As filed with the Securities and Exchange Commission on June 10, 1999 Registration No. 333-78889 ================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________ PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___________________________ DYNAMICWEB ENTERPRISES, INC. (Name of Small Business Issuer in Its Charter) New Jersey 7372 22-2267658 (State or other Juris- (Primary Standard (I.R.S. Employer diction of Incorpora- Industrial Classif- Identification tion or Organization ication Code Number) Number) DynamicWeb Enterprises, Inc. 271 Route 46 West Building F, Suite 209 Fairfield, New Jersey 07004 (973) 276-3100 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Steven L. Vanechanos, Jr. Chief Executive Officer DynamicWeb Enterprises, Inc. 271 Route 46 West Building F, Suite 209 Fairfield, New Jersey 07004 (973) 276-3100 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Stephen F. Ritner, Esquire Ira R. Halperin, Esquire Scott H. Spencer, Esquire Weil, Gotshal & Manges LLP Stevens & Lee 767 Fifth Avenue One Glenhardie Corporate Center New York, New York 10153 1275 Drummers Lane (212) 310-8383 P.O. Box 236 Wayne, Pennsylvania 19087 (610) 964-1480 ___________________________ Approximate date of commencement of proposed sale to the public: From time to time, at the discretion of the selling shareholders, after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [__] If this Form is a post-effective registration statement filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [__] If delivery of the prospectus is expected to be made pursuant to Rule 434 please check the following box. [ ] CALCULATION OF REGISTRATION FEE ================================================================= Proposed Proposed Title of Each Amount Maximum Maximum Class of Secur- to be Offering Aggregate Amount of ities to be Regis- Price Per Offering Registra- Registered tered(1) Unit(1) Price(1) tion Fee _________________________________________________________________ Common Stock(2) 238,295 $7.16 $ 1,706,192 $ 503.32 _________________________________________________________________ Common Stock 1,519,230 $7.16 $10,877,687 $3,208.91 issuable upon conversion of convertible preferred stock(3) _________________________________________________________________ Common Stock 162,500 $6.00 $ 975,000 $ 287.62 issuable upon exercise of warrants(4) _________________________________________________________________ Common Stock 135,000 $8.93 $1,205,550 $ 355.64 issuable upon exercise of warrants(5) _________________________________________________________________ Common Stock 45,000 $5.50 $ 247,500 $ 73.01 issuable upon exercise of options of Perry & Co.(6) _________________________________________________________________ Common Stock 45,000 $5.50 $247,500 $ 73.01 issuable upon exercise of options of Joel Arberman(6) ================================================================= (1) Estimated pursuant to Rule 457(a) solely for purposes of calculating the Registration Fee. (2) Calculated pursuant to Rule 457(c), using the average of the bid and asked prices on May 17, 1999, solely for the purpose of calculating the Registration Fee. (3) Calculated pursuant to Rule 457(g)(3), using the average of the bid and asked prices on May 17, 1999, solely for the purpose of calculating the Registration Fee. (4) Calculated pursuant to Rule 457(g)(1) using a fixed exercise price of $6.00 per share for the Common Stock, solely for the purpose of calculating the Registration Fee. (5) Calculated pursuant to Rule 457(g)(1) using a fixed exercise price of $8.93 per share for the Common Stock, solely for the purpose of calculating the Registration Fee. (6) Calculated pursuant to Rule 457(g)(1) using a fixed exercise price of $5.50 per share for the Common Stock, solely for the purposes of calculating the Registration Fee. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ================================================================= Cross Reference Table Location in Prospectus of Information Required by Part I of Form S-2 Item No. Caption Location in Prospectus 1 Front of the Registration Outside Front Cover Page Statement and Outside Front Cover Page of Prospectus 2 Inside Front and Outside Back Inside Front Cover Page, Cover Pages of Prospectus Where You Can Find More Information About DynamicWeb Enterprises, Inc. 3 Summary Information and Risk Factors Risk Factors 4 Use of Proceeds Not Applicable 5 Determination of Offering Offering Price Price 6 Dilution Not Applicable 7 Selling Security Holders Selling Shareholders 8 Plan of Distribution Plan of Distribution 9 Description of Securities Description of Securities 10 Interests of Named Experts Legal Matters, Experts and Counsel 11 Information with Respect to Where You Can Find More Registrant Information About DynamicWeb Enterprises, Inc. 12 Incorporation of Certain Where You Can Find More Information by Reference Information About DynamicWeb Enterprises, Inc. 13 Disclosure of Commission Disclosure of Commission Position on Indemnification Position on for Securities Act Indemnification for Liabilities Securities Act Liabilities Prospectus 2,145,025 shares of DynamicWeb Enterprises, Inc. common stock Offering Price: The shares will be offered for sale at market prices from time to time. Selling Shareholders: The shares are being offered by several shareholders of DynamicWeb who are named on page 7, not by DynamicWeb itself. The several selling shareholders are acting individually, not as a group. Trading Market: DynamicWeb's common stock is traded on the National Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board under the symbol "DWEB." Proceeds: DynamicWeb will not receive any of the proceeds from sales made by the selling shareholders. There are risks associated with the purchase of these shares. An investor should carefully read the Risk Factors section of this prospectus located at Page 1. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is June 14, 1999. TABLE OF CONTENTS Risk Factors ................................................. 1 Selling Shareholders ......................................... 7 Plan of Distribution ......................................... 13 Description of Securities to be Registered ................... 14 Where You Can Find More Information About DynamicWeb Enterprises, Inc. ...................... 15 Legal Matters ................................................ 17 Experts ...................................................... 17 Disclosure of Commission Position on Indemnification for Securities Act Liabilities .......... 18 Financial Statements .........................................F-1 Risk Factors The purchase of our common stock is very risky. You should not invest any money you cannot afford to lose. Before you buy our stock, you should carefully read this entire prospectus. We have highlighted for you what we think are the major risks which could most affect our business. There are certainly other risks that could affect our business. We Anticipate We Will Incur Continued Losses For The Foreseeable Future To date, we have not been profitable. We expect to lose substantial amounts of money in the near future. We have intentionally increased our expenses substantially, and will continue to do so, by hiring more employees and spending more money to develop and market our products. Presently we have cash flow deficiencies of approximately $200,000 per month. We cannot give any assurances that our increased expenditures will result in sufficient increases in sales to make us profitable. If We Do Not Raise Additional Capital We May Go Out Of Business Because we are losing money in our operations, unless we raise a significant amount of new capital we will run out of money. We anticipate that our resources on hand will last until approximately November 1999. We expect that we will need to raise substantial additional capital in order to continue operations after that date. There is no assurance that we will be able to raise new capital. 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 will be reduced. Our Auditors Have Questioned Our Viability But Our Financial Statements Have Not Been Adjusted To Reflect That Concern Our auditors' opinion on our financial statements as of September 30, 1998, calls attention to substantial doubts as to the ability of DynamicWeb to continue as a going concern. This means that they question whether we can continue in business. If we cannot continue in business, our common stockholders would likely lose their entire investment. Our financial statements are prepared on the assumption that we will continue in business. They do not contain any adjustments to reflect the uncertainty over our continuing in business. Our Products Are So New That We Cannot Be Sure That Customers Will Want Them In general, electronic commerce products and services are new. DynamicWeb's particular products and services are very new. These products and services may never gain enough acceptance for us to make a profit selling them. At this time, there is limited use of electronic commerce products. As with any new product, its acceptance by customers is unpredictable. 