is called EDIxchange (sm) Support.
It is a portfolio of professional consulting services provided to
customers who wish to augment their in-house electronic commerce
resources. It includes on-site and remote consulting. It is
focused on developing and implementing electronic commerce
strategies, EC systems integration to existing legacy systems,
and EDI mapping services.
- Our fourth package is called EDIxchange Connect(sm).
It is a combination of software and service. It is a narrower
product for companies that use the RealWorld and Synchronics
computerized accounting systems. It allows users of those
systems to either send or receive documents electronically
directly from within the accounting system. For example, a
company could electronically send the company's income statement
to another party. Additionally, we offer an option with
EDIxchange Connect(sm) that allows a business to electronically
create a shipping list or product list.
CURRENT CUSTOMERS
The following charts show some of our customers and the
packages that they are using.
EDIxchange(sm) Buy or Sell
Company Business
Rite Aid Pharmacy Retail pharmacy chain
Southern New England Bell Telephone Communications
Service Merchandise Retail discount chain
Linens N' Things Retail home accessories
Great American Knitting Mills Makers of Gold Toe socks
EDIxchange(sm)
Company Business
Soundesign Corp. Manufacturer of electronic equipment
Church & Dwight Manufacturers of Arm & Hammer Baking Soda
<PAGE 2>
Royal Doulton Maker of fine china
Russ Berrie & Co. Manufacturer of Gift Items
EDIxchange(sm) Support
Company Business
Nabisco Consumer Goods
Toys R Us Toy Retailer
PRODUCT DEVELOPMENT
The Company presently has several product and service
development initiatives.
One initiative involves an upgrade of EDIxchangeBuy. We
plan to extend EDIxchangeBuy to add pre-purchasing and post-
purchasing features. On the pre-purchasing side, we plan to add
a Request for Quotation feature and a Quotation capability. This
would allow a purchaser to request its suppliers to provide
quotations of price and terms for a particular transaction and
allow the suppliers to provide those quotations. On the post-
purchasing side, the Company is working on a functional feature
that would permit a supplier to obtain payment status information
from its customer's computer.
Another initiative is to upgrade EDIxchangeSell. This
planned upgrade will improve our ability to customize
EDIxchangeSell to fit a customer's existing EDI system.
We also plan to rewrite the software for EDIxchangeConnect.
The planned rewrite would make EDIxchangeConnect compatible with
the new generation Windows products, such as Windows 95, Windows
98 and Windows NT. It will also allow the software to interface
with most popular accounting packages. The first modular
interfaces to be developed are for RealWorld and Synchronics
Counterpoint, with others to follow. Finally, the rewrite will
include an optional feature to allow a user to send an advance
ship notice through the system.
COMPETITION
The electronic commerce, EDI network services and computer
software markets are highly competitive. The principal
competitors in the delivery of EDI over the Internet are, at
present, Harbinger Corporation, Sterling Commerce, GEIS,
Netscape, Open Market, Icat, Interworld Technology Ventures,
Elcom International, Broadvision, Connect, IBM, Microsoft, EDS,
and MCI, Each of those companies is engaged in, or has announced
plans to engage in, providing software products and services that
facilitate electronic commerce over the Internet. <PAGE 3>
Aside from the Internet, numerous companies supply
electronic commerce network services. Those 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 It ranges 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, which includes 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.
Also, the Company expects the major on-line service
companies, such as America On-Line, Compuserve and Prodigy, to
enhance their services in the future to include certain aspects
of electronic commerce.
COMPETITIVE STRATEGY
One significant aspect of the Company's competitive strategy
is to customize the design and operation of its software and
services so that they work with customers' existing EDI systems.
The Company's products 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 its performance of EDI translation and mapping
functions.
Also, the Company is attempting to differentiate itself in
the marketplace for Internet/EDI solutions with ECIxchangeBuy.
The Company believes that its existing competition currently
offers generic, form-based software solutions with limited
functionality. In contrast, EDIxchange Buy 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.
<PAGE 4>
The Company intends to apply its Internet and EDI technology
products and services, 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 core or basic
infrastructure technology layer of Electronic Commerce. 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.
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. 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, EDIxchange and
ECbridgeNet 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
<PAGE 5> 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 Internet 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
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
<PAGE 6> 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 December 31, 1998, the Company had 42 employees.
Approximately 13 are technical personnel engaged in maintaining
or developing the Company's products or performing related
services, approximately eight are marketing and sales personnel,
approximately eight are involved in providing consulting services
to customers, approximately six are engaged in customer support
and operations, and approximately seven are involved in
administration and finance. None of the Company's employees are
represented by a union.
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of
December 31, 1998, are as follows:
NAME AGE POSITION
Steven L. Vanechanos, Jr.(1) 44 Chairman of the Board, Chief
Executive Officer
James D. Conners 59 President and Chief
Operating Officer
Steve Vanechanos, Sr.(1) 68 Director, Treasurer and
Secretary
Kenneth R. Konikowski 51 Director and Executive Vice
President
(1) Mr. Vanechanos, Sr. is the father of Mr. Vanechanos, Jr.
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
<PAGE 7> 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 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."
LEGAL PROCEEDINGS
The Company is not a party to any material pending
litigation.
RECENT DEVELOPMENTS
Private Placement
On August 7, 1998, the Company closed on the first round of
a private placement to the Shaar Fund, Ltd. ("Shaar Fund"). The
Shaar Fund purchased 875 shares of Series A 6% Convertible
Preferred Stock, par value $0.001 per share (the "Preferred
Stock"), together with 87,500 Common Stock Purchase Warrants with
a term of three years and at an exercise price of $6.00 per share
(the "Common Stock Purchase Warrants") for an aggregate price of
$875,000. The Company received net proceeds of approximately
$779,000.
Then, on December 3, 1998, the Company closed on the second
round of its private placement with the Shaar Fund. The Shaar
Fund completed its purchase of 625 additional shares of Preferred
Stock and an additional 50,000 Common Stock Purchase Warrants for
an aggregate price of $500,000. The Company received net
proceeds of approximately $455,000. <PAGE 8>
Merger of Subsidiaries
Before September of 1998, the Company had a business
structure that was composed of a parent company, DynamicWeb
Enterprises, Inc., and four subsidiaries. On September 30, 1998,
we merged all of the subsidiaries into the parent company.
Acquisition of Design Crafting, Inc.
On May 1, 1998, the Company purchased the outstanding stock
of Design Crafting Inc., an information technology professional
services company. That acquisition was financed through the
issuance of 102,500 shares of the Company's common stock. All of
the shares issued in the transaction were restricted within the
meaning of Rule 144 under the Securities Act of 1933 (the Act),
and were not registered under the Act. In addition, the
Company's shares will be subject to a restriction on sale for a
period of two years from the Closing Date, pursuant to a lock up
agreement.
Contribution Of Stock By Certain Shareholders
On December 24, 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 then issued and outstanding Common Stock
at the time of contribution. The effect of the Contribution of
Stock transaction was to reduce the outstanding number of shares
of Common Stock from 2,074,710 to 1,420,113.
Reverse Stock Split
On January 9, 1998 the Company amended its Certificate of
Incorporation (the "Amendment and Restatement") to, among other
things, effect a 0.2608491-for-one reverse stock split of the
Company's Common Stock (the "Reverse Stock Split"). Pursuant to
the Reverse Stock Split, each share of Common Stock outstanding
on January 9, 1998 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 were entitled to receive cash in lieu
thereof. Unless otherwise noted, all references to the Company's
Common Stock contained in this Report give effect to the Reverse
Stock Split.
INVESTMENT CONSIDERATIONS
The following factors are important and relevant
considerations in evaluating the business of the Company and a
potential investment in the Company's securities.
<PAGE 9>
Continuous Losses
DynamicWeb has been engaged in the electronic commerce
business since only March of 1996. We have lost money every
quarter since that time. As of September 30, 1998, we had lost a
total of $6,532,000. We cannot give assurances that we will soon
make a profit or if we will ever make a profit. Among other
things, we have to market and sell substantially more of our
products and services and hire and keep good employees. We
cannot give assurances that we will be successful in our efforts.
Auditors' Going Concern Considerations
Our auditors' opinion on our financial statements as of
September 30, 1998, calls attention to substantial doubts as to
the ability of the Company to continue as a going concern.
Need for More Capital
We raised approximately $3.2 million net of expenses when we
sold our stock in a public offering in February 1998. As of
August 1998, we had spent the money from the sale to run the
company. We raised a net amount of $779,000 from the sale of the
first portion of the Preferred Stock to the Shaar Fund in August,
1998. By December of 1998, we had used that money to run the
Company. We raised an additional net amount of $455,000 in the
sale of the second and final stage of the Preferred Stock in
December of 1998. We anticipate that money will last until
approximately March 1999.
We believe we will need to raise a large amount of
additional capital to survive and to become a profitable
business. If we are not able to raise additional funding in a
timely manner, we may have to scale back our operations or
possibly cease operations. If we sell more common stock, the
interests of existing investors in DynamicWeb may be diluted,
meaning that their percentage ownership of the Company will be
reduced.
Expected Operating Losses
We expect to lose substantial amounts of money in the near
future. We do expect that our sales will increase substantially
in the near future. However, our expenses have been increasing
substantially and will continue to do so, because we have hired
more employees and need to spend more money to develop and market
our products. We cannot give any assurances that the Company
will ever be able to make a profit.
New Product Risk
Electronic commerce products are new. At this time, there
is limited use of electronic commerce products. As with any new
product, its acceptance by customers is unpredictable. There are
<PAGE 10> many competitors trying to sell the same kind of
products as DynamicWeb. We may never sell enough products to
make a profit.
Companies have used other traditional means of doing
business for many years. It is difficult to convince companies
to adopt new technology. We need to convince a large number of
industries that using electronic commerce means is the best way
for them to conduct business.
Dependence on the Internet
We have based our future on the development of the Internet.
The Internet is a way for a customer to use his or her computer
to access a worldwide network of computers. The Internet allows
a computer in one location to talk to or communicate with a
computer at any location in the world through the network. The
Internet has a number of problems that could affect our business.
Improvements are needed in protecting information sent through
the Internet; we need increased reliability of the Internet and
new, faster ways of transferring information are necessary for
our products to become more attractive to customers. The
Internet improvements are not under our control. We must depend
on others to address these improvements.
At this time, the costs of using the Internet are based on a
monthly charge. For the monthly charge, a business can send one
or one million transactions over the network and the cost of
access does not change. We do not know if the favorable monthly
charge system will continue or if future government regulations
will drive up the cost of using the Internet.
The Internet lacks a uniform, consistent way to keep company
information sent via the Internet safe and secure. Until this
problem is addressed, use of the Internet to conduct business is
likely to develop more slowly.
