U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-QSB
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarterly period ended June 30, 1999
Commission file number 10039
DYNAMICWEB ENTERPRISES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2267658
- ----------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
271 ROUTE 46 WEST, BUILDING F
SUITE 209, FAIRFIELD, NEW JERSEY 07004
------------------------------------------
(Address of Principal Executive Offices)
(973) 276-3100
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]
As of August 11, 1999, there were 2,603,769 shares of Common stock, $0.001 par
value, of the registrant outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as at June 30, 1999 (unaudited)
and September 30, 1998.
Condensed Consolidated Statements of Operations for the three months and
nine months ended June 30, 1999 and 1998 (unaudited).
Condensed Consolidated Statement of Cash Flows for the nine months ended
June 30, 1999 and 1998 (unaudited).
Notes to Condensed Financial Statements.
1
DYNAMICWEB ENTERPRISES, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
June 30, September 30,
1999 1998
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,092,000 $ 290,000
Accounts receivable, less allowance for
doubtful accounts $61,000 and $41,000 516,000 271,000
Prepaid expenses and other current assets 40,000 26,000
----------- ----------
Total Current Assets 1,648,000 587,000
Property and equipment, less depreciation
Of $175,000 and $157,000 393,000 450,000
Patents and trademarks, less accumulated
Amortization of $23,000 and $11,000 28,000 31,000
Customer list, less accumulated amortization
Of $52,000 and $37,000 48,000 63,000
Software development cost, less accumulated
amortization of $65,000 and $27,000 96,000 123,000
Cost in excess of fair value of net assets
Acquired net of accumulated amortization
Of $59,000 and $21,000 449,000 487,000
Other assets 9,000 9,000
----------- ---------
Total Assets $ 2,671,000 $ 1,750,000
=========== ===========
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 356,000 $ 239,000
Accrued expenses 268,000 118,000
Current maturities of long-term debt 6,000
Deferred revenue 177,000 17,000
------- ------
Total current liabilities 801,000 380,000
Long term debt, less current liabilities 181,000
---------- ---------
Total liabilities 801,000 561,000
---------- ---------
STOCK HOLDERS 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
$1,787,500 and $1,137,500, respectively; $.001
par value; 1375 and 875 shares issued and
outstanding, respectively 988,000 402,000
Series B - 6% cumulative convertible Preferred
Stock - aggregate liquidation value $650,000
And $0, respectively; $.001 par value; 1500
and 0 shares issued and outstanding,
respectively 559,000
Common stock, $.0001 par value, 50,000,000
shares authorized; 2,587,032 and 2,255,947
shares issued and outstanding respectively
Additional paid-in capital 8,803,000 7,408,000
Unearned portion of compensatory stock options (113,000) (89,000)
Accumulated deficit (8,367,000) (6,532,000)
---------- ----------
Total Stock Holders Equity 1,870,000 1,189,000
---------- ----------
Total liabilities and stock holders equity $ 2,671,000 $ 1,750,000
=========== ===========
The accompanying notes are an integral part
of these financial statements.
2
DYNAMICWEB ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------------------------------
1999 1998* 1999 1998*
---- ----- -------- -------
Net sales:
Transaction/Subscription
processing $ 253,000 $ 104,000 $ 598,000 $ 296,000
Consulting services 421,000 191,000 1,118,000 338,000
Network Development 170,000 55,000 369,000 94,000
---------- ---------- --------- ----------
Total 844,000 350,000 2,085,000 720,000
---------- ---------- --------- ----------
Cost of sales:
Transaction/Subscription
Processing Revenues 148,000 96,000 408,000 225,000
Consulting services 224,000 146,000 640,000 214,000
Network development Revenues 78,000 22,000 218,000 51,000
---------- ---------- --------- -------
Total 450,000 264,000 1,266,000 490,000
---------- ------------ --------- -------
Gross profit 394,000 86,000 819,000 230,000
---------- ---------- --------- -------
Expenses:
Marketing and selling 423,000 211,000 1,144,000 543,000
General and administrative 347,000 441,000 1,145,000 1,088,000
Research and development 152,000 70,000 344,000 260,000
Customer satisfaction 33,000 33,000
---------- ---------- --------- -------
Total 955,000 722,000 2,666,000 1,891,000
---------- ----------- --------- ---------
Operating (loss) (561,000) (636,000) (1,847,000) (1,661,000)
Interest expense (including
$310,500 of amortization of
deferred financing fees and debt
discount for 1998) 1,000 (5,000) 1,000 (369,000)
Interest income 7,000 8,000 10,000 20,000
Other Income Sale of Real Estate 15,000
---------- ---------- --------- -------
Net (loss) before (provision)
Benefit For income taxes $ (555,000) $ (633,000) $(1,823,000) $(2,010,000)
========== ========== =========== ===========
(Provision) benefit for income
taxes (1,000) (7,000)
---------- ---------- --------- -------
Net (loss) $ (555,000) $ (634,000) $(1,823,000) $(2,017,000)
Adjustment;
Dividends on cumulative
Preferred stock, including
imputed dividends of $733,000
for the three months ended
June 30,1999 and $877,000 for
Nine months ended June 30,1999 (931,000) (1,095,000)
--------- --------- ---------- --------
Net loss attributed to common
Stockholders $(1,486,000) $(634,000) $(2,918,000) $(2,017,000)
Net loss per common share
Basic and diluted $ (0.59) $ (0.29) $ (1.17) $ (0.99)
--------- ---------- ----------- ---------
Weighted average number of shares
Outstanding basic and diluted 2,523,203 2,215,114 2,501,750 2,028,897
========= ========= =========== =========
* Reclassified to conform to current period presentation.