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. We may not be successful in doing so. Concerns About The Security And Reliability Of The Internet May Negatively Affect Our Business We have based our particular business strategy on the development of the Internet. The Internet has a number of specific problems that are of concern to our business. The main ones are the security of information, access to and the reliability of connections, and the speed of information transmission. If these problems are not overcome, fewer people will be attracted to our services. Our Market Is Characterized By Rapid Technological Change Which We May Not Be Able To Keep Up With Technological changes in the computer software industry happen rapidly. If we do not 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 four groups of products to sell and they all provide essentially one service. Our Stock Has Been A Penny Stock Which Is More Difficult To Sell Our common stock recently has been a "penny stock." It is relatively difficult for an investor to sell shares of a penny stock. Any stock which falls below $5.00 per share selling price in the public market is called a penny stock. Our common stock traded below $5.00 per share throughout the last six months of 1998, and near or under $5,00 during much of 1999. It is much more difficult to sell a penny stock than other shares that trade on a national market or stock exchange because of the extra steps the broker\dealer must take before selling the stock. A sale of penny stock does not usually take place as quickly as a sale of shares that trade on a national market or stock exchange. Because of the difficulty in dealing in penny stocks, many broker\dealers are unwilling to participate in buying and selling our shares. A penny stock is subject to special rules issued by the Securities and Exchange Commission that regulate how 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. Although there are exceptions to the rules for certain institutional or high net worth individuals, usually, the broker\dealer must take the following steps: - determine the suitability of the purchase for the particular investor; - provide a first time investor in penny stock with a document disclosing the risks of investing in this type of stock; and - have the purchase approved by a compliance officer of the brokerage firm. 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 DynamicWeb 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. There Is A Small Market For Our Common Stock Which Makes It More Difficult To Sell It may be difficult for an investor to sell shares of our common stock, since there is only a small market for our common stock. Our common stock has not been traded actively. 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. Although we have recently agreed to have our shares marketed over the Internet, this has not resulted in 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. Out stock quote is generally not found in daily newspaper quotations. One Of Our Investors Can Acquire Substantial Amounts Of Our Stock At Below Market Prices Which Negatively Affects Our Other Shareholders The Shaar Fund possesses warrants and conversion rights to acquire a substantial amount of our common stock at below market prices. Its exercise of its warrants and rights may further dilute the net tangible book value of your investment in DynamicWeb, or have a negative effect on the market price of our common stock. Its conversion rights under DynamicWeb's convertible preferred stock are determined under a formula. As the market price of our common stock goes down, the Shaar Fund can acquire a greater number of shares of common stock. Also, the discount from the market price becomes greater over time. The number of shares of common stock and the purchase prices are described below under the caption "Selling Shareholders -- The Shaar Fund." We May Not Successfully Compete With The Many Significant Competitors In Our Business 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. We Could Lose Our Access To Valuable Software Which We License From Others 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. Our Core Computer Language Could Become Obsolete And Force Us To Write New Computer Code DynamicWeb's software is written using a computer language called Practical Extraction and Reporting Language. 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 this language 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 this language. We May Not Be Successful In Building A Network Of Third Party Sellers Of Our Services We do not have a large number of sales and marketing employees. Consequently, our distribution channels are limited. This hinders our efforts to increase sales. We need to achieve broad distribution of our products to generate sales. We must maintain and develop relationships with leading companies that market software products and electronic commerce services. We may not be successful in doing this. We May Not Be Able To Protect Our Proprietary Rights We use software technology that we developed for use on the Internet. Our proprietary name for that software is NetCat. It is an important asset of DynamicWeb. We have a patent on the software but it may not sufficiently protect our rights in the technology. The patent would not provide protection outside of the United States. 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. If we are accused of violating another company's intellectual property rights, even if improperly accused, we may have to spend significant amounts of money defending ourselves. We Could Incur Substantial Uninsured Liability If We Do Not Properly Execute Our Customers' Transactions 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. There is no guarantee that the insurance that we carry will be sufficient to cover all potential losses. We may, therefore, have a substantial financial obligation to our customers. Our Success Depends Upon The Efforts Of A Few Key People 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 departure of any of these key personnel would cause DynamicWeb to lose valuable knowledge and expertise. We Could Not Be Able To Retain And Hire Enough Qualified People To Run Our Business We may not be able to attract enough qualified personnel to run our business effectively or meet our customers' demands. We are a very small, service-based technology company. We feel our success in the future is highly dependent on attracting additional highly skilled personnel, particularly those who can operate in a technical environment. The market for these types of professionals is highly competitive and more established companies are able to provide higher salaries and better benefits than we are. Management Can Block A Takeover Of DynamicWeb Even If Many Shareholders Favor The Offer There are several provisions in our certificate of incorporation and under New Jersey law that can operate to make it more difficult for a third party to acquire DynamicWeb. These could allow DynamicWeb's management to resist or prevent a purchase of DynamicWeb, even at a premium price which the shareholders would like to accept. Those are: - The board of directors has the authority to issue 5,000,000 shares of preferred stock without the approval of the shareholders. - Our system of election of the board of directors in staggered classes. - Provisions of New Jersey Law which prevent a 10% stockholder who has not received the prior approval of the board of directors from engaging in a "business combination" transaction with DynamicWeb for a period of five years after the date on which the person became such a 10% stockholder. Our Common Stock Price Is Very Volatile Our stock price is particularly volatile, because of its low price and because we are a technology company. Investors may perceive volatility to be an undesirable characteristic for a stock, and volatility also may increase the risk of subjecting us to lawsuits. 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. When there is a fluctuation in market price, there is the possibility that our shareholders will blame us for taking some inappropriate action. 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. Some Of Our Employees, Directors And Shareholders Hold Options Which Could Dilute The Interest Of Other Shareholders In addition to the Shaar Fund's warrants and conversion rights, we have substantial other warrants and options outstanding. The exercise of any or all of those options and warrants may further dilute the net tangible book value of your investment in DynamicWeb, or have a negative effect on the market price of our common stock. Additionally, the holders of the options and warrants may exercise them at a time when DynamicWeb would have been able to sell the associated shares to someone else at a higher price. 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 331,176 options under this plan. 