Technology Changes
Technological changes in the computer software industry
happen rapidly. If we don't respond to those changes quickly and
efficiently, we will not be a competitive company in the
industry. We face a significant danger because we presently only
have three products to sell and they all provide essentially one
service.
Penny Stock
Any stock which falls below $5.00 per share selling price in
the public market is called a "Penny Stock." A Penny Stock is
subject to certain rules issued by the Securities and Exchange
Commission before an investor can purchase the shares. These
rules are designed to protect investors from gambling on cheap
stocks in hopes of picking the occasional big winner. When our
stock falls below $5.00 and becomes a Penny Stock, it makes it
<PAGE 11> difficult for a broker or dealer to sell the stock to
an investor because of the extra steps the broker/dealer must
take before selling the stock. Although there are exceptions to
the rules for certain institutional or high net worth
individuals, usually, the broker\dealer must: (a) determine the
suitability of the purchase for the particular investor; (b)
provide a first time investor in Penny Stock with a document
disclosing the risks of investing in this type of stock; and (c)
have the purchase approved by a compliance officer of the
brokerage firm. These rules have been enacted because of the
history of the substantial risk of the loss of an investment in
Penny Stocks. Because of the time required to comply with these
requirements it could become difficult for you to sell an
investment in DynamicWeb if our stock is subject to the "Penny
Stock" rules. You may want to sell your shares of the Company at
a time when you can show a profit, however by the time a sale of
your shares is approved, the stock price may have declined to the
point where you will have a loss on your investment. A sale of
Penny Stock does not usually take place as quickly as that of a
stock trading on a national stock exchange. Because of the
difficulty in dealing in Penny Stocks, many broker\dealers are
unwilling to participate in buying and selling our shares. Our
stock has recently sold for over $5.00, however the price has
often been quoted below $5.00 and has been subject to the
additional "Penny Stock" rules.
Market for Shares
Our common stock has not been traded actively and the
investment community has not shown a great deal of interest in
our shares. Simply, there have been relatively few buyers and
sellers of our stock. We have recently agreed to have our shares
marketed over the Internet. We had hoped that the additional
public exposure about us and our products would increase the
interest in our stock, but we have not seen a significant change
in the number of shares being traded. Because we are not traded
on a national exchange, the quotation for the price of our stock
is difficult for an investor to obtain without professional help.
Our stock quote is generally not found in many daily newspaper
quotations. All of these factors may make it difficult to sell
your shares of DynamicWeb, since investors do not have easy
access to information concerning our stock.
Competition
The electronic commerce industry is intensely competitive
and changes rapidly. There are many larger, more established
companies such as Microsoft and IBM that sell electronic commerce
packages. We are faced with significant competition from those
companies that are already established in the industry. They
have significantly more resources than we do. We expect
competition to intensify in the industry.
Reliance on Other Software
<PAGE 12>
We use software that is licensed from other companies with
our software products. The licensed software is an essential
part of our products. We do not have exclusive rights to any of
the essential software; it can be licensed to anyone, including
our competitors. Any of the essential software could become
unavailable or too expensive for us to use with our products. If
any of the essential software licenses becomes unavailable, our
products would have to be redesigned or new software obtained.
There can be no assurance that is possible.
Reliance on PERL
The Company's software is written using Practical Extraction
and Reporting Language ("PERL"). This language is presently used
to write software for use on the Internet. Because the Internet
design and standards for use are not controlled by any certain
organization or individual, the continued use of PERL for
Internet programs is not guaranteed. If the programming language
for the Internet were to change, we could incur substantial
expenses in an attempt to continue to support and develop PERL.
Dependence on Distribution and Marketing Relationships
We do not have a large number of sales and marketing
employees. Consequently, our distribution channels are limited.
We need to achieve broad distribution of our products to generate
sales for the Company. We must maintain and develop
relationships with leading companies that market software
products and electronic commerce services.
Dependence on Intellectual Property Rights
We use software technology that was developed by us for use
on the Internet. We have applied for a patent on the software,
called NetCat, but have not yet been granted the patent. We may
not get the patent or even if we do it may not sufficiently
protect our rights in the technology. The patent would not
provide protection outside of the United States. Even if the
patent is granted, it may be challenged and we may have to spend
a significant amount of money to defend the patent.
Patent infringement litigation is common in the electronic
commerce industry. We don't think we are infringing on any
patents or other intellectual property rights. However, if we
are accused of violating another company's intellectual property
rights, we may have to spend significant amounts of money
defending ourselves.
Risks Associated with Encryption Technology
The security of sending and receiving financial data over
the Internet is a major concern for our customers and for us. We
provide encryption of the data exchanged using our products
through the use of a third party encryption technology. With the
rapid advances and changes in the encryption technology area, we
<PAGE 13> cannot guarantee that the system we use to protect
customer data will not be compromised. If our system of
protection and others like it in use on the Internet become
compromised, it could materially affect our business. Convincing
customers to use the Internet for financial transactions without
being able to guarantee the privacy of their information would be
extremely difficult.
Liability and Availability of Insurance
We are responsible for the electronic exchange of many types
of business documents using our products and systems. These
documents include the operational documents of our customers such
as orders, invoices, shipping and payment documents. If for any
reason we were unable to provide our service, we could be liable
to our customers for their loss of business. We carry insurance
policies to try and protect us in the event that we are sued by
any customer for loss of business due to our failure to provide
contracted services. Although we believe that we have adequate
policies in effect, there is no guarantee that they will be
sufficient to cover all potential losses.
Business Fluctuations
We are a new business venture. Most new business ventures
experience fluctuations in revenue as they build their customer
base and attempt to sell their new products in the marketplace.
Without a large client base with a history of purchasing our
services, we are unable to predict with any level of confidence
the levels of revenue we will be able to generate over the near
future. Our revenues could fluctuate over a wide range as we
pursue establishing our business. This fluctuation may cause
rapid changes in the price of our stock.
Key Personnel
Our success will depend largely on retaining several of our
key senior management and technical personnel. This includes our
Chairman of the Board, Steven L. Vanechanos Jr., James D.
Conners, President of the Company and Kenneth R. Konikowski,
Executive Vice President of the Company. The Company requires
key personnel sign a confidentiality and non-competition
agreement as part of their employment but these do not protect us
from the loss of their knowledge and expertise were they to leave
the Company. We have key man life insurance in the amount of
$3,000,000 on Steven L. Vanechanos, Jr.
Ability to Attract Qualified Personnel
We feel our success in the future is highly dependent on
attracting additional highly skilled, technical, professional
services, management and sales and marketing personnel. The
market for these types of professionals is highly competitive and
more established companies are able to provide higher salaries
and better benefits. The intensely competitive nature of the
<PAGE 14> market for skilled personnel is expected to continue
indefinitely.
Management of Growth
If the Company were to experience a period of rapid growth
it would require significant changes in our current operating
structure and environment to handle that change. We would need
to change operations, hire more personnel, and improve numerous
internal Company policies and systems to accommodate the change.
There is no guarantee that the Company could successfully manage
those changes without a negative effect on our revenues.
Ability to Issue Blank Check Preferred Stock: New Jersey Anti-
Takeover Provisions
The Board of Directors has the authority to issue 5,000,000
shares of Preferred Stock without the approval of the
Shareholders. The Board can also determine any dividend,
conversion ratio or privilege pertaining to the Preferred Stock
without Shareholder approval. We have already issued 1500
Preferred Shares to the Shaar Fund, Ltd. Although the issuance
of Preferred Stock enables us to obtain additional revenue for
use by the Company in our operations it potentially makes us less
attractive and more difficult for a third party to acquire the
Company. The acquisition of the Company might be a welcome event
from the Company's viewpoint, the issuance of the Preferred Stock
could greatly hinder that possibility. A potential acquirer of
the Company may not be able to acquire a majority of the
outstanding stock needed to acquire the Company because of the
outstanding shares of Preferred Stock and the associated
conversion rights.
Additionally, New Jersey Law prevents the Company from
engaging in a "business combination" with an "interested
stockholder" for a period of five years after the date on which
the person became an "interested stockholder." A person is
considered an "interested stockholder" once they own over 10% of
the Company's shares. The exception to this rule allows a
"business combination" if the Board of Directors had approved the
combination prior to the person becoming an "interested
stockholder. The application of this rule could make it
difficult for the Company to pursue what could be a positive
"business combination."
An additional hurdle to a potential positive acquisition of
the business by a third party is created by the system of
election of the Board of Directors. Our Company By-Laws (the
rules under which we must operate) require that our Board of
Directors be elected for staggered terms. This provision of our
By-Laws would make it difficult for a third party to obtain
control of the Company since they could only elect a portion of
the Board members at the expiration of each term. This system of
election of Directors reduces the likelihood of the Company being
viewed as an attractive acquisition candidate. <PAGE 15>
Government Regulation and Legal Uncertainties
Presently, we are not subject to direct regulation by any
federal or state governmental agency, other than the rules that
are applied to businesses in general. The general business rules
apply to doing business over the Internet. If the Internet
becomes more accepted as a means of doing business, it is
possible that additional rules specific to doing business on the
Internet could be issued by various agencies or governmental
bodies. If the Internet becomes subject to additional rules and
restrictions as to its use for businesses, it may have a
dampening effect on the growth of the use of the Internet for
electronic commerce.
Possible Volatility of Stock Price
Our stock price is subject to the volatility inherent to a
public company. Investors react to news of operating results,
innovations in the industry and changes in general economic
conditions. Stocks in the technology industry are particularly
volatile in their reaction to these types of factors. There is
always the possibility that our shareholders will blame us for
taking some inappropriate action that causes the loss of their
investment. In the past these types of situations have resulted
in shareholder litigation. If this type of shareholder action
were to happen, it would cost us significant amounts of money to
litigate.
Substantial Options and Warrants Reserved
We have an Employee Stock Option Plan. We can issue options
to purchase a total of 334,764 shares of Common Stock to our
employees and officers under this Plan. To date, we have issued
203,392 options. We also have a Stock Option Plan for Outside
Directors and we may issue a total of 78,254 options under this
Plan. We have granted 27,384 options to outside directors to
date. We have granted warrants to existing shareholders to
purchase 125,000 shares of the Company at $6.00 a share in return
for a previous contribution of their Common Stock back to the
Company. The Shaar Fund owns warrants for purchase of 137,500
shares of Common Stock at $6.00 a share in connection with a
private placement of Preferred Stock. Finally, the Company has
issued options to purchase 90,000 shares to certain persons in
exchange for investor relations services provided to the Company.
The exercise of any or all of the Options and Warrants may
further dilute the net tangible book value of your investment in
the Company. Additionally, the holders of the options and
warrants may exercise them at a time when the Company would have
been able to sell the associated shares to someone else at a
higher price.
ITEM 2. PROPERTIES.