The accompanying notes are an integral part
of these financial statements.
3
DYNAMICWEB ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
---------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net (loss) $(1,823,000) $(2,017,000)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Gain on sale of office condominium (15,000)
Depreciation and amortization 111,000 65,000
Stock options issued for compensation 120,000 86,000
Amortization of debt discount and deferred
financing fees 311,000
Deferred income taxes
Changes in operating assets and liabilities:
(Increase) in accounts receivable (245,000) (66,000)
(Increase) in prepaid expenses
and other current assets (14,000) (81,000)
Increase in accounts payable 117,000 29,000
Increase (decrease) in accrued expenses 57,000 (151,000)
Increase in income taxes payable
Increase in deferred revenue 160,000 6,000
----------- -----------
Net cash (used in) operating activities $(1,532,000) $(1,818,000)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (73,000) (26,000)
Acquisition of patents and trademarks (9,000) (11,000)
Proceeds from sale of property net of
Selling expense 189,000
Increase in software development cost (71,000) (184,000)
Cash acquired upon acquisition of subsidiary 3,000
--------- ----------
Net cash provided by (used in) investing 36,000 (218,000)
activities --------- ----------
Cash flows from financing activities:
Principal payment of long-term debt (187,000) (7,000)
Proceeds from issuance of stock 940,000 3,180,000
Proceeds from issuance of preferred stock
And warrants 1,545,000
Proceeds from loans - banks 75,000
Loans from stockholders/officers 118,000
Principal payment of loan - bank (99,000)
Payment due to stockholders/officers loans (235,000)
Payment of subordinated debt (1,100,000)
Decrease of deferred registration costs 128,000
--------- ---------
Net cash provided by financing activities 2,298,000 2,060,000
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 802,000 25,000
Cash and cash equivalents, beginning of period 290,000 188,000
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,092,000 $ 213,000
========== ==========
The accompanying notes are an integral part of
these financial statements.
4
DYNAMICWEB ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE A) -- Basis of Presentation and the Company:
Basis of presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information (and with the instructions to Form 10-QSB and Article 3 of
Regulation S-B). Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results of the nine-month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending September 30, 1999.
The balance sheet at September 30, 1998 has been derived from the
audited financial statements at the date but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the audited
financial statements and footnotes thereto included in the annual report on Form
10-KSB.
5
The Company:
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. Primarily the Company
provides electronic commerce services, including computer equipment and software
for customers who want to engage in electronic commerce. The Company is in the
business of facilitating electronic commerce transactions between business
entities, developing, marketing and supporting software products and other
services that enable business entities to engage in electronic commerce
utilizing the Internet and traditional Electronic Data Interchange ("EDI"). The
Company offers electronic commerce solutions in EDI and Internet-based
transactions processing. Second the Company provides consulting services in the
area of electronic commerce.
(NOTE B) -- Summary of Significant Accounting Policies:
[1] Basic 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, contigently 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 earnings per share and gives all dilutive
potential common shares outstanding during the reporting period.
The Company adopted SFAS No. 128 and has retroactively applied the
effects thereof for all periods presented. The impact on the per share amounts
previously reported was not significant. The effects of potential common shares
such as warrants, options, and convertible preferred stock has not been
included, if the effect will be antidilutive.
6
[2] Software development costs:
Costs relating to the conceptual formulation and design of software are
expensed as research and development. Costs incurred subsequent to establishment
of technological feasibility to produce the finished product are generally
capitalized. Technological feasibility was established when a product design and
a working model were completed. Capitalized software costs are amortized by the
straight-line method over a maximum of five years or the expected life of the
product whichever is less.
[3] Issuance of common and preferred stock:
In April 1999 the Company sold 235,295 shares of its common stock for
$1,000,000 in a private placement transaction with net proceeds of $940,000.
On May 13,1999, the Company sold 1,000 shares of Series B 6% convertible
preferred stock and 90,000 common stock purchase warrants for $1,000,000 in a
private placement transaction with net proceeds of $750,000.