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 31,296 options to outside directors to date. We have granted warrants to existing shareholders to purchase 125,000 shares of common stock at $6.00 a share in return for a previous contribution of their common stock back to the company. Perry & Co. and its principal hold options to purchase 90,000 shares of common stock at $5.50 per share. The Selling Shareholders General There are eight selling shareholders. The selling shareholders are acting individually, not as a group. None of the selling shareholders or their affiliates has held any position, office or other material relationship, other than as a shareholder, with DynamicWeb. The identity of the selling shareholders and the maximum number of shares of common stock offered under this prospectus by each of them are as follows: The Shaar Fund, Ltd. 1,791,730 shares(1) Keeway Investments, Ltd. 141,177 shares Cranshire Capital, L.P. 94,118 shares Perry & Co. 45,000 shares Joel Arberman 45,000 shares Zazoff Associates, L.L.C. 10,000 shares The Malachi Group, Inc. 8,500 shares Peter Baxter, Jr. 9,500 shares ___________________ (1) This number of shares is the initial number that the Shaar Fund has the right to require DynamicWeb to register for it. The actual number of shares that the Shaar Fund will acquire and then sell under this prospectus is determined, in part, by a formula described below under "The Shaar Fund," although the maximum number of shares of common stock offered under this prospectus by the Shaar Fund will not exceed 1,791,730. If the conversion formula yields a greater number of shares, then DynamicWeb will file a new registration statement covering those additional shares. The above numbers of shares for each selling shareholder other than the Shaar Fund represents 100% of the shares of common stock of DynamicWeb which each of those persons owns or has a right to acquire. None of those persons would own or have the right to acquire any other shares of common stock of DynamicWeb after this offering is complete. In the case of the Shaar Fund, it potentially could acquire substantial additional shares of DynamicWeb's common stock other than the shares offered under this prospectus if the market price of our common stock falls below $2.50 per share. Specifically: - It may acquire more than 769,230 shares of DynamicWeb common stock underlying the Series A preferred stock if the actual conversion price for the conversion of the Series A preferred stock held by the Shaar Fund is less than $1.95 per share. - It may acquire more than 750,000 shares of DynamicWeb common stock underlying the Series B preferred stock if the actual conversion price for the conversion of the Series B preferred stock held by the Shaar Fund is less than $2.00 per share. The Shaar Fund Shares Offered Under this Prospectus The Shaar Fund is offering up to 1,791,730 shares of common stock of DynamicWeb. It has acquired or has the right to acquire those shares under the terms of 1,500 shares of Series A preferred stock, 1,500 shares of Series B preferred stock, and 272,500 warrants of DynamicWeb that the Shaar Fund acquired during 1998 and 1999. The number of shares offered under this prospectus by the Shaar Fund consists of the following three components: - 272,500 shares of DynamicWeb common stock which the Shaar Fund can acquire under warrants. 137,500 of those warrants are exercisable at $6.00 per share; and the other 135,000 of those warrants are exercisable at $8.93 per share. - 769,230 shares of common stock into which the Series A preferred stock is assumed to be convertible. Under DynamicWeb's agreement with the Shaar Fund, DynamicWeb is required initially to register this number of shares. This number is determined based upon the assumption that the conversion of the Series A preferred stock into common stock will occur at a conversion price of $1.95 per share. Shaar Fund has already converted 125 shares of Series A preferred stock into 95,420 shares of common stock. - 750,000 shares of common stock into which the Series B preferred stock is assumed to be convertible. Under DynamicWeb's agreement with the Shaar Fund, DynamicWeb is required initially to register this number of shares. This number is determined based upon the assumption that the conversion of the Series B preferred stock into common stock will occur at a conversion price of $2.00 per share. Series A Preferred Stock The Series A preferred stock has a conversion value of $1,000 per share. That conversion value is credited towards the purchase of shares of common stock at an agreed-upon purchase or conversion price. The applicable conversion price is a discount to the "market price" of the common stock at the time of conversion. For these purposes, the "market price" is the average of the lowest 3 days closing bid prices of the common stock for the 20 trading days immediately preceding the conversion. Until November 8, 1999, the conversion price can never exceed $2.75 per share. After that date, the conversion price can never exceed $5.50 per share. The conversion price also may be less than those ceilings, based upon the following: Time of Conversion Conversion Price 0-179 days after purchase 85% of market price 180-359 days after purchase 80% of market price 360 days or more after purchase 78% of market price Therefore, the higher the market price of DynamicWeb common stock at the time of conversion, the fewer number of shares will be acquired; and the lower the market price of DynamicWeb common stock at the time of conversion, the greater number of shares will be acquired. Except for the conversion price falling to one cent per share, there is no ceiling on the maximum number of shares that the Shaar Fund might acquire upon conversion of the Series A preferred stock. The Shaar Fund may elect when to convert the Series A preferred stock; however, on August 7, 2000, the Shaar Fund must elect either to convert all outstanding shares of Series A preferred stock at the applicable conversion price or to have DynamicWeb redeem all outstanding shares of Series A preferred stock for $1,350 per share. On December 3, 1998, it converted 125 shares of the Series A preferred stock into 95,420 shares of common stock. Series B Preferred Stock The Series B preferred stock has a conversion value of $1,000 per share, which is credited towards the purchase of shares of common stock at an agreed-upon conversion price. The conversion price is a discount to the "market price" of the common stock at the time of conversion. For these purposes, the "market price" is the average of the closing bid prices of the common stock for the lowest 7 days closing bid prices of the common stock for the 20 trading days immediately preceding the conversion. The conversion price of the Series B preferred stock can never exceed $9.74 per share, but may be less than that ceiling, based upon the following: Time of Conversion Conversion Price 0-179 days after purchase 85% of market value 180 days or more after purchase 80% of market value Except for the conversion price falling to one cent per share, there is no ceiling on the maximum number of shares that the Shaar Fund might acquire upon conversion of the Series B preferred stock. The Shaar Fund may elect when to convert the Series B preferred stock; however, on February 12, 2003, the Shaar Fund must elect either to convert all outstanding shares of Series B preferred stock at the applicable conversion price or to have DynamicWeb redeem all outstanding shares of Series B preferred stock for $1,350 per share. All shares being offered by the Shaar Fund are being registered under registration rights agreements between DynamicWeb and the Shaar Fund. Examples of the Effect of the Formula Conversion Price The following tables give several examples of the number of shares of common stock into which the remaining 1,375 shares of Series A and 1,500 shares of Series B preferred stock could be converted, depending on the market price of the common stock. Since there are maximum conversion prices for both the Series A and Series B preferred stock, the Shaar Fund will always be able to acquire a substantial number of shares of common stock, even if the market price of DynamicWeb's common stock is high. That minimum number of shares will be greater until November 8, 1999, because the maximum conversion price applicable to the Series A preferred stock is only $2.75 per share until that date, but increases to $5.50 per share after that date. Up to November 8, 1999, the Shaar Fund will be able to acquire at least 654,004 shares of common stock, even if the market price exceeds $12.50 per share, because the $2.75 maximum conversion price for the Series A preferred stock and the $9.74 maximum conversion price for the Series B preferred stock will apply. After November 8, 1999, the Shaar Fund will be able to acquire at least 404,004 shares of common stock, even if the market price exceeds $12.50 per share, because the $5.50 maximum conversion price for the Series A preferred stock and the $9.74 maximum conversion price for the Series B preferred stock will apply. Assuming all 1,375 remaining shares of the Series A preferred stock are converted prior to November 8, 1999, at the lower of 80% of Market Price or the $2.75 maximum conversion price: Number of Market Price Conversion Price Common Shares $ 0.50 $0.40 3,437,500 1.95 1.56 881,410 3.00 2.40 572,916 4.00* 2.75* 500,000 ______________________ * At any