The Company's corporate offices are located at 271 Route 46
West, Building F, Suite 209, Fairfield, New Jersey. It has
<PAGE 16> entered into two leases for approximately 5,400 square
feet for its executive and administrative staff at an aggregate
monthly rental of $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.
The Company sold its former offices (at 1033 Route 46 East,
Clifton, New Jersey) on November 23, 1998, for a sale price of
approximately $202,000. The Company received proceeds net of
repayment of mortgage debt and expenses of sale of less than
$1,000.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 28, 1998, the Company held its 1998 Annual Meeting
of Shareholders. At such meeting the shareholders were asked to
vote upon (i) the election of three Class I directors to the
Company's Board of Directors, and (ii) an amendment to the
Company's 1997 Employee Stock Option Plan to increase the number
of shares reserved for issuance thereunder by 100,000 shares.
The shareholders approved the amendment to the stock option plan
and elected management's three nominees of Class I directors.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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 as of January 9, 1998. See "ITEM 1. DESCRIPTION OF
BUSINESS -- RECENT DEVELOPMENTS -- Reverse Stock Split." The
prices in the table below are not adjusted to reflect the
Contribution of Stock. See "ITEM 1. DESCRIPTION OF BUSINESS --
<PAGE 17> 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%.
BID(1)
QUARTER ENDED HIGH LOW
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, 1997.............................. 5 1/8 3 6/8
March 31, 1998................................. 5 3/16 5 15/32
June 30, 1998.................................. 5 1/32 5 1/8
September 30, 1998............................. 2 1/2 2 19/32
December 31, 1998.............................. 3 3/4 3 7/8
- ---------------
(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.
As of December 31, 1998, and after giving effect to the
Contribution of Stock by certain of the Company's existing
shareholders, there were 2,351,737 shares of the Company's Common
Stock outstanding, held by approximately 392 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 1997 or 1998. 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the financial statements included in this Report
and in conjunction with the description of the Company's Business
under Item 1 of this Report. It is intended to assist the reader
in understanding and evaluating the financial position of the
Company.
This discussion contains, in addition to historical
information, forward-looking statements that involve risks and
uncertainty. The Company's actual results could differ
materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such
differences include those discussed in "Investment
Considerations" as well as those discussed elsewhere in this
Report.
<PAGE 18>
The financial statements included in this Report are
consolidated for the Company and its four subsidiaries,
DynamicWeb Transaction Systems, Inc. (DWTS) and Megascore, Inc.
(Megascore), for all periods presented, Software Associates, Inc.
(Software Associates) from the date of its acquisition on
November 30, 1996, and Design Crafting, Inc. (Design) from the
date of acquisition of Design on May 1, 1998.
On September 30, 1998, each of DWTS, Megascore, Software
Associates, and Design was merged into the Company, and the
Company continued their prior operations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash of $290,000,
total current assets of $587,000, working capital of $207,000,
and an accumulated deficit of $6,532,000.
The Company had a net loss of $2,954,000 and negative
operating cash flow of $2,346,000 for the year ended
September 30, 1998. The Company funded that negative cash flow
exclusively through its financing activities.
The Company's financing activities during the 1998 fiscal
year consisted of the following:
- On February 6, 1998, the Company completed a public
offering of 733,334 shares of its common stock at $6.00 per
share. The Company received net proceeds of approximately
$3,179,000.
- On August 7, 1998, the Company closed a private
placement to the Shaar Fund, Ltd. ("Shaar Fund") of 875 shares of
Series A 6% Convertible Preferred Stock, par value $0.001 per
share (the "Preferred Stock") together with 87,500 Common Stock
Purchase Warrants with a term of three years and at an exercise
price of $6.00 per share (the "Common Stock Purchase Warrants")
for an aggregate price of $875,000. The Company received net
proceeds of approximately $779,000.
The Company used approximately $1,100,000 of those proceeds
to repay certain bridge financing in February, 1998, and the
balance of those net proceeds to fund operating deficits incurred
by the Company during that period, including sales and marketing
expense, product development, operations, and working capital.
The capital resources available to the Company at September
30, 1998 consisted of approximately $290,000 in cash, plus an
additional $455,000 net proceeds to be obtained from the Shaar
Fund under the second round commitment of its private placement
transaction. On December 3, 1998 the Shaar Fund completed its
purchase of 625 additional shares of Preferred Stock and an
additional 50,000 Common Stock Purchase Warrants.
<PAGE 19>
Management believes that those resources will be adequate to
finance the Company's activities only until March of 1999. The
Company is presently experiencing operating cash flow
deficiencies of approximately $200,000 per month. It expects that
its operating cash flow deficiency will continue during 1999.
The Company will need to obtain additional financing in order to
remain in existence.
RESULTS OF OPERATIONS
THE YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO THE YEAR ENDED
SEPTEMBER 30, 1997
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,
1998 % 1997 %
<S> <C>
<C> <C> <C>
Net Revenues:
Transaction processing...............................
$523,000 44.1 $298,000 46.8
Consulting services..................................
601,000 50.6 229,000 35.9
Other - Systems......................................
63,000 5.3 110,000 17.3
Total................................................
1,187,000 100.0 637,000 100.0
========= ====== ======= ======
Cost of Revenues:
Transaction processing...............................
262,000 22.1 70,000 11.0
Consulting services..................................
427,000 36.0 139,000 21.8
Other - Systems......................................
30,000 2.5 44,000 6.9
Total................................................
719,000 60.6 253,000 39.7
Gross Profit...........................................
468,000 39.4 384,000 60.3
Expenses:
Marketing and Sales....................................
734,000 61.8 486,000 76.3
General and administrative.............................
1,925,000 162.2 1,369,000 214.9
Research and development...............................
412,000 34.7 235,000 36.9
Total Expenses.......................................
3,071,000 158.7 2,090,000 328.1
Purchased research and development.....................
- --0-- --0-- (714,000) (112.0)
Interest expense.......................................
(374,000) (31.5) (770,000) (120.9)
Interest income........................................
23,000 1.9 5,000 0.8
Net Loss before income taxes...........................
$(2,954,000) (248.9%) $(3,185,000) (500.0%)
========= ====== ========= ======
</TABLE>
- ---------------
* Expense percentages are based upon a percentage of total net
revenues.
Net revenues increased by approximately $550,000, or
approximately 86.3%, from $637,000 for the fiscal year ended
September 30, 1997 ("fiscal 1997") to $1,187,000 for the fiscal
<PAGE 20> year ended September 30, 1998 ("fiscal 1998").
Approximately $238,000, or 43.3%, of the total increase is
attributable to additional consulting revenue gained from Design
Crafting, Inc., which the Company acquired on May 1, 1998. The
rest of that increase in revenue was attributable to the
Company's continuing efforts to market its EDI/Internet services
and products, particularly its transaction processing service and
its consulting services.
Revenues for the Company's transaction processing services
increased from approximately $298,000 for fiscal 1997 to
approximately $523,000 for fiscal 1998, an increase of
approximately $225,000, or 75.5%. This increase is largely
attributable to an increase in sales of EDI/Internet products and
services, including the addition of new transaction processing
customers, as well as sales of EDI/Internet services related to
the addition of new trading partners for current customers.
Revenues for the Company's consulting services increased
from approximately $229,000 for fiscal 1997 to approximately
$601,000 for fiscal 1998, an increase of approximately $372,000,
or 162.4%. This increase is attributable to the shift in the
Company's core business from its system integration services to
electronic commerce services and consulting services.
Approximately $238,000 of the increase can be attributed to
increased revenue realized upon the acquisition of Design
Crafting, Inc.
Other revenues from system sales decreased from
approximately $110,000 for fiscal 1997 to approximately $63,000
for fiscal 1998, a decrease of approximately $47,000, or 42.7%.
This decrease is attributable to the shift in the Company's core
business, from its system integration services, particularly the
sale of computer hardware and software, to electronic commerce
services.
Cost of transaction processing was approximately $262,000
for fiscal 1998, for a gross profit of approximately $261,000, or
49.9%. This compares to cost of transaction processing of
approximately $70,000 for fiscal 1997, for a gross profit of
approximately $228,000, or 76.5%. The increase in this cost, and
corresponding decrease in profitability, is attributable to
salaries related to new hires, rental of equipment and floor
space for the Company's scaleable network infrastructure, and
salary increases that took effect on March 1, 1998 and June 1,
1998.
The cost of providing its consulting services was
approximately $427,000 for fiscal 1998, for a gross profit of
approximately $174,000, or 28.9%. This compares to the cost of
providing its consulting services of approximately $139,000 for
fiscal 1997, for a gross profit of approximately $90,000, or
39.3%. The increase in this cost, and corresponding decrease in
gross profit percentage for the Company's consulting services, is
attributable to the ongoing transition from services related to
<PAGE 21> systems integration to services related to EDI/Internet
solutions, including a redeployment of personnel, salaries
related to new hires, and the addition of consultants through the
acquisition of Design Crafting, Inc. Increased costs are also
attributable to salary increases that took effect on March 1,
1998 and June 1 1998.
The cost of revenues for the Company's systems sales was
approximately $30,000 for fiscal 1998, for a gross profit of
approximately $33,000, or 52.4%, as compared to approximately
$44,000, for a gross profit of approximately $66,000, or 60% for
fiscal 1997. This decrease is attributable to the transition from
sales of high margin computer products ancillary to system
integration services.
Marketing and sales expenses increased by approximately
$248,000, or 51%, from approximately $486,000 for fiscal 1997 to
approximately $734,000 in fiscal 1998. The increase is
attributable to attendance at trade shows by more Company
personnel, and an increase in advertising expenses and salaries
related to new hires. A portion of the increase is also
attributable to salary increases that took effect on March 1,
1998 and June 1, 1998.
General and administration expenses increased by
approximately $556,000, or 40.6%, from approximately $1,369,000
for fiscal 1997 to approximately $1,925,000 in fiscal 1998. The
increase is attributable to the cost of new hires in the general
and administrative functions of the Company, the cost of legal,
financial and consulting services, the cost of administrative
support for new hires in other departments, the cost of insurance
coverage for the Company's directors, the addition of a senior
executive, amortization of capitalized software development
costs, and compensation expense for the 1997 Employee Stock
Option Plan. A portion of the increase is also attributable to
salary increases that took effect on March 1, 1998 and June 1,
1998.
Research and development expenses increased by approximately
$177,000, or 75.3% from approximately $235,000 in fiscal 1997 to
approximately $412,000 for fiscal 1998. The increase is
attributable to salaries of new hires, and salary increases that
took effect on March 1, 1998 and June 1, 1998.
Interest expense decreased by approximately $396,000, or
51.4% from approximately $770,000 for fiscal 1997, to
approximately $374,000 in fiscal 1998. The decrease is
attributable to the fact that the Company repaid $1,100,000 in
interim bridge financing in February, 1998, and eliminated the
interest expense associated with that debt.