Market Price greater than $3.43, the maximum conversion price of $2.75 applies to the Series A preferred stock. Assuming all 1,500 shares of the Series B preferred stock are converted at the lower of 85% of Market Price or the $9.74 maximum conversion price: Number of Market Price Conversion Price Common Shares $ 0.50 $0.425 3,529,411 1.95 1.657 905,250 5.00 4.25 352,941 10.00 8.50 176,470 12.00* 9.74* 154,004 ______________________ * At any Market Price greater than $11.46, the maximum conversion price of $9.74 applies to the Series B preferred stock. The exact number of shares that the Shaar Fund will actually sell pursuant to this prospectus may be less than the full 1,791,730 because the Shaar Fund has the discretion to determine when and whether it will sell any shares under this prospectus, and also because the actual number of shares which the Shaar Fund will acquire by converting the Series A or Series B preferred stock is not known. If the Shaar Fund acquires a greater number of shares upon conversion of the Series A or Series B preferred stock, then DynamicWeb will file a new registration statement covering those additional shares. Also, DynamicWeb must file another registration statement covering additional shares of common stock underlying the Series B preferred stock if the market price of DynamicWeb's common stock falls below $4.00 per share on any day. Keeway Investments, Ltd. Keeway Investments, Ltd. is offering 141,177 shares of common stock that it has acquired in a private placement. Cranshire Capital, L.P. Cranshire Capital, L.P. is offering 94,118 shares of common stock that it has acquired in the same private placement transaction as Keeway. Perry & Co. Perry & Co. is offering shares of common stock of DynamicWeb that it has acquired or has the right to acquire under the terms of options of DynamicWeb held by Perry & Co. Perry & Co. has an option to purchase 45,000 shares of DynamicWeb common stock at an exercise price of $5.50 per share. The options were received as compensation for services rendered in 1998. Joel Arberman Mr. Arberman is offering shares of common stock of DynamicWeb that he has acquired or has the right to acquire under the terms of options of DynamicWeb held by Mr. Arberman. Mr. Arberman has an option to purchase 45,000 shares of DynamicWeb common stock at an exercise price of $5.50 per share. The options were received as compensation for services rendered in 1998. Mr. Arberman is a principal of Perry & Co. The Malachi Group, Inc. The Malachi Group is offering shares of common stock of DynamicWeb that it has acquired or has the right to acquire under the terms of warrants of DynamicWeb held by Malachi. Malachi holds warrants to purchase 8,500 shares of DynamicWeb common stock at an exercise price of $6.00 per share. Those warrants were received as compensation for services rendered in 1998. Peter Baxter, Jr. Mr. Baxter is offering shares of common stock of DynamicWeb that he has acquired or has the right to acquire under the terms of warrants held by Mr. Baxter. Mr. Baxter holds 1,000 shares of common stock and warrants to purchase an additional 8,500 shares of DynamicWeb common stock at an exercise price of $6.00 per share. The shares and warrants were received as compensation for services rendered in 1998. Mr. Baxter is a principal of Malachi. Zazoff Associates, L.L.C. Zazoff Associates is offering shares of common stock of DynamicWeb that it has acquired or has the right to acquire under the terms of warrants held by Zazoff. Zazoff holds 2,000 shares of common stock and warrants to purchase an additional 8,000 shares of DynamicWeb common stock at an exercise price of $6.00 per share. The shares and warrants were received as compensation for services rendered in 1998. Other The shares being offered by the selling shareholders other than the Shaar Fund are being registered under registration rights provided for in various agreements between DynamicWeb and those persons. DynamicWeb is unable to determine the exact number of shares that those persons will actually sell pursuant to this prospectus because each of them has the discretion to determine when and whether they will sell any shares under this prospectus. The Plan of Distribution The registration statement of which this prospectus forms a part has been filed to satisfy registration rights held by the selling shareholders under agreements between DynamicWeb and the selling shareholders. To DynamicWeb's knowledge, as of this date, none of the selling shareholders has entered into any agreement, arrangement or understanding with any particular broker or market maker with respect to the shares offered by them, nor does DynamicWeb know the identity of the brokers or market makers which might participate in such offering. The shares being registered and offered may be sold from time to time by the selling shareholders. The selling shareholders will act independently of DynamicWeb in making decisions with respect to the timing, manner, and size of each sale. The sales may be made on the OTC Bulletin Board or otherwise, at prices and on terms then prevailing or at prices related to the market price, or in negotiated transactions. The shares may be sold by one or more of the following methods: (1) A block trade in which the broker-dealer engaged by a selling shareholder will attempt to sell shares as agent but may position and resell a portion of the block as principal to facilitate the transaction. (2) Purchases by the broker-dealer as principal and resale by such broker or dealer for its account according to this prospectus. (3) Ordinary brokerage transactions and transactions in which the broker solicits purchasers. To the best of the DynamicWeb's knowledge, none of the selling shareholders has, as of this date, entered into any arrangement with a broker or dealer for the sale of shares through a block trade, special offering, or secondary distribution of a purchase by a broker-dealer. In effecting sales, broker-dealers engaged by a selling shareholder may arrange for other broker-dealers to participate. Broker-dealers may receive commissions or discounts from a selling shareholder in amounts to be negotiated. In offering the shares, the selling shareholders and any broker-dealers who execute sales for the selling shareholders may be deemed to be "underwriters" within the meaning of the Securities Act of 1933 in connection with such sales, and any profits realized by the selling shareholders and the compensation of such broker-dealer may be deemed to be underwriting discounts and commissions. Regulation M under the Securities and Exchange Act of 1934 prohibits participants in a distribution and their affiliates from bidding for or purchasing any of the securities that are the subject of the distribution. It also governs bids and purchases made to stabilize the price of a security in connection with a distribution of the security. There can be no assurance that any selling shareholder will sell any or all of the shares of common stock registered under this registration statement. Description of the Securities to be Registered General DynamicWeb's authorized capital stock consists of 50,000,000 shares of common stock, $.0001 par value per share, and 5,000,000 shares of undesignated preferred stock. As of the date of this prospectus, there were 2,587,844 shares of common stock issued and outstanding. As of December 31, 1998, the common stock is held of record by approximately 392 stockholders. Common Stock Holders of common stock have the right to cast one vote, in person or by proxy, for each share owned of record on the record date on all matters submitted to a vote of the holders of common stock, including the election of directors. Holders of common stock do not have cumulative voting rights, which means that holders of more than 50% of the outstanding shares voting for the election of the class of directors to be elected by the common stock can elect all of such directors, and, in such event, the holders of the remaining shares of common stock will be unable to elect any of DynamicWeb's directors. Holders of the common stock are entitled to share ratably in such dividends as may be declared by the board of directors out of funds legally available for dividends, when, as and if declared by the board of directors and are also entitled to share ratably in all of the assets of DynamicWeb available for distribution to holders of shares of common stock upon the liquidation, dissolution or winding up of the affairs of DynamicWeb. Holders of common stock do not have preemptive, subscription or conversion rights. All outstanding shares of common stock are, and those shares of common stock offered here will be, validly issued, fully paid and non-assessable. Where You Can Find More Information About DynamicWeb Enterprises, Inc. This Registration Statement DynamicWeb has filed with the Securities and Exchange Commission a registration statement on Form S-2, including all amendments and exhibits to that registration statement, under the Securities Act of 1933 for the shares being offered. This prospectus is only a part of the registration statement and does not contain all of the information filed