IMPACT OF INFLATION
<PAGE 22>
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
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). This standard, which is effective
for fiscal years beginning after December 15, 1997, establishes
standards for the way that public business enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic
areas, and major customers. The Company will implement the
interim and annual disclosures required under SFAS No. 131 during
fiscal 1999.
YEAR 2000
General
The Year 2000 issue is the result of computer programs
that were written using two digits rather than four to define the
applicable year. Accordingly, computer programs that perform
date-related functions may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a
system failure or miscalculation causing disruptions of
operations, including a temporary inability to process
transactions, send invoices or engage in similar normal business
activities.
The Company has been and continues to assess and
resolve Year 2000 issues associated with its product and services
offerings, material internal systems, such as information
technology ("IT") systems and non-IT systems, and material third-
party relationships. The Company believes that this program will
be completed prior to December 31, 1999.
Product and Services Offerings
The Company is continuing to perform a Year 2000
assessment of its currently offered products and services.
Because Year 2000 compliance is generally integrated into its
normal product development activities, the Company has not
incurred, and does not expect to incur, any significant
incremental expenses in addressing the Year 2000 issue in its
product or EC services offerings.
Internal Systems
<PAGE 23>
The Company intends to conduct a Year 2000 assessment
of its material internal systems, both IT and non-IT, on a risk-
priority basis. The Company plans to complete the assessment of
its material internal systems by mid-1999 and, promptly upon
discovery of any material, non-compliant equipment or systems, to
begin remediation or adequate remediation assurances from third
parties. The Company has not yet analyzed the potential costs to
evaluate and remediate its internal systems. There can be no
assurance that such costs will not be material, or that the
remediation of the Company's material internal systems will be
completed in a timely manner or that such remediated systems will
function as anticipated. Interruption of normal business
operations, including the Company's ability to effectively
provide EC services to customers, in such events could have a
material adverse effect on the Company's business, operating
results and financial condition.
Third-Party Relationships
The Company has not yet conducted a Year 2000
assessment of its material third party supplier relationships.
The Company plans to complete an assessment of its material
third-party relationships by mid-1999 and, promptly upon
discovery of any material, non-compliant equipment or systems, to
begin remediation or adequate remediation assurances from third
parties. The Company has not yet analyzed the potential costs to
evaluate and remediate issues concerning its third party
relationships. There can be no assurance that such costs will
not be material. Further, there can be no assurance that the
Company will receive all information necessary to fully evaluate
the Year 2000 readiness of all material suppliers. Moreover, the
Company relies in various ways, both domestically and
internationally, on government, utility and communications
service providers to conduct normal business operations. There
can be no assurance that such suppliers will not suffer business
interruptions caused by a Year 2000 issue. Such interruptions
could have a material adverse effect on the Company's business,
operating results and financial condition.
Contingency Planning
Except as described above, the Company has not
established "contingency plans" to address potential consequences
of the Year 2000 issue. However, the Company intends to continue
to evaluate both existing and newly identified Year 2000 risks
and to develop and implement such further responsive measures as
it deems appropriate.
FORWARD-LOOKING INFORMATION
This report and other reports and statements filed by
the Company from time to time with the Securities and Exchange
Commission (collectively, "SEC Filings") contain, or may contain,
certain forward-looking statements and information that are based
on the beliefs of, and information currently available to, the
<PAGE 24> Company's management, as well as estimates and
assumptions made by the Company's management. When used in SEC
Filings, words such as "anticipate," "believe," "estimate,"
"expect," "future," "intend," "plan" and similar expressions, as
they relate to the Company or the Company's management, identify
forward-looking statements. Such statements reflect the current
views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations,
competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the
Company, the costs of product development and other risks and
uncertainties, including, in addition to any risks and
uncertainties specifically identified in the text surrounding
such statements, those risks discussed in "Investment
Considerations" elsewhere in this Report, and uncertainties with
respect to changes or developments in social, economic, business,
industry, market, legal and regulatory circumstances and
conditions and actions taken or omitted to be taken by third
parties, including the Company's stockholders, customers,
suppliers, business partners, competitors, and legislative,
regulatory, judicial and other governmental authorities and
officials. Should one or more of these risks or uncertainties
materialize, or should the underlying estimates or assumptions
prove incorrect, actual results or outcomes may vary
significantly form those anticipated, believed, estimated,
expected, intended or planned.
ITEM 7. FINANCIAL STATEMENTS.
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 of September 30,
1998 and the related consolidated statements of operations,
changes in stockholders' equity (capital deficiency) and cash
flows for the years ended September 30, 1998 and 1997. 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.
<PAGE 25>
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 of
September 30, 1998 and the results of their operations and their
cash flows for the years ended September 30, 1998 and 1997, 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 has incurred net losses and negative cash
flows from operations for each of the years ended September 30,
1998 and 1997 and, although it has a positive stockholders'
equity and working capital at September 30, 1998 and obtained
additional proceeds from sale of preferred stock subsequent
thereto, 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 this
uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
November 30, 1998
With respect to the last paragraph of Note H[7]
December 3, 1998
PAGE 26
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Balance Sheet
September 30, 1998
<S>
<C>
ASSETS
Current assets:
Cash and cash equivalents
$ 290,000
Accounts receivable, net of allowance for doubtful accounts of
$41,000 271,000
Prepaid and other current assets
26,000
Total current assets
587,000
Property and equipment, net
450,000
Patents and trademarks, net of accumulated amortization of
$11,000 31,000
Customer list, net of accumulated amortization of $37,000
63,000
Software license agreements, net of accumulated amortization of
$27,000 123,000
Cost in excess of fair value of net assets acquired, net of
accumulated amortization of $21,000 487,000
Other assets
9,000
$1,750,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 239,000
Accrued expenses
118,000
Current maturities of long-term debt
6,000
Deferred revenue
17,000
Total current liabilities
380,000
Long-term debt, less current maturities
181,000
561,000
Commitments, contingency and other matters (Notes K and L)
Stockholders' equity:
Preferred stock - par value to be determined with each issue;
5,000,000 shares
authorized:
Series A - 6% cumulative, convertible preferred stock -
aggregate liquidation
value $1,137,500; $.001 par value; 875 shares issued and
outstanding 402,000
Common stock - $.0001 par value; 50,000,000 shares authorized;
2,255,947 shares
issued and outstanding
Additional paid-in capital
7,408,000
Unearned portion of compensatory stock options
(89,000)
Accumulated deficit
(6,532,000)
Total stockholders' equity
1,189,000
$1,750,000
</TABLE>
PAGE 27
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Year Ended September 30,
1998 1997*
<S>
<C> <C>
Revenues:
Transaction processing
$ 523,000 $ 298,000
Consulting services
601,000 229,000
Other Systems
63,000 110,000
1,187,000 637,000
Cost of revenues:
Transaction processing
262,000 70,000
Consulting services
427,000 139,000
Other Systems
30,000 44,000
719,000 253,000
468,000 384,000
Expenses:
Marketing and sales
734,000 486,000
General and administrative
1,925,000 1,369,000
Research and development
412,000 235,000
3,071,000 2,090,000
Operating loss
(2,603,000) (1,706,000)
Purchased research and development
(714,000)
Interest expense (including amortization of debt discount and
deferred
financing fees of $310,000 and $720,000
(374,000) (770,000)
Interest income
23,000 5,000
Loss before income taxes
(2,954,000) (3,185,000)
Benefit for income taxes
(22,000)
Net loss
(2,954,000) (3,163,000)
Adjustment:
Dividends on cumulative preferred stock, including $67,000 of
imputed dividends
(77,000)
Net loss attributed to common stockholders
$(3,031,000) $(3,163,000)
Net loss per common share - basic and diluted
$ (1.56) $ (2.28)
Weighted average number of shares outstanding - basic and diluted
1,944,132 1,386,383
* reclassified to conform to current year's presentation
</TABLE>
PAGE 28
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
(Capital Deficiency)
Series A
Unearned
Convertible Common Stock
Additional Portion of
Preferred Stock Par Value $.0001
Paid-In Compensatory Accumulated Treasury Stock
Shares Amount Shares Amount
Capital Stock Options Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Balance - October 1, 1996 1,710,408 $
677,000 $ (415,000) $
262,000
Sale of common stock 65,212
250,000
250,000
Issuance of common stock
to acquire subsidiary 224,330
860,000
860,000
Contribution of common
shares from officers/
stockholders
400,000 66,660 $(400,000)
0
Shares issuable with
interim financings 74,760
450,000 (66,660) 400,000
850,000
Unearned portion of
compensatory stock
options
494,000 $(494,000)
0
Compensation expense for
stock options
290,000 290,000
Net loss
(3,163,000) (3,163,000)
Balance -
September 30, 1997 2,074,710
3,131,000 (204,000) (3,578,000) 0 0
(651,000)
Contribution of common
shares from officers/
stockholders (654,597)
Proceeds from public
offering (net of
costs of $1,221,000) 733,334
3,179,000
3,179,000
Shares issued and issuable
to acquire subsidiary 102,500
526,000
526,000
Compensation expense for
stock options
115,000 115,000
Proceeds from private
placement of Series
A preferred shares
and warrants (net
of costs of $96,000) 875 $335,000
444,000
779,000
Imputed dividend on
Series A preferred
stock 67,000
(67,000)
0
Dividend accrued on
Series A preferred
stock
(10,000)
(10,000)
Options issued for
investor relations
services
205,000 205,000
Net loss
(2,954,000) (2,954,000)
Balance -
September 30, 1998 875 $402,000 2,255,947 -
$7,408,000 $ (89,000) $(6,532,000) 0 $ 0
$1,189,000
</TABLE>
See notes to financial statements
PAGE 29
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended September 30,
1998 1997
<S>
<C> <C>
Cash flows from operating activities:
Net loss
$ (2,954,000) $ (3,163,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
115,000 47,000
Amortization of compensatory stock options
115,000 290,000
Purchased research and development
714,000
Deferred income taxes
(21,000)
Amortization of debt discount and deferred financing fees
310,000 720,000
Options issued for investor relations services
205,000
Changes in:
Accounts receivable
(124,000) 88,000
Prepaid expenses and other current assets
(1,000) 2,000
Accounts payable
57,000 144,000
Accrued expenses
(71,000) 92,000
Deferred revenue
2,000 4,000
Net cash used in operating activities
(2,346,000) (1,083,000)
Cash flows from investing activities:
Acquisition of property and equipment
(207,000) (79,000)
Proceeds from sale of equipment
2,000
Acquisition of patents and trademarks
(11,000) (3,000)
Cash acquired upon acquisition of subsidiary
15,000
Acquisition of Software License Agreements
(150,000)
Acquisition of subsidiary, net of $3,000 of cash acquired
(22,000)
Net cash used in investing activities
(390,000) (65,000)
Cash flows from financing activities:
Payment of long-term debt
(7,000) (11,000)
Proceeds from issuance of common stock
3,307,000 250,000
Proceeds from loans - banks
73,000 15,000
Payment of loans - banks
(97,000) (1,000)
Loans from officer/stockholder
115,000 199,000
Payment of officer/stockholder loans
(232,000) (82,000)
Proceeds from sale of units consisting of notes and common
stock 1,100,000
Payment of deferred registration costs
(128,000)
Payment of deferred financing fees
(180,000)
Proceeds from issuance of preferred stock and warrants
779,000
Payment of subordinated notes payable
(1,100,000)
Net cash provided by financing activities
2,838,000 1,162,000
Net increase in cash and cash equivalents
102,000 14,000
Cash and cash equivalents, beginning of year
188,000 174,000
Cash and cash equivalents, end of year
$ 290,000 $ 188,000
Supplemental noncash investing and financing activities:
On November 30, 1996, the Company acquired Software Associates,
Inc. in exchange
for common stock (see Note D)
In connection with the August 27, 1997 interim financing, certain
officers/
stockholders contributed 66,660 shares of common stock to the
Company
valued at $400,000 (see Note H[4])
On December 23, 1997, certain stockholders contributed 654,597
shares of common
stock to the Company in exchange for 125,000 warrants (see Note
H[5])
On May 1, 1998, the Company acquired Design Crafting, Inc. in
exchange for
common stock (see Note A)
Supplemental disclosure of cash flow information:
Cash paid for interest during the year
$ 89,000 $ 27,000
</TABLE>
See notes to financial statements
PAGE 30
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
Notes to Financial Statements
September 30, 1998
Note A - Basis of Presentation
The accompanying financial statements include the accounts of
DynamicWeb Enterprises, Inc. and its wholly owned subsidiaries,
Megascore, Inc., DynamicWeb Transactions Systems, Inc.,Design
Crafting, Inc., and Software Associates, Inc. (collectively the
"Company"). On September 30, 1998, the Company merged with its
subsidiaries. All significant intercompany balances and
transactions have been eliminated.