with the Securities and Exchange Commission. While statements in this prospectus concerning the provisions of contracts or other documents describe the material terms of the provisions which are being described, they do not discuss all of the terms of those contracts or other documents. In each instance, the complete details of each contract or document are contained in the exhibits filed with the registration statement. Refer to the exhibit of each contract or document to obtain additional information. For additional information about DynamicWeb and the shares being sold, refer to the registration statement and the accompanying exhibits and schedules. For a fee, a copy of the registration statement, with exhibits, may be obtained from the SEC's office in Washington, DC at 450 Fifth Street, NW, Washington, DC 20549 or is available for you to read at their office without charge. Other SEC Filings DynamicWeb is required by the Securities Exchange Act of 1934 to file reports, proxy statements, and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, NW, Washington, DC 20549. For a fee, copies of this material can be obtained from the Public Reference Section of the Commission at its principal office at 450 Fifth Street, NW, Washington, DC 20549. The Commission also maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of the site is http://www.sec.gov. DynamicWeb incorporates by reference the following documents filed with the Securities and Exchange Commission. 1. DynamicWeb's annual report on Form 10-KSB for the fiscal year ended September 30, 1998; 2. DynamicWeb's quarterly reports on Form 10-QSB for the quarter ended December 31, 1998 and the quarter ended March 31, 1999; 3. DynamicWeb's Current Reports on Form 8-K filed February 19, 1999 and May 10, 1999, and amended Current Reports on Form 8-K/A filed November 10, 1998 and February 23, 1999. 4. DynamicWeb's proxy statement filed June 25, 1998; 5. All other reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 since September 30, 1998. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. Copies of Documents This prospectus includes a copy of the our latest Form 10- KSB and Form 10-QSB. To each person who receives a prospectus, we will provide upon request and without charge a copy of the additional documents listed above, not including the exhibits to those documents unless such exhibits are specifically incorporated by reference into those documents. Requests for those documents should be made to: DynamicWeb Enterprises, Inc., 271 Route 46 West, Building F, Suite 209, Fairfield, New Jersey 07004. Telephone number (973) 276-3100. Predictions and Other Forward-Looking Information This prospectus and registration statement contain many forward-looking statements and information that are based on the beliefs and plans of DynamicWeb's management, on estimates and assumptions made by DynamicWeb's management, or on information currently available to DynamicWeb's management. Those forward- looking statements and information are also contained in DynamicWeb's other reports filed from time to time with the Securities and Exchange Commission, including its Form 10-KSB for the fiscal year ended September 30, 1998. When used in those SEC documents, words such as "anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and similar expressions, as they relate to DynamicWeb and its management, identify forward-looking statements. Such statements reflect the current views of DynamicWeb and its management with respect to future events. They are subject to many risks, uncertainties and assumptions relating to the future. Some of those risks, uncertainties and assumptions include DynamicWeb's operations and results of operations, competitive factors and pricing pressures, shifts in market demand, the performance and needs of the customers served by us, and the costs of pursuing our business plan. Other risks and uncertainties are specifically discussed in "Risk Factors" elsewhere in this prospectus. 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 from those anticipated, believed, estimated, expected, intended or planned. Legal Matters The law firm of Stevens & Lee, Wayne, Pennsylvania and Lancaster, Pennsylvania, on behalf of DynamicWeb, has issued its legal opinion that the common stock being sold in this offering is validly issued, fully paid and non-assessable. Experts The consolidated financial statements of DynamicWeb Enterprises, Inc. and Design Crafting, Inc. incorporated by reference or appearing in this prospectus and registration statement have been audited by Richard A. Eisner & Company, LLP, independent auditors, to the extent indicated in their reports on those financial statements also appearing elsewhere in this prospectus and registration statement or incorporated by reference. In the case of the financial statements of DynamicWeb, their report contains an explanatory paragraph with respect to substantial doubt as to the ability of DynamicWeb to continue as a going concern. Such financial statements have been incorporated into this prospectus and registration statement by reference or included in this prospectus and registration statement in reliance upon such reports given upon the authority of Richard A. Eisner & Company, LLP as experts in accounting and auditing. Disclosure of Commission Position of Indemnification For Securities Act Liabilities Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the company pursuant to the provisions set forth in the company's articles of incorporation, the company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the act and is therefore unenforceable. DESIGN CRAFTING, INC. FINANCIAL STATEMENTS September 30, 1997 Contents Page Financial Statements Independent auditors' report................................ 1 Balance sheet as of September 30, 1997...................... 2 Statements of income for the years ended September 30, 1997 and 1996................................. 3 Statement of changes in stockholder's equity for each of the years ended September 30, 1997 and 1996.................................................... 4 Statements of cash flows for the years ended September 30, 1997 and 1996................................. 5 Notes to financial statements............................... 6 INDEPENDENT AUDITORS' REPORT Board of Directors Design Crafting, Inc. We have audited the accompanying balance sheet of Design Crafting, Inc. as of September 30, 1997, and the related statements of income, changes in stockholder's equity and cash flows for each of the years in the two year period then ended. These financial statements are the responsibility of the DynamicWeb's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the financial position of Design Crafting, Inc. as of September 30, 1997, and the results of its operations and its cash flows for each of the years in the two-year period then ended, in conformity with generally accepted accounting principles. /s/ Richard A. Eisner & Company, LLP Florham Park, New Jersey July 10, 1998 Balance Sheet September 30, 1997 ASSETS Current assets: Cash $ 5,015 Accounts receivable 56,812 Prepaid expenses and other current assets 468 Total current assets 62,295 Equipment, net of accumulated depreciation of $6,662 4,602 $66,897 LIABILITIES Current liabilities: Accounts payable and accrued expenses $30,597 Taxes payable - current 1,480 Taxes payable - deferred 6,195 Total current liabilities 38,272 STOCKHOLDER'S EQUITY Common stock, no par value, authorized 1,000 shares issued and outstanding 100 shares 1,000 Retained earnings 27,625 Total stockholder's equity 28,625 $66,897 Statements of Income Year Ended September 30, 1997 1996 Revenues - services $462,541 $311,363 Cost of services 384,244 241,427 Gross profit 78,297 69,936 Expenses: Selling, general and administrative 65,772 58,905 Income before taxes 12,525 11,031 Income taxes 3,250 2,870 Net income $ 9,275 $ 8,161 Statements of Changes in Stockholder's Equity
Common Stock Number of Retained Shares Amount Earnings Total Balance, October 1, 1995 100 $1,000 $10,189 $11,189 Net income -- -- 8,161 8,161 Balance, September 30, 1996 100 1,000 18,350 19,350 Net income -- -- 9,275 9,275 Balance, September 30, 1997 100 $1,000 $27,625 $28,625
Statements of Cash Flows
Year Ended September 30, 1997 1996 Cash flows from operating activities: Net income $ 9,275 $ 8,161 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,948 648 Deferred income taxes 1,390 2,700 Changes in: Accounts receivable (867) (29,993) Prepaid expenses and other current assets 718 687 Accounts payable and accrued expenses (10,249) 18,691 Taxes payable 1,310 (725) Net cash provided by operating activities 4,525 169 Cash flows from investing activities: Purchase of equipment (6,902) (1,296) Net decrease in cash (2,377) (1,127) Cash, beginning 7,392 8,519 Cash, ending $ 5,015 $ 7,392 Supplemental disclosure of cash flow information: Cash paid for: Income taxes $ 550 $ 895