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 has incurred net losses
of approximately $2,954,000 and $3,163,000 for the years ended
September 30, 1998 and 1997, respectively and also incurred
substantial negative cash flows from operations during such
years. Accordingly, although the Company has a positive
stockholders' equity and working capital at September 30, 1998
and obtained additional proceeds from sale of preferred shares
subsequent thereto as described in Note H[7], the Company's
resources may be depleted before the Company 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 Company's continuation as a
going concern is dependent upon its ability to obtain additional
financing and ultimately to attain profitability through the
successful marketing of its products and services. The Company
has raised additional equity through the issuance of preferred
stock and warrants (Note H[7]) and is planning on raising
additional equity. There is no assurance that the Company will
obtain additional financing or that the Company's products and
services will be commercially successful.
Note B - The Company
The Company is primarily in the business of providing services,
including developing, marketing and supporting software products
that enable business entities to engage in electronic commerce
utilizing the Internet and traditional Electronic Data
Interchange ("EDI").
Note C - Summary of Significant Accounting Policies
[1] Revenue recognition:
The Company's revenues,which are derived primarily from
services, include implementation fees, transaction fees and
consulting fees. Implementation fees, which relate to the
<PAGE 31> installation of software enabling use of EDI, are
recognized upon completion of installation. Transaction
fees, which are earned on a per transaction basis, are
recognized when transactions are processed and consulting
fees are recognized as services are performed. The Company
also sells computer equipment and software and recognizes
revenue upon shipment.
In October 1997, the AICPA issued Statement of Position
("SOP") No. 97-2, "Software Revenue Recognition," which the
Company adopted, effective October 1, 1997. Such adoption
had no effect on the Company's methods of recognizing
revenue from its service and sales activities. Prior to
fiscal 1998, the Company's revenue recognition policy was in
accordance with SOP No. 91-1, "Software Revenue
Recognition."
Deferred revenue represents revenue billed in advance for
consulting services.
[2] Cash equivalents:
The Company considers all highly liquid investments
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 by the straight-line
method over the shorter of the lease term or the estimated
useful life of the asset.
[4] Intangible assets:
(a) Cost in excess of fair value of net assets acquired:
The cost in excess of the fair value of identifiable
net assets acquired relates to the acquisition of
Design Crafting, Inc. (see Note D) and is being
amortized over ten years.
(b) Customer list:
Customer list relates to the acquisition of Software
Associates, Inc. (see Note D) and is being amortized
over five years. <PAGE 32>
(c) 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.
(d) Software license agreements:
Software license agreements acquired by the Company are
being amortized over the periods of the license
agreements which range from two to five years.
[5] Impairment of long-lived assets:
Impairment losses are recognized for long-lived assets,
including certain intangibles, used in operations when
indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are not
sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing the fair value of
the asset to its carrying amount.
[6] Research and development:
Development costs incurred to establish the technological
feasibility of computer software are expensed as incurred.
The Company capitalizes costs incurred in producing such
computer software after technological feasibility of the
software has been established.
[7] Advertising and promotion costs:
Advertising and promotion costs are expensed as incurred.
Such costs amounted to approximately $260,000 and $219,000
for the years ended September 30, 1998 and 1997,
respectively.
[8] 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 net operating
loss carryforwards and to the differences between the tax
bases of assets and liabilities and their reported amounts
in the financial statements.
<PAGE 33>
[9] Loss per share of common stock:
The Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS No. 128"), for
the year ended September 30, 1998. SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and
convertible securities. In addition, contingently issuable
shares are included in basic earnings per share when all
necessary conditions have been satisfied. Diluted earnings
per share is very similar to fully diluted earnings per
share and gives effect to all dilutive potential common
shares outstanding during the reporting periods.
Net loss per share of common stock is based on the weighted
average number of shares outstanding, including, prior to
their issuance, shares which were issuable in connection
with interim financings (see Notes H[3] and [4]) and after
giving retroactive effect to (i) the reverse stock split
effected in January 1998 (see Note H[1]) and (ii) the
contribution of 654,597 common shares back to the Company in
exchange for warrants in December 1997 (see Note H[5]).
Contingent shares issuable in connection with the
acquisition of Software Associates, Inc. (see Note D) are
excluded from the weighted average shares outstanding. Net
loss for 1998 has been increased by dividends accrued on
cumulative convertible preferred stock, including imputed
dividends attributable to a beneficial conversion feature
and the value of warrants issued together with the preferred
stock, to determine net loss per share of common stock (see
Note H[7]).
[10] 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.
[11] Fair value of financial instruments:
<PAGE 34>
The Company considers the carrying amount of its financial
assets and obligations, to approximate fair value due to the
near-term due dates and variable interest rates.
[12] Stock-based compensation:
The Company has elected to account for its stock-based
compensation plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). As such, compensation expense is recorded
if the market price of the underlying stock on the date of
grant exceeds the exercise price of the options. In
addition, the Company provides pro forma disclosure of net
loss and net loss per share as if the fair value method
defined in Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No.
123") had been applied.
[13] New accounting standard:
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). This standard, which is
effective for fiscal years beginning after December 15,
1997, establishes standards for the way that public business
enterprises report information about operating segments in
annual financial statements and requires that those
enterprises report selected information about operating
segments in interim financial reports issued to
stockholders. It also establishes standards for related
disclosures about products and services, geographic areas,
and major customers. The Company will implement the interim
and annual disclosures required under SFAS No. 131 during
fiscal 1999.
Note D - Acquisitions
On November 30, 1996, the Company acquired all the outstanding
stock of Software Associates, Inc. in exchange for 224,330 shares
of common stock. Software Associates is a service bureau engaged
in the business of helping companies realize the benefits of
expanding their data processing and electronic communication
infrastructure through the use of EDI. The Company further
agreed to issue up to 178,420 additional shares of its common
stock in the event that the average closing bid price of the
Company's common stock does not equal $21.565 per share for the
five trading days immediately prior to January 30, 2000. The
acquisition agreement also required the Company to issue options
<PAGE 35> for the purchase of 6,521 shares of its common stock to
employees of Software Associates, Inc., which were issued in
August 1997. The acquisition, which was accounted for as a
purchase, was recorded at a total cost of $885,000, including
related expenses, of which $714,000 was allocated to purchased
research and development which was charged to operations upon
acquisition.
On May 1, 1998, the Company purchased all the outstanding stock
of Design Crafting, Inc., a provider of electronic commerce
consulting services, in exchange for 102,500 shares of common
stock. The acquisition, which was accounted for as a purchase,
was recorded at a total cost of $551,000, including related
expenses, of which $508,000 was allocated to cost in excess of
fair value of the identifiable net assets acquired.
The results of operations of the purchased businesses were
included in the consolidated statements of operations from their
respective dates of acquisition. Following are the Company's
unaudited pro forma results for 1998 and 1997 assuming the
acquisitions occurred on October 1, 1996. The pro forma
information is not necessarily indicative of the results that
would have been reported had the acquisitions occurred on such
date or of future results of operations.
Pro Forma
Year Ended
September 30,
1998 1997
Revenues $ 1,447,000 $ 1,227,000
Net loss $(2,934,000) $(2,430,000)*
Net loss per common share
- basic and diluted $ (1.46) $ (1.61)
Weighted average number
of shares outstanding 2,003,354 1,511,376
* 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
in connection with the Software Associates, Inc.
acquisition.
Note E - Property and Equipment
<TABLE>
<CAPTION>
Property and equipment consists of the following as of September
30, 1998:
Estimated
<PAGE 36>
Useful
Life
<S> <C> <C>
Office facility condominium $157,000 20
years
Office equipment 104,000 5
years
Computer equipment (includes a
capitalized lease of $10,000) 178,000 5
years
Automobiles 16,000 5
years
Leasehold improvements 38,000
Shorter of
life of
lease or
useful life
of asset
Capitalized software 72,000 3
years
565,000
Less accumulated depreciation and amortization (157,000)
408,000
Land 42,000
$450,000
</TABLE>
Note F - Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following as of September 30,
1998:
<S>
<C>
Mortgage payable - due July 2019;
payable in varying monthly installments
at an interest rate of the lower of
prime (8.25% at September 30, 1998)
plus 2% or 14.25% (prepaid on November 23, 1998)*
$185,000
Auto loan - due June 1999;
payable in monthly installments of $334 and
5.9% interest
2,000
Total indebtedness
187,000
Less current maturities
6,000
Noncurrent portion
$181,000
</TABLE>
* Collateralized by an office facility condominium and
land which was sold at a gain of approximately $56,000
on November 23, 1998.
Note G - Lines of Credit
The Company has two lines of credit aggregating $117,500 which
are personally guaranteed by an officer of the Company and have
interest rates of 2% and 4-3/4% above the bank's prime lending
rate. There was no debt outstanding as of September 30, 1998.