Note A - Summary of Significant Accounting Policies and Basis of Presentation [1] Operations: Design Crafting, Inc. (the "Company") is a software developer and provides services primarily to customers in the distribution, retail and financial industries. In 1997, two customers and in 1996 one customer accounted for approximately 91% and 99% of revenues, respectively. As of September 30, 1997, two customers represented 100% of accounts receivable. No allowance for bad debts is required. [2] Revenue recognition: Revenue is recognized as the work is performed and services are provided at the customer's locations. [3] Use of estimates: The financial statements were prepared on an accrual basis in conformity with generally accepted accounting principles; estimates and assumptions were utilized to quantify certain components of the financial statements in the absence of specific amounts of the respective assets, liabilities, revenues and expenses. Actual results could differ from those estimates. [4] Equipment: Equipment is recorded at cost less accumulated depreciation. Depreciation is provided using accelerated and straight-line methods over the estimated lives of the assets (2 to 3 years). [5] Income taxes: The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standard No. 109 Accounting for Income Taxes ("SFAS 109") which requires use of the liability method of Accounting for Income Taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income taxes arise from temporary differences resulting primarily from income and expense items being reported on an accrual basis for financial statement purposes and on a cash basis for tax purposes. As a result, the Company had deferred federal and state liabilities of $6,195 as of September 30, 1997. Note B - Employee Benefit Plans The Company has a qualified simplified employee pension (SEP) under Section 408(k) of the Internal Revenue Code. Employer contributions under a SEP are discretionary and are excluded from the participants taxable income to the extent of 15% of the participant's compensation subject to limits. The Company's contributions to the plan were $25,742 and $7,573 for the years ended September 30, 1997 and 1996, respectively. Note C - Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following: Wages $18,486 Payroll taxes 2,544 Employee benefit plan 7,796 Other 1,771 $30,597 Note D - Income Taxes Year Ended September 30, 1997 1996 Current tax expenses: Federal $1,120 $ 20 State 740 150 1,860 170 Deferred tax expenses: Federal 830 1,700 State 560 1,000 1,390 2,700 Provision for taxes $3,250 $2,870 The differences between the statutory income tax rate of 34% and the income taxes reported on the statement of income and retained earnings are as follows:
Year Ended September 30, 1997 1996 Statutory rate $ 4,259 34% $ 3,751 34% Reduction due to graduated income tax rate (2,380) (19) (2,096) (19) State taxes, net of federal benefit 1,105 9 978 9 Other 266 2 237 2 Provision for taxes $ 3,250 26% $ 2,870 26%
Note E - Business Combination On May 1, 1998, the Company completed a merger with Dynamicweb Enterprises, Inc. (Dynamicweb) by exchanging all of its issued and outstanding stock for 92,500 shares of common stock of Dynamicweb with a provision for up to an additional 10,000 shares to be calculated under a formula based on the value at closing and the realization of certain assets within 120 days of the closing. DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES Unaudited Pro Forma Condensed Financial Statements On May 1, 1998, DynamicWeb Enterprises, Inc. and subsidiaries (the "Company") completed a stock-for-stock exchange transaction with Design Crafting, Inc. ("Design") which will be accounted for as a purchase in accordance with Accounting Principle Board No. 16. The following unaudited pro forma condensed consolidated statement of operations for the year ended September 30, 1997 and the unaudited pro forma consolidated balance sheet as of September 30, 1997 are adjusted to give effect to the combination with Design by the issuance by the Company of 92,500 of its common shares in exchange for 100% of the Design shares as if such transaction had occurred on October 1, 1996 for the purposes of presenting pro forma statement of operations data and as of September 30, 1997, for presenting the pro forma balance sheet data. The unaudited condensed pro forma consolidated balance sheet and statement of operations should be read in conjunction with the notes thereto and the audited financial statements of the Company and Design and the notes thereto. The pro forma information is not necessarily indicative of what the financial position and results of operations would have been had the transactions occurred earlier, nor do they purport to represent the future financial position or results of operations of DynamicWeb Enterprises, Inc. and subsidiaries. Unaudited Pro Forma Condensed Financial Statement Adjustments [1] To record the preliminary allocation of the purchase of Design valued at $474,063. The pro forma information includes the issuance of 92,500 shares of the Company's common stock on May 1, 1998. It does not reflect any contingently issuable shares, up to 10,000, that may be issued in the event that the Company collects certain amounts from the realization of certain assets reported on the Design Crafting, Inc. balance sheet as of May 1, 1998. [2] To record amortization of excess of cost over net assets of acquired business over ten years. [3] The pro forma weighted average number of shares outstanding is as follows: (a) Includes 654,597 shares of the Company's common stock subsequently contributed by certain of the Company's shareholders in exchange for 125,000 warrants. (b) 92,500 shares issued in connection with the purchase transaction as if they were outstanding for the entire period presented. DynamicWeb Enterprises, Inc. and Subsidiaries Pro Forma Consolidated Balance Sheet Data Unaudited
Historical -------------------------------------- DynamicWeb Enterprises, Inc. Design and Subsidiaries Crafting, Inc. As Revised As Revised as of as of Pro Forma Pro Forma September 30, 1997 September 30, 1997 Adjustments Consolidated ------------------ ------------------ ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 188,270 $ 5,015 $ 193,285 Accounts receivable, less allowance for doubtful accounts 100,425 56,812 157,237 Prepaid and other current assets 20,738 468 21,206 ---------- -------- ---------- Total current assets 309,433 62,295 371,728 Property and equipment 284,512 4,602 289,114 Excess of cost over net assets of acquired business $445,438 445,438 Patents and trademarks, less accumulated amortization 21,808 21,808 Customer list, less accumulated amortization 83,333 83,333 Deferred registration costs 128,169 128,169 Other assets and fees 60,461 60,461 ---------- -------- -------- ---------- $ 887,716 $ 66,897 $445,438 $1,400,051 ========== ======== ======== ========== LIABILITIES Current liabilities: Accounts payable $ 182,340 $ 182,340 Accrued expenses 165,941 $ 30,597 196,538 Current maturities of long-term debt 7,925 7,925 Loan payable - banks 24,049 24,049 Loans from stockholders 117,163 117,163 Deferred revenue 15,065 15,065 Subordinated notes payable 840,873 840,873 Taxes payable - current 1,480 1,480 Taxes payable - deferred 6,195 6,195 ---------- -------- ---------- Total current liabilities 1,353,356 38,272 1,391,628 Long-term debt, less current maturities 185,811 185,811 ---------- -------- ---------- 1,539,167 38,272 1,577,439 ---------- -------- ---------- CAPITAL DEFICIENCY $ (1,000)(1) Common stock 214 1,000 9 (1) 223 Additional paid-in capital 3,530,324 474,054 (1) 4,004,378 Unearned portion of compensatory stock options (204,000) (204,000) Accumulated deficit (3,577,989) 27,625 (27,625)(1) (3,577,989) ---------- -------- -------- ---------- (251,451) 28,625 445,438 222,612 Less treasury stock (400,000) (400,000) ---------- -------- -------- ---------- Total capital deficiency (651,451) 28,625 445,438 (177,388) ---------- -------- -------- ---------- $ 887,716 $ 66,897 $445,438 $1,400,051 ========== ======== ======== ==========
DynamicWeb Enterprises, Inc. and Subsidiaries Pro Forma Consolidated Statement of Operations Data Unaudited
Historical --------------------------------------- DynamicWeb Enterprises, Inc. Design and Subsidiaries Crafting, Inc. As Revised As Revised for the year ended for the year ended Pro Forma Pro Forma September 30, 1997 September 30, 1997 Adjustments Consolidated (Unaudited) Net sales: System sales $ 116,106 $ 116,106 Services 521,071 $462,541 983,612 ---------- -------- ---------- 637,177 462,541 1,099,718 ---------- -------- ---------- Cost of sales: System sales 40,323 40,323 Services 213,180 384,244 597,424 ---------- -------- ---------- 253,503 384,244 637,747 ---------- -------- ---------- Gross profit 383,674 78,297 461,971 ---------- -------- ---------- Expenses: Selling, general and administrative 1,854,686 65,772 $ 44,543 (2) 1,965,001 Research and development 234,808 234,808 ---------- -------- -------- ---------- 2,089,494 65,772 44,543 2,199,809 ---------- -------- -------- ---------- Operating income (loss) (1,705,820) 12,525 (44,543) (1,737,838) Purchased research and development (713,710) (713,710) Interest expense (770,041) (770,041) Interest income 5,068 5,068 ---------- -------- -------- ---------- Income (loss) before income taxes (3,184,503) 12,525 (44,543) (3,216,521) Income tax (expense) benefit 21,700 (3,250) 18,450 ---------- -------- -------- ---------- Net income (loss) $(3,162,803) $ 9,275 $(44,543) $(3,198,071) =========== ======== ======== =========== Pro forma net loss per pro forma weighted average number of shares outstanding $(2.16) ====== Pro forma weighted average number of shares outstanding 1,386,383 (3)(a) 92,500 (3)(b) 1,478,883 ========== ======== ===========