<PAGE 37>
Note H - Stockholders' Equity and Interim Financing
[1] 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 a share and authorized 5,000,000 shares of
preferred stock. On June 12, 1997, the stockholders
approved such transactions which were completed on
January 9, 1998. Cash of $332 was paid to the stockholders
for fractional shares. The accompanying financial
statements and footnotes give retroactive effect to the
reverse stock split and accordingly, the number of shares
and per share amounts are stated on a post-split basis.
[2] On November 21, 1996, the Company sold 65,212 shares of its
common stock for $250,000.
[3] On April 30, 1997, 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 were
repaid from the net proceeds of the Company's public
offering in February 1998. 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 were
amortized over the period to the expected completion date
(October 31, 1997) of the Company's public offering of
securities. The Company completed its public offering in
February 1998. During the years ended September 30, 1998
and 1997, financing costs of $93,000 and $465,000,
respectively, were charged to operations. The effective
interest rate on the note 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
<PAGE 38> 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 contributed 66,660 shares of the Company's common
stock valued at $400,000 back to the Company which then, on
November 6, 1997, reissued such shares in the private
placement. The notes were repaid from the net proceeds of
the Company's public offering in February 1998.
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 were
amortized over the period to the expected completion date
(October 31, 1997) of the Company's public offering of
securities. The Company completed its public offering in
February 1998. During the years ended September 30, 1998
and 1997, financing costs of $255,000 and $217,500,
respectively, were charged to operations. The effective
interest rate on the notes was approximately 525%.
[5] On December 23, 1997, in connection with a contemplated
public offering, certain of the Company's existing
stockholders contributed 654,597 shares of the Company's
common stock back to the Company and received 125,000
warrants. The warrants, which expire on December 23, 2007,
entitle the holder to purchase the Company's common stock at
$6.00 per share. The contributed shares were canceled and
retired. In addition, contingent shares issuable in
connection with the acquisition of Software Associates, Inc.
(see Note D) were reduced from 297,367 shares to 178,420
shares.
[6] On February 6, 1998, the Company completed a public offering
of 733,334 shares of its common stock at $6.00 per share and
received net proceeds of approximately $3,179,000.
[7] On August 7, 1998, the Company completed a private placement
for net proceeds of approximately $779,000, which consisted
of 875 shares of Series A 6% cumulative convertible
preferred stock, par value $0.001 per share (the "Preferred
Shares") together with 87,500 Common Stock Purchase Warrants
which expire on August 7, 2001 and have an exercise price of
$6.00 per share. The Preferred Shares have a liquidation
preference of the stated face value of $875,000 plus 30% of
the stated face value plus cumulative dividends. Dividends,
which are payable in cash or common shares at the option of
the Company, are due quarterly, commencing September 30,
<PAGE 39> 1998, based upon the liquidation value. The
holder is eligible to convert 33 1/3% of the Preferred
Shares to common stock after 60 days from the closing date
increasing to 100% of the Preferred Shares after 120 days
from the closing date. Each Preferred Share is convertible
at the lesser of (i) $5.50 or (ii) 85% of the market price
of the common stock, as defined (Market Price) within 180
days, 80% of the Market Price between 180 and 360 days and
78% of the Market Price after 360 days. The holder of
Preferred Shares may not convert to the extent that the
holder will be the beneficial owner of 5% or more of the
outstanding common shares. The Company may redeem all the
remaining outstanding Preferred Shares at 125% of the stated
value together with all accrued and unpaid dividends
thereon.
Proceeds from the private placement were allocated to the
warrants based on their estimated fair value and to the
beneficial conversion feature of the Preferred Shares based
on that feature's intrinsic value assuming the conversion
terms most beneficial to the investor. Amounts allocated
aggregating $444,000 were credited to additional paid-in
capital and are being accounted for as imputed dividends to
the preferred shareholders over a one year period from date
of issuance. Imputed dividends accreted, which amounted to
$67,000 through September 30, 1998, increases the carrying
value of the Preferred Shares.
On December 3, 1998, the Company completed a Private
Placement for net proceeds of approximately $455,000 which
consisted of 625 shares of Series A 6% cumulative
convertible preferred stock having a stated value of
$500,000 together with 50,000 common stock purchase warrants
which expire on December 1, 2001 and have an exercise price
of $6.00 per share. The shares are convertible into common
stock. For purposes of conversion these preferred shares
are deemed to have been outstanding as of August 7, 1998 and
the buyer may convert at the lesser of (i) $5.50 or (ii) 80%
of the Market Price between 180 and 360 days after August 7,
1998 and 78% of the Market Price after 360 days from such
date. On December 3, 1998, 125 Preferred Shares were
converted to 95,420 shares of common stock.
[8] The Company's outstanding warrants as of September 30, 1998
is as follows:
<TABLE>
<CAPTION>
Exercise
Expiration
<PAGE 40>
Description Shares Price
Date
<S> <C> <C> <C>
Warrants issued in connection with
contribution of stock 125,000 $6.00
December 23, 2007
Warrants issued with preferred stock 87,500 $6.00
August 7, 2001
</TABLE>
Note I - 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
outside directors to purchase up to 78,254 shares of the
Company's common stock. The Director Plan was approved by
the stockholders on June 12, 1997. Pursuant to the Director
Plan, each director is to be granted options to purchase
3,912 shares of the Company's common stock at each annual
meeting of stockholders 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, or the compensation committee
waives the eleven-month continuous service requirement.
During each of the years ended September 30, 1998 and 1997,
11,736 and 15,648 options, respectively, were granted to
directors to purchase the Company's common stock pursuant to
the Director Plan; such options, which were granted at
prices equivalent to the market value of the common stock at
dates of grant, are exercisable immediately and expire on
October 31, 2008 and 2007, respectively.
[2] Employee stock option plan:
On March 7, 1997, the Board of Directors adopted the
Company's 1997 employee stock option plan (the "Plan"),
which was amended by the Board of Directors on April 29,
1997, under which incentive stock options and nonqualified
stock options may be granted to purchase up to 334,764
shares of the Company's common stock. The Plan was approved
by the stockholders on June 12, 1997. Incentive stock
options are to be granted at a price not less than the
market value of the common stock on the date of grant, or
110% of such 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.
<PAGE 41> On August 8, 1997, the Company granted 99,054
nonqualified options to its employees, including 6,521 to
employees of Software Associates, Inc., to purchase the
Company's common stock. The options, which were granted at
an exercise price below market value, expire on August 7,
2007. On September 11, 1997, the Company granted options to
its President to purchase 104,338 shares of the Company's
common stock at $3.83 per share which expire in ten years
and vest over a three-year period. The market value of the
stock at date of grant was $4.55 per share. The Company
recorded $494,000 of unearned compensation relating to
options granted to the President and other employees, of
which $115,000 and $290,000 was charged to operations for
the years ended September 30, 1998 and 1997, respectively,
and $89,000 is to be charged to operations over the
remaining vesting periods of the options.
[3] Other options:
In April 1998, the Company granted options to purchase
90,000 shares of common stock at $5.50 per share as
compensation to individuals other than employees for
investment relation services. The options are exercisable
immediately and expire in April 2000. The estimated fair
value of the options which amounted to $205,000 was charged
to operations during fiscal 1998.
A summary of the Company's stock option activity and related
information for the years ended September 30 follows:
<TABLE>
<CAPTION>
1998 1997
Weighted
Weighted
Average
Average
Exercise
Exercise
Shares Price Shares
Price
<S> <C> <C> <C>
<C>
Balance outstanding -
at beginning of year 219,040 $ 3.06 0
Granted 101,736 5.35 219,040
$ 3.06
Balance outstanding -
at end of year 320,776 $ 3.78 219,040
$ 3.06
Exercisable -
at end of year 252,090 $ 3.86 77,723
$ 2.16
</TABLE>
The following table summarizes information about stock options
outstanding as of September 30, 1998:
<PAGE 42>
Weighted
Average
Number of Contractual Number of
Exercise Options Remaining Options
Price Outstanding Life (in Years) Exercisable
$ 6.23 9,388 8.9 9,388
5.50 90,000 1.5 90,000
4.55 15,648 9.0 15,648
4.17 11,736 9.7 11,736
3.83 104,338 8.9 45,649
1.56 89,666 8.9 79,669
320,776 252,090
As indicated in Note A[12], the Company elected to account for
its stock based compensation plans under APB 25. Had
compensation cost for stock option grants been determined based
on the fair value at the grant dates for awards consistent with
the method provided by SFAS No. 123, the Company's loss and loss
per share would have been increased to the pro forma amounts
indicated below.
Year Ended
September 30,
1998 1997
Net loss As reported $ (2,954,000) $ (3,163,000)
Pro forma $ (3,234,000) $ (3,450,000)
Net loss per common
share - basic and
diluted As reported $ (1.56) $ (2.28)
Pro forma $ (1.66) $ (2.49)
The resulting pro forma effect on net loss and net loss per
share disclosed above is not necessarily representative of
the effects on reported operations 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. The weighted average fair value of the
options granted to employees during the years ended
September 30, 1998 and 1997 is estimated at $3.33 and $3.06,
respectively, using the Black-Scholes option-pricing model
with the following assumptions:
Year Ended
September 30,
1998 1997
Risk free interest rates 5.43% 6.08 - 6.34%
<PAGE 43>
Dividend yield 0% 0%
Volatility 70% 50%
Expected life of options (in years) 10 7 and 10
Note J - Income Taxes
The Company has a federal and state net operating loss
carryforward of approximately $4,922,000 as of September 30, 1998
of which $1,850,000 expires through 2012, and $3,072,000 expires
in 2018.
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. The utilization of approximately
$3,257,000 of the Company's net operating loss carryover is
limited to approximately $446,000 per year as a result of the
Company's public offering (see Note H[6]).
The tax effects of principal temporary differences and net
operating loss carryforwards are as follows as of September 30,
1998:
<TABLE>
<CAPTION>
<S>
<C>
Asset:
Federal and state operating loss carryforwards
$1,969,000
Compensation expense - stock options
128,000
Accounts receivable allowance
16,000
Accrual basis to cash basis adjustments
5,000
2,118,000
Valuation allowance
(2,118,000)
Net deferred tax asset $
0
</TABLE>
A valuation allowance has been provided for the deferred tax
asset as the likelihood of realization of the future tax benefits
cannot be determined. The increase in the valuation allowance
during fiscal 1998 and 1997 was approximately $988,000 and
$969,000, respectively.