PART II Item 14. Other Expenses of Issuance and Distribution. The following table sets forth the estimated expenses in connection with filing this Registration Statement: Securities and Exchange Commission filing fee....... $ 4,501.51 Printing and Engraving Expenses..................... 1,000.00 Accounting Fee and Expenses......................... 7,500.00 Legal Fees and Expenses............................. 50,000.00 Miscellaneous....................................... 500.00 Reimbursement of Legal Fees and Expenses to Shaar Fund, Ltd................................... 5,000.00 Total.......................................... $68,501.51 Item 15. Indemnification of Directors and Officers. The Registrant's Certificate of Incorporation provides that the Registrant shall indemnify any person who is or was a director, officer, employee or agent of the Registrant to the fullest extent permitted by the New Jersey Business Corporation Act (the "NJBCA"), and to the fullest extent otherwise permitted by law. The NJBCA permits a New Jersey corporation to indemnify its directors, officers, employees and agents against liabilities and expenses they may incur in such capacities in connection with any proceeding in which they may be involved, unless a judgment or other final adjudication adverse to the director, officer, employee or agent in question establishes that his or her acts or omissions (a) were in breach of his or her duty of loyalty (as defined in the NJBCA) to the Registrant or its shareholders, (b) were not in good faith or involved a knowing violation of law or (c) resulted in the receipt by the director, officer, employee or agent of an improper personal benefit. Pursuant to the Registrant's Certificate of Incorporation and the NJBCA, no director or officer of the Registrant shall be personally liable to the Registrant or to any of its shareholders for damages for breach of any duty owed to the Registrant or its shareholders, except for liabilities arising from any breach of duty based upon an act or omission (i) in breach of such director's or officer's duty of loyalty (as defined in the NJBCA) to the Registrant or its shareholders, (ii) not in good faith or involving a knowing violation of law or (iii) resulting in receipt by such director or officer of an improper personal benefit. In addition, the Registrant's Bylaws include provisions to indemnify its officers and directors and other persons against expenses, judgments, fines and amounts incurred or paid in settlement in connection with civil or criminal claims, actions, suits or proceedings against such persons by reason of serving or having served as officers, directors, or in other capacities, if such person acted in good faith, and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and, in a criminal action or proceeding, if he had no reasonable cause to believe that his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contenders or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or that he or she had reasonable cause to believe his or her conduct was unlawful. Indemnification as provided in the Bylaws shall be made only as authorized in a specific case and upon a determination that the person met the applicable standards of conduct. Item 16. Exhibits and Financial Statement Schedules. EXHIBIT INDEX Exhibit Number Title 3.1.10 Amendment to the Certificate of Incorporation of DynamicWeb Enterprises, Inc. dated May 12, 1999, as filed with the State of New Jersey on May 18, 1999, regarding the Series A 6% Cumulative Preferred Stock** 3.1.11 Amendment to the Certificate of Incorporation of DynamicWeb Enterprises, Inc. dated May 12, 1999, as filed with the State of New Jersey on May 13, 1999, regarding the Series B 6% Cumulative Preferred Stock.** 5.1 Form of Opinion of Stevens & Lee: Legality** 10.1 Release and Severance Agreement dated February 12, 1993 between Seahawk Capital Corporation and Robert S. Friedenberg (incorporated by reference to Exhibit 10.2 to DynamicWeb's Annual Report on Form 10-K for the year ended December 31, 1992). 10.2 Agreement dated February 24, 1995 between DynamicWeb and Jonathan B. Lassers as to the purchase of common stock (incorporated by reference to Exhibit 10.1 to DynamicWeb's Current Report on Form 8-K dated as of May 8, 1995). 10.3 Amendment Agreement dated May 1, 1995 between DynamicWeb and Jonathan B. Lassers as to the purchase of common stock and common stock purchase warrants (incorporated by reference to Exhibit 10.2 to DynamicWeb's Current Report on Form 8-K dated as of May 8, 1995). 10.4 Agreement dated February 29, 1996 between DynamicWeb 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 DynamicWeb'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 DynamicWeb, John C. Fitton and Seahawk Overseas Exploration Corporation (incorporated by reference to Exhibit 10.4 to DynamicWeb's Current Report on Form 8-K dated as of May 8, 1995). 10.6 Stock Purchase Agreement dated March 5, 1996 among DynamicWeb, DynamicWeb Transaction Systems, Inc. ("DWTS") and the shareholders of DWTS (incorporated by reference to Exhibit 10.14 to DynamicWeb'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 DynamicWeb and DWTS (incorporated by reference to Exhibit 10.14(A) to DynamicWeb'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 DynamicWeb and DWTS (incorporated by reference to Exhibit 10.14(B) to DynamicWeb's Form 10- QSB for the period ended March 31, 1996). 10.9 Stock Purchase Agreement dated September 30, 1996 among DynamicWeb, Megascore, Inc. and the shareholders of Megascore, Inc. (incorporated by reference to Exhibit 1 to the DynamicWeb's Current Report on Form 8-K dated November 30, 1996). 10.10 Stock Purchase Agreement dated November 30, 1996 among DynamicWeb, Software Associates, Inc. and Kenneth R. Konikowski (incorporated by reference to Exhibit 2 to DynamicWeb's Current Report on Form 8-K dated November 30, 1996). 10.11 Amendment to Stock Purchase Agreement dated April 7, 1997 between DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.11 filed with DynamicWeb's Report on Form 10-KSB for the year ended September 30, 1996). 10.12 Lock-Up Agreement dated November 30, 1996 among DynamicWeb, Steve L. Vanechanos, Jr. and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.12 filed with DynamicWeb's Report on Form 10-KSB for the year ended September 30, 1996). 10.13 Employment Agreement dated December 1, 1996 between DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.13 filed with DynamicWeb's Report on Form 10.KSB for the year ended September 30, 1996). 10.14 Employment Agreement dated May 1, 1998 between DynamicWeb and Douglas Eadie.** 10.15 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option Plan (incorporated by reference to Annex B to DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb's Form 8-K dated September 9, 1997). 10.20 Employment Agreement dated August 26, 1997 between DynamicWeb and James D. Conners (incorporated by reference to Exhibit 1 to DynamicWeb's Form 8-K dated September 9, 1997). 10.21 Form of financial Consulting Agreement between DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by reference to Exhibit 10.20 to DynamicWeb's SB-2 filed September 15, 1997). 10.22 Form of Mergers and Acquisition Agreement between DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by reference to Exhibit 10.21 to DynamicWeb'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 DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.22 to DynamicWeb'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 DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.23 to DynamicWeb's SB-2 filed September 15, 1997). 10.25 Form of Warrant and Warrant Agreement with certain shareholders of DynamicWeb (incorporated by reference to Exhibit 10.24 to DynamicWeb's SB-2 filed September 15, 1997). 10.26 Securities Purchase Agreement dated August 7, 1998 between DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.** 10.27 Registration Rights Agreement dated August 7, 1998 between DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.** 10.28 Service Agreement and Option Grant with Perry & Co. dated April 2, 1998.** 10.29 Letter Agreement dated December 3, 1998 between DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.* 10.30 Securities Purchase Agreement dated February 12, 1999 between DynamicWeb Enterprises, Inc. and the Shaar Fund, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K/A dated February 23, 1999). 10.31 Registration Rights Agreement dated February 12, 1999 between DynamicWeb Enterprises, Inc. and the Shaar Fund, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K/A dated February 23, 1999). 10.32 Securities Purchase Agreement dated April 26, 1999 between DynamicWeb Enterprises, Inc. Cranshire Capital, L.P., and Keeway Investments, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K dated May 10, 1999). 