The differences between the statutory federal income tax rate and
the effective tax rate are as follows:
September 30,
1998 1997
Tax benefit at statutory rate (34.0)% (34.0)%
<PAGE 44>
Nondeductible items .4 8.0
Increase in valuation allowance 33.6 25.3
Effective tax rate benefit $ 0% (0.7)%
Note K - Commitments 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[1]. The following are minimum annual
rental payments under the leases:
Year Ending
September 30,
1999 $82,000
2000 84,000
2001 86,000
2002 52,000
2003 12,000
$316,000
Rent expense for the years ended September 30, 1998 and 1997
was $94,000 and $68,000, respectively.
[2] Employment contracts:
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 the acquisition of Software Associates,
Inc., the Company entered into an employment contract with
Software Associates, Inc.'s sole stockholder/president. The
agreement expires on November 30, 2001 and provides for
annual salary of approximately $136,000 with a discretionary
bonus as determined by the Board of Directors.
In connection with the acquisition of Design Crafting, Inc.,
the Company entered into a one-year employment contract with
<PAGE 45> Design Crafting, Inc.'s former stockholder for an
annual salary of $140,000 plus commission. The employment
contract expires on April 30, 1999 and automatically renews
each year unless either party gives written notice prior to
the annual renewal date.
[3] Concentration of credit risk:
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.
The Company routinely evaluates the credit worthiness of its
customers to limit its concentration of credit risk with
respect to its trade receivables.
[4] Significant customers:
The Company had one customer that accounted for 26% of net
sales for the year ended September 30, 1998 and one customer
that accounted for 18% of net sales for the year ended
September 30, 1997.
Note L - Related Party Transactions
[1] Software Associates, Inc. leases 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 in rent of three
percent and requires the Company to pay condominium
maintenance fees. Rent expense under the lease amounted to
approximately $43,000 in 1998 and $35,000 in 1997. The
partnership and Software Associates, Inc. are jointly liable
on the mortgage on the property which had an outstanding
balance of approximately $243,000 as of September 30, 1998.
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.
[2] 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 H[3]. During the year ended
September 30, 1997, the Company received additional loans
from its CEO and Vice President aggregating approximately
$149,000 of which $32,000 was paid back to the CEO. During
the year ended September 30, 1998, the Company received
additional loans of $115,000 from its CEO. The entire loan
<PAGE 46> balance was repaid from the net proceeds of the
public offering disclosed in Note H[7].
PAGE 47
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On February 24, 1997, the Issuer retained the services of
Richard Eisner & Company, LLP as the Company's principal
independent accountant and auditor ("Eisner"). Eisner's
responsibilities include the audit of the Issuer's financial
statements for the two fiscal years ending September 30, 1998.
The circumstances of the retention of Eisner are discussed
in the Company's Form 8-K as filed with the Commission dated
February 19, 1997, as amended by the Amendment to Form 8-K dated
March 12, 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The following table contains certain information with
respect to the Board of Directors and the executive officers of
the Company, as they existed on December 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Steven L. Vanechanos, Jr.(1) 44 Chairman of the Board
and Chief Executive
Officer
James D. Conners 59 President and Chief
Operating Officer
Steve Vanechanos, Sr.(1) 68 Director, Vice
President, Treasurer and
Secretary
Kenneth R. Konikowski 51 Director and Executive
Vice President
F. Patrick Ahearn, Jr.(2) 50 Director
Denis Clark 54 Director
Frank T. DiPalma(3) 52 Director
Robert Droste(2)(3) 44 Director
Robert J. Gailus 49 Director
- --------
</TABLE>
(1) Steve Vanechanos, Sr. is the father of Steven L.
Vanechanos, Jr.
(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.
<PAGE 48>
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 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.
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
<PAGE 49> 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.
ROBERT J. GAILUS became a Director of the Company on
November 25, 1998. He graduated from Columbia College with a
Bachelor of Arts in American Studies, and from Columbia
University Graduate School of Business with a Masters of Business
Administration. During the past five years, Mr. Gailus has been
the founder and principal of Software Technology Venture
Partners, New York, New York, a technology venture capital firm.
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
2001; Directors Konikowski, Vanechanos, Sr. and Gailus 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
<PAGE 50> 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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors and persons who own
more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required
by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. The rules of the SEC regarding
the filing of such statements require that "late filings" of such
statement be disclosed in this Report.
Based solely on review of the copies of such forms furnished
to the Company, the Company believes that, during the fiscal year
ended September 30, 1998, its officers, directors, and greater
than ten-percent beneficial owners complied with applicable
Section 16(a) filing requirements, except that (i) F. Patrick
Ahearn, Jr, Frank DiPalma, Robert Droste and Denis Clark each
inadvertently failed to file a Form 5 to report stock options for
3,912 of common stock received under the 1997 Stock Option Plan
for Outside Directors; (ii) Steven Vanechanos Jr. and Steve
Vanechanos Sr. each inadvertently failed to file a Form 5 to
report their contribution of 33,330 shares of common stock of the
Company in connection with an August, 1997 financing transaction,
(iii) James Conners inadvertently failed to file a Form 3 when he
became an officer of the Company, and a Form 5 to report stock
options for 104,388 of common stock he received from the Company,
and (iv) Kenneth Konikowski, Steven Vanechanos, Jr. and
Steven Vanechanos, Sr. each inadvertently failed to file a Form 5
to report their contribution of shares of common stock to the
Company in December, 1997 (89,732 for Mr. Konikowski, 184,135 for
Mr. Vanechanos, Jr. and 182,191 for Mr. Vanechanos, Sr.).
ITEM 10. EXECUTIVE COMPENSATION.
General
Summary Compensation Table
The following table sets forth the compensation paid to
Steven L. Vanechanos, Jr., the Corporation's Chief Executive
Officer and the other individuals indicated. (Mr.
Vanechanos, Jr. also served as 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.
<TABLE> <PAGE 51>
<CAPTION>
Summary Compensation Table
Name and All Other
Stock Option
Principal Position Year Salary
Compensation Awards
<S> <C> <C> <C>
<C>
Steven L. Vanechanos, Jr. 1998 $ 88,451 $
6,150(1) 0
Chief Executive Officer 1997 $ 61,980 $
4,750(2) 0
1996(3) $ 58,762(4) $
11,400(5) 0
James Conners 1998(6) $173,333 $
53,405(7) 45,648(8)
President
Kenneth R. Konikowski 1998 $173,333
$10,935(9) 0
Executive Vice President 1997 $101,700 $
5,265(10) 0
1996 $108,000(11)
$10,800(12) 0
Douglas Eadie 1998(13) $180,539(14) $
3,500(15) 0
Vice President
Jonathan B. Lassers 1996(16) $ 0(17) $
0(17) 0
Former President and
Chief Executive Officer
</TABLE>
- ---------------
(1) Consists of lease payments totaling $4,750 and insurance
premiums of $1,400 made by the Corporation for an automobile
used by Mr. Vanechanos, Jr.
(2) Consists of lease payments totaling $4,750 made by the
Corporation for an automobile used by Mr. Vanechanos, Jr.
(3) Mr. Vanechanos, Jr. commenced his employment with the
Corporation 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 DynamicWeb Transaction Systems, Inc.
(4) This amount includes salary paid by Megascore during the
year ended September 30, 1996. Megascore was acquired by
the Corporation on September 30, 1996.
(5) Consists of lease payments totaling $4,300 made by the
Corporation for an automobile used by Mr. Vanechanos, Jr.,
and travel and entertainment expenses of approximately
$7,100 paid by the Corporation. Mr. Vanechanos, Jr. did not
receive any long-term compensation.
(6) Mr. Conners commenced his employment with the Company on
August 26, 1997.
(7) Consists of lease payments totaling $3,240 and auto
insurance payments totaling $1,400 made by the Company for
an automobile used by Mr. Conners; payment of rent of
<PAGE 52> $14,400 for an apartment in New Jersey for his
use; and payment of $34,365 for airfare and other
transportation expenses for travel between New Jersey and
Mr. Conners' Ohio residence.
(8) On August 25, 1998, options to purchase 45,648 shares of
common stock at an exercise price of $3.83 per share vested
to Mr. Conners, pursuant to his employment agreement. That
exercise price was above the fair market value of the common
stock on that date.
(9) Consists of lease payments totaling $7,020 for an automobile
used by Mr. Konikowski; payments totaling $2,870 for a
disability insurance policy provided to Mr. Konikowski; and
payments totaling $1,045 for a life insurance policy
provided to Mr. Konikowski.
(10) Consists of lease payments made by the Corporation for an
automobile used by Mr. Konikowski.
(11) Mr. Konikowski commenced his employment with the Company on
November 30, 1996, the date upon which the Company acquired
Software Associates, Inc. Prior to that time, he had been
president of Software Associates, Inc. This amount consists
of salary paid during the year ended September 30, 1996, by
Software Associates, Inc.
(12) Consists of lease payments of $7,200 made by Software
Associates, Inc. for an automobile used by Mr. Konikowski,
and reimbursement of $3,600 of automobile insurance premiums
for coverage of that automobile.
(13) Mr. Eadie commenced his employment with the Company on
May 1, 1998, when the Company acquired Design Crafting,
Inc., of which Mr. Eadie was the principal. Mr. Eadie is
not an executive officer of the Company.
(14) This amount consists of salary paid by Design Crafting, Inc.
from October 1, 1997 to April 30, 1998, and salary paid by
the Company from May 1, 1998 to September 30, 1998.
(15) Consists of $3,500 in payments made to reimburse Mr. Eadie
for automobile expense.
(16) Mr. Lassers terminated his employment with the Corporation
on March 26, 1996, the date upon which Seahawk Oil
International, Inc. acquired DynamicWeb Transaction Systems,
Inc. and changed its name to DynamicWeb Enterprises, Inc.
(17) Based upon present management's review of documents and
financial statements filed with the Securities and Exchange
Commission relating to that period.
Stock Options
<PAGE 53>
Except for the vesting of options to purchase 45,648 shares
of common stock to Mr. Conners, none of the executive officers of
the Corporation or any of its subsidiaries named in the Summary
Compensation Table above received or exercised stock options,
stock appreciation rights or other stock awards from the
Corporation during the two fiscal years ended September 30, 1998.
Options/SAR Grants in Last Fiscal Year
Individual Grants
_________________________________________________________________
___________________________________________
(a) (b) (c)
(d) (e)
Number of
Securities Percent of Total
Underlying Options/SARs
Options/ Granted to
SARs Employees in
Exercise or Base Expiration
Name Granted (#) Fiscal Year
Price ($/Sh) Date
_________________________________________________________________
___________________________________________
James D. Conners, 45,648 45%
$3.83 August 25, 2008
President
Employment Agreements
On December 1, 1996, Kenneth R. Konikowski, Executive Vice
President of the Corporation, entered into an Employment
Agreement with the Corporation (the "Konikowski Agreement").
Under the terms of the Konikowski Agreement, Mr. Konikowski
serves as Executive Vice President and a member of the
Corporation'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 Corporation's policies and practices.