10.33 Registration Rights Agreement dated April 26, 1999 between DynamicWeb Enterprises, Inc. Cranshire Capital, L.P., and Keeway Investments, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K dated May 10, 1999). 10.34 Letter Agreement dated May 12, 1999 between DynamicWeb Enterprises, Inc. and the Shaar Fund, Ltd.** 16.1 Letter on change in certifying account (R. Andrew Gately & Co.) (incorporated by reference to Exhibit 16.1 to DynamicWeb'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 DynamicWeb's Current Report on Form 8-K dated February 19, 1997, as amended by amendment dated March 12, 1997). 23.1 Consent of Stevens & Lee (included in Exhibit 5.1) 23.2 Consent of Richard A. Eisner & Company, LLP* * Filed herewith ** Previously filed with this Registration Statement Item 17. Undertakings (a) The undersigned DynamicWeb hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post- effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Securities Act") may be permitted to directors, officers and controlling persons of DynamicWeb pursuant to the foregoing provisions, or otherwise, DynamicWeb has been advised that in the opinion of the Securities and Exchange Commission such indemnifications against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such labilities (other than the payment by DynamicWeb of expenses incurred or paid by a director, officer or controlling person of DynamicWeb in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, DynamicWeb will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES In accordance with the requirements of the Securities Act of 1933, DynamicWeb Enterprises, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned in the City of Fairfield, State of New Jersey on June 10, 1999. DYNAMICWEB ENTERPRISES, INC. By:/s/ Steven L. Vanechanos, Jr. Steven L. Vanechanos, Jr. Chief Executive Officer - - ----------------------------------------------------------------- In accordance with the requirements of the Securities Act of 1933, as amended, this Pre-Effective Amendment No. 1 to the registration statement was signed below by the following persons and in the capacities and on the dates stated. /s/STEVEN L. VANECHANOS, JR. Chief Executive June 10, 1999 Steven L. Vanechanos, Jr. Officer and Director /s/ STEVE VANECHANOS, SR. Treasurer, Chief June 10, 1999 Steve Vanechanos, Sr. Financial Officer, and Chief Accounting Officer, Director /s/ DENIS CLARK* Director June 10, 1999 Denis Clark /s/ FRANK T. DiPALMA* Director June 10, 1999 Frank T. DiPalma /s/ ROBERT DROSTE* Director June 10, 1999 Robert Droste /s/ ROBERT W. GAILUS* Director June 10, 1999 Robert W. Gailus /s/ KENNETH R. KONIKOWSKI* Director June 10, 1999 Kenneth R. Konikowski * By Steve L. Vanechanos, Jr., Attorney-in-fact EXHIBIT INDEX Exhibit Number Title 3.1.10 Amendment to the Certificate of Incorporation of DynamicWeb Enterprises, Inc. dated May 12, 1999, as filed with the State of New Jersey on May 18, 1999, regarding the Series A 6% Cumulative Preferred Stock** 3.1.11 Amendment to the Certificate of Incorporation of DynamicWeb Enterprises, Inc. dated May 12, 1999, as filed with the State of New Jersey on May 13, 1999, regarding the Series B 6% Cumulative Preferred Stock.** 5.1 Form of Opinion of Stevens & Lee: Legality** 10.1 Release and Severance Agreement dated February 12, 1993 between Seahawk Capital Corporation and Robert S. Friedenberg (incorporated by reference to Exhibit 10.2 to DynamicWeb's Annual Report on Form 10-K for the year ended December 31, 1992). 10.2 Agreement dated February 24, 1995 between DynamicWeb and Jonathan B. Lassers as to the purchase of common stock (incorporated by reference to Exhibit 10.1 to DynamicWeb's Current Report on Form 8-K dated as of May 8, 1995). 10.3 Amendment Agreement dated May 1, 1995 between DynamicWeb and Jonathan B. Lassers as to the purchase of common stock and common stock purchase warrants (incorporated by reference to Exhibit 10.2 to DynamicWeb's Current Report on Form 8-K dated as of May 8, 1995). 10.4 Agreement dated February 29, 1996 between DynamicWeb 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 DynamicWeb'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 DynamicWeb, John C. Fitton and Seahawk Overseas Exploration Corporation (incorporated by reference to Exhibit 10.4 to DynamicWeb's Current Report on Form 8-K dated as of May 8, 1995). 10.6 Stock Purchase Agreement dated March 5, 1996 among DynamicWeb, DynamicWeb Transaction Systems, Inc. ("DWTS") and the shareholders of DWTS (incorporated by reference to Exhibit 10.14 to DynamicWeb'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 DynamicWeb and DWTS (incorporated by reference to Exhibit 10.14(A) to DynamicWeb'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 DynamicWeb and DWTS (incorporated by reference to Exhibit 10.14(B) to DynamicWeb's Form 10- QSB for the period ended March 31, 1996). 10.9 Stock Purchase Agreement dated September 30, 1996 among DynamicWeb, Megascore, Inc. and the shareholders of Megascore, Inc. (incorporated by reference to Exhibit 1 to the DynamicWeb's Current Report on Form 8-K dated November 30, 1996). 10.10 Stock Purchase Agreement dated November 30, 1996 among DynamicWeb, Software Associates, Inc. and Kenneth R. Konikowski (incorporated by reference to Exhibit 2 to DynamicWeb's Current Report on Form 8-K dated November 30, 1996). 10.11 Amendment to Stock Purchase Agreement dated April 7, 1997 between DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.11 filed with DynamicWeb's Report on Form 10-KSB for the year ended September 30, 1996). 10.12 Lock-Up Agreement dated November 30, 1996 among DynamicWeb, Steve L. Vanechanos, Jr. and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.12 filed with DynamicWeb's Report on Form 10-KSB for the year ended September 30, 1996). 10.13 Employment Agreement dated December 1, 1996 between DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.13 filed with DynamicWeb's Report on Form 10.KSB for the year ended September 30, 1996). 10.14 Employment Agreement dated May 1, 1998 between DynamicWeb and Douglas Eadie.** 10.15 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option Plan (incorporated by reference to Annex B to DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb's Form 8-K dated September 9, 1997). 10.20 Employment Agreement dated August 26, 1997 between DynamicWeb and James D. Conners (incorporated by reference to Exhibit 1 to DynamicWeb's Form 8-K dated September 9, 1997). 10.21 Form of financial Consulting Agreement between DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by reference to Exhibit 10.20 to DynamicWeb's SB-2 filed September 15, 1997). 10.22 Form of Mergers and Acquisition Agreement between DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by reference to Exhibit 10.21 to DynamicWeb'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 DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.22 to DynamicWeb'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 DynamicWeb and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.23 to DynamicWeb's SB-2 filed September 15, 1997). 10.25 Form of Warrant and Warrant Agreement with certain shareholders of DynamicWeb (incorporated by reference to Exhibit 10.24 to DynamicWeb's SB-2 filed September 15, 1997). 10.26 Securities Purchase Agreement dated August 7, 1998 between DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.** 10.27 Registration Rights Agreement dated August 7, 1998 between DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.** 10.28 Service Agreement and Option Grant with Perry & Co. dated April 2, 1998.** 10.29 Letter Agreement dated December 3, 1998 between DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.** 10.30 Securities Purchase Agreement dated February 12, 1999 between DynamicWeb Enterprises, Inc. and the Shaar Fund, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K/A dated February 23, 1999). 10.31 Registration Rights Agreement dated February 12, 1999 between DynamicWeb Enterprises, Inc. and the Shaar Fund, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K/A dated February 23, 1999). 10.32 Securities Purchase Agreement dated April 26, 1999 between DynamicWeb Enterprises, Inc. Cranshire Capital, L.P., and Keeway Investments, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K dated May 10, 1999). 10.33 Registration Rights Agreement dated April 26, 1999 between DynamicWeb Enterprises, Inc. Cranshire Capital, L.P., and Keeway Investments, Ltd. (incorporated by reference to DynamicWeb's Current Report on Form 8-K dated May 10, 1999). 10.34 Letter Agreement dated May 12, 1999 between DynamicWeb Enterprises, Inc. and the Shaar Fund, Ltd.** 16.1 Letter on change in certifying account (R. Andrew Gately & Co.) (incorporated by reference to Exhibit 16.1 to DynamicWeb'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 DynamicWeb's Current Report on Form 8-K dated February 19, 1997, as amended by amendment dated March 12, 1997). 23.1 Consent of Stevens & Lee (included in Exhibit 5.1) 23.2 Consent of Richard A. Eisner & Company, LLP* * Filed herewith ** Previously filed with this Registration Statement