Mr. Konikowski is also eligible to be paid an annual bonus based
on the Corporation's to-be-established incentive bonus plan.
Mr. Konikowski also receives certain employee benefits, including
$500,000 of life insurance, disability and health insurance,
vacation days, and use of an automobile. He is also eligible to
participate in the Corporations'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
<PAGE 54> 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. Conners 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of December 31, 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 executive officer 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>
AMOUNT AND
NATURE
OF BENEFICIAL
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER
OWNERSHIP(1)(2) CLASS(3)
<S> <C>
<C>
Steven L. Vanechanos, Jr....................... 276,203
11.14%
92 Clarken Drive
West Orange, New Jersey 07052
Steven Vanechanos, Sr.......................... 273,288
11.03%
96 Union Avenue
Rutherford, New Jersey 07082
Kenneth R. Konikowski(4)....................... 134,598
5.43%
36 Pinebrook Road
Towaco, New Jersey 07082
James D. Conners............................... 70,648(6)
2.85%
<PAGE 55>
5506 Carnoustie Court
Dublin, Ohio 43017
F. Patrick Ahearn, Jr.......................... 9,979(7)
0.40%
107 Maple Street
Rutherford, New Jersey 07070
Frank T. DiPalma...............................
14,609(7)(8) 0.59%
179 Claremont Road
Ridgewood, New Jersey 07450
Robert Droste.................................. 9,979(7)
0.40%
24 Summit Road
Clifton, New Jersey 07012
Denis Clark.................................... 7,824(7)
0.32%
8417 Greenside Drive
Dublin, Ohio 43017
Robert J. Gailus............................... 25,000
1.01%
50 Riverside Drive
New York, New York 10024
All directors and executive officers as a group
(9 in number).................................. 822,128
33.17%
</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.
(2) Information furnished by the directors and executive
officers of the Company.
(3) Percentages based upon a total of 2,478,681 shares,
consisting of (a) 2,351,737 shares outstanding on
December 31, 1998, plus (b) an additional 31,296 shares
issuable within 60 days hereof to the outside directors
Mssrs. Ahearn, DiPalma, Droste, and Clark under the 1997
Director Plan (See Footnote (7) below), plus (c) an
additional 70,648 shares issuable to Mr. Conners within 60
days of the date of this Report (See Footnote (6) below),
<PAGE 56> plus (d) an additional 25,000 shares issuable to
Mr. Gailus within 60 days of the date of this Report (See
Footnote (9) below).
(4) 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."
(5) 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.
(6) On September 11, 1997, Mr. Conners was granted options to
purchase 104,338 shares under the 1997 Employee Plan, and on
December 10, 1998, Mr. Conners was granted an additional
50,000 options under the 1997 Employee Plan. 70,648 of
those options are exercisable within 60 days of this Report.
(7) Includes options to purchase 3,912 shares granted in 1998
under the 1997 Director Plan.
(8) All of such shares are held jointly by Mr. DiPalma and his
spouse.
(9) Consists of options to purchase 25,000 shares granted on
November 25, 1998 for financial consulting services, all of
which are exercisable within 60 days of the date of this
Report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ACQUISITION OF SOFTWARE ASSOCIATES
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.
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.
<PAGE 57>
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 under such lease is
approximately $40,000, 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 $243,000 of indebtedness (as of September 30, 1998)
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.
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.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits.
The Exhibits required in response to this item are as
follows:
Exhibit No. Description
3.1.10 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated August 6, 1998,
as filed with the State of New Jersey on August 7,
1998
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
<PAGE 58> 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
<PAGE 59> reference to Exhibit 2 to the
Registrant's Current Report on Form -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 Employment Agreement dated May 1, 1998 between the
Registrant and Douglas Eadie.
10.15 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).
10.16 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).
10.17 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).
10.18 Lease Agreement dated November 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).
10.19 Amendment No. 1 to Lease Agreement between
Software Associates, Inc. and The Mask Group
<PAGE 60> (incorporated be reference to Exhibit 3
to the Registrant's Form 8-K dated September 9,
1997).
10.20 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).
10.21 Form of financial Consulting Agreement between the
Registrant and H.J. Meyers & Co., Inc.
(incorporated by reference to Exhibit 10.20 to
Registrant's SB-2 filed September 15, 1997).
10.22 Form of Mergers and Acquisition Agreement between
the Registrant and H.J. Meyers & Co., Inc.
(incorporated by reference to Exhibit 10.21 to
Registrant's SB-2 filed September 15, 1997).
10.23 Letter of amendment dated November 20, 1997
amending Stock Purchase Agreement dated April 7,
1997 between the Registrant and Kenneth R.
Konikowski (incorporated by reference to
Exhibit 10.22 to Registrant's SB-2 filed
September 15, 1997).
10.24 Letter of Amendment dated December 15, 1997
amending Stock Purchase Agreement dated April 7,
1997 between the Registrant and Kenneth R.
Konikowski (incorporated by reference to
Exhibit 10.23 to Registrant's SB-2 filed
September 15, 1997).
10.25 Form of Warrant and Warrant Agreement with certain
shareholders of Registrant (incorporated by
reference to Exhibit 10.24 to Registrant's SB-2
filed September 15, 1997).
10.26 Securities Purchase Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar
Fund Ltd. (incorporated by reference to
Exhibit 10.26 of Registrant's Registration
Statement No. 333-67439 on Form S-2, as amended).
10.27 Registration Rights Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar
Fund Ltd. (incorporated by reference to
Exhibit 10.27 of Registrant's Registration
Statement No. 333-67439 on Form S-2, as amended).
10.28 Service Agreement and Option Grant with Perry &
Co. dated April 2, 1998 (incorporated by reference
to Exhibit 10.28 of Registrant's Registration
Statement No. 333-67439 on Form S-2, as amended).
<PAGE 61>
10.29 Letter Agreement dated December 3, 1998 between
DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.
(incorporated by reference to Exhibit 10.29 of
Registrant's Registration Statement No. 333-67439
on Form S-2, as amended)
16.1 Letter on change in certifying account (R. Andrew
Gately & Co.) (incorporated by reference to
Exhibit 16.1 to Registrant's Current Report on
Form 8-K dated February 19, 1997.
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.*
27.0 Financial Data Schedule.*
* Filed herewith.
PAGE 62
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
January 12, 1999 DYNAMICWEB ENTERPRISES, INC.
By /s/ Steve L. Vanechanos, Jr.
----------------------------
Steve L. Vanechanos, Jr.,
Chief Executive Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Steven L. Vanechanos, Jr. President and January 12, 1999
- ----------------------------- Chief Executive
Officer, Director
/s/ Steve Vanechanos, Sr. Treasurer, Chief January 12, 1999
- ----------------------------- Financial
Officer, and
Chief Accounting
Officer, Director
/s/ Frank T. DiPalma Director January 12, 1999
- -----------------------------
/s/ F. Patrick Ahearn Director January 12, 1999
- -----------------------------
/s/ Kenneth R. Konikowski Director January 12, 1999
- -----------------------------
/s/ Robert J. Gailus Director January 12, 1999
- -----------------------------
PAGE 63
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1.10 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated August 6, 1998,
as filed with the State of New Jersey on August 7,
1998
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
<PAGE 64> 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 -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 Employment Agreement dated May 1, 1998 between the
Registrant and Douglas Eadie.
10.15 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).
10.16 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
<PAGE 65> to Section 14(c) of the Securities
Exchange Act of 1934).
10.17 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).
10.18 Lease Agreement dated November 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).
10.19 Amendment No. 1 to Lease Agreement between
Software Associates, Inc. and The Mask Group
(incorporated be reference to Exhibit 3 to the
Registrant's Form 8-K dated September 9, 1997).
10.20 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).
10.21 Form of financial Consulting Agreement between the
Registrant and H.J. Meyers & Co., Inc.
(incorporated by reference to Exhibit 10.20 to
Registrant's SB-2 filed September 15, 1997).
10.22 Form of Mergers and Acquisition Agreement between
the Registrant and H.J. Meyers & Co., Inc.
(incorporated by reference to Exhibit 10.21 to
Registrant's SB-2 filed September 15, 1997).
10.23 Letter of amendment dated November 20, 1997
amending Stock Purchase Agreement dated April 7,
1997 between the Registrant and Kenneth R.
Konikowski (incorporated by reference to
Exhibit 10.22 to Registrant's SB-2 filed
September 15, 1997).
10.24 Letter of Amendment dated December 15, 1997
amending Stock Purchase Agreement dated April 7,
1997 between the Registrant and Kenneth R.
Konikowski (incorporated by reference to
Exhibit 10.23 to Registrant's SB-2 filed
September 15, 1997).
10.25 Form of Warrant and Warrant Agreement with certain
shareholders of Registrant (incorporated by
reference to Exhibit 10.24 to Registrant's SB-2
filed September 15, 1997).
<PAGE 66>
10.26 Securities Purchase Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar
Fund Ltd. (incorporated by reference to
Exhibit 10.26 of Registrant's Registration
Statement No. 333-67439 on Form S-2, as amended).
10.27 Registration Rights Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar
Fund Ltd. (incorporated by reference to
Exhibit 10.27 of Registrant's Registration
Statement No. 333-67439 on Form S-2, as amended).
10.28 Service Agreement and Option Grant with Perry &
Co. dated April 2, 1998 (incorporated by reference
to Exhibit 10.28 of Registrant's Registration
Statement No. 333-67439 on Form S-2, as amended).
10.29 Letter Agreement dated December 3, 1998 between
DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.
(incorporated by reference to Exhibit 10.29 of
Registrant's Registration Statement No. 333-67439
on Form S-2, as amended)
16.1 Letter on change in certifying account (R. Andrew
Gately & Co.) (incorporated by reference to
Exhibit 16.1 to Registrant's Current Report on
Form 8-K dated February 19, 1997.
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.*
27.0 Financial Data Schedule.*
* Filed herewith.
<PAGE 67>
Exhibit 23.1
Subsidiaries of the Registrant
None.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 290,000
<SECURITIES> 0
<RECEIVABLES> 312,000
<ALLOWANCES> (41,000)
<INVENTORY> 0
<CURRENT-ASSETS> 587,000
<PP&E> 608,000
<DEPRECIATION> (158,000)
<TOTAL-ASSETS> 1,750,000
<CURRENT-LIABILITIES> 380,000
<BONDS> 0
0
402,000
<COMMON> 0
<OTHER-SE> 787,000
<TOTAL-LIABILITY-AND-EQUITY> 1,750,000
<SALES> 1,187,000
<TOTAL-REVENUES> 1,187,000
<CGS> 468,000
<TOTAL-COSTS> 3,071,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 374,000
<INCOME-PRETAX> (2,954,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,954,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,954,000)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> (1.56)
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