7
ITEM 2. 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 included in the Company's Form 10-KSB for
the year ended September 30, 1998. 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 the Company's Form 10-KSB for the year
ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash of approximately $1,092,000
and total current assets of approximately $1,648,000.
The Company had a net loss of approximately $1,823,000 for the nine
months ended June 30, 1999 and negative operating cash flow of approximately
$1,532,000. The Company's negative cash flow for the nine months was funded by
proceeds from two private placement transactions with the Shaar Fund, Ltd.
(Shaar Fund) and Cranshire Capital L.P. and Keeway Investments LTD.
8
On April 26, 1999, the Company closed a private placement with Cranshire
Capital L.P. and Keeway Investments, LTD. It issued an aggregate of 235,295
shares of Common Stock, par value $0.0001 per share, for an aggregate price of
$1,000,000. It received net proceeds of approximately $940,000.
On May 12, 1999, the Company closed a private placement with The
Shaar Fund, LTD. It issued to the Shaar Fund 1,000 shares of Series B 6%
Convertible Preferred Stock, par value $0.001 per share, and 90,000 Common
Stock Purchase Warrants for an aggregate price of $1,000,000. It received
net proceeds of approximately $750,000.
On June 30, 1999, the capital resources available to the Company
were adequate to finance the Company's activities for the fiscal year ending
September 30, 1999. The Company is presently experiencing operating cash flow
deficiencies of approximately $200,000 per month. Management expects that the
Company's cash flow deficiency will continue through the calendar year ending
1999. The Company will require substantial additional financing prior to the
end of the 1999 calendar year to continue its operations. There is no assurance
that the Company will receive additional financing.
RESULTS OF OPERATIONS
Our revenue is now classified into three categories
Transaction/Subscription Processing Revenues, Consulting Revenues and Network
Development Revenues. Previously, we classified revenues as Transaction
Processing, Professional Services and Other. Accordingly, some revenues from
prior periods have been reclassified to where they are now reflected. The
Company had net sales of $844,000 for the quarter ended June 30, 1999, compared
to $350,000 for the same period in 1998, an increase of approximately $494,000,
or 141%. It had net sales of $2,085,000 the nine month period ending June 30,
1999 compared to $720,000 for the same period in 1998, an increase of
approximately $1,365,000 or 189%. The increase in sales was attributable to
increased sales of the Company's new EDI/Internet products and services,
particularly transaction processing services offered through the Company's EDI
service bureau and sales of the Company's consulting services.
Transaction/subscription processing revenues include initial
subscription fees, and monthly transaction fees. These revenues for the quarter
ended June 30, 1999 were $253,000, as
9
compared to $104,000 in the same period in 1998, an increase of $149,000 or
143%. Transaction/subscription revenues recognized for the nine month period
ending June 30, 1999 were $598,000 as compared to $296,000 in the same period in
1998, an increase of $302,000 or 102%.
Consulting service revenues represent fees from contract computer
programming. These revenues for the quarter ended June 30, 1999 were $421,000 as
compared to $191,000 for the same period in 1998, an increase of $230,000 or
120%. Revenues for the nine month period ended June 30, 1999 were $1,118,000 as
compared to $338,000 for the same period in 1998, an increase of $780,000 or
231%. Approximately $528,000 or 68% of the increase is attributable to Design
Crafting, Inc, which was acquired on May 1, 1998. The remaining increase
resulted from additional customers coupled with an increase in the average
amount billed per programmer.
Network development revenues primarily relate to the development of EDI
maps and to the custom development of EDIxchange, of EDIxchangeBuy and
EDIxchangeSell (extranets) from which the Transaction/Subscription Processing
revenues are derived. Network development revenues for the quarter ended June
30, 1999 were $170,000 as compared to $55,000 for the same period in 1998,
resulting in an increase of $115,000 or 209%. This increase is attributable to
the increased development of maps for customers using the EDIxchange Suite of
Services and also the new customer setup of the EDIxchange Suite of products.
The revenues for the nine month period ending June 30, 1999 were $369,000 as
compared to $94,000 for the same period in 1998, an increase of $275,000 or
293%.
Total cost of sales for the quarter ending June 30, 1999 increased to
$450,000 from $264,000 in the preceding year's quarter, an increase of $186,000
or 71%. Cost of sales for the nine month period ending June 30, 1999 increased
$776,000 or 158% from $490,000 for the prior period ending June 30, 1998 to
$1,266,000 for the nine months ended June 30, 1999. A portion of the increase in
Cost of Sales is attributable to salary increases that took effect in the second
and third quarters of fiscal 1998. The aggregate salary increase consists of the
salary expense of the addition of three new employees and the normal course of
business pay raises for all other employees at prevailing market rates. The
increase is also attributable to increased costs for maintaining and upgrading
equipment and communications for better
10
service to our customers. In addition, certain amounts previously recorded as
operating expenses in the quarter ending June 30, 1998 have been reclassified as
Cost of Sales.
Cost of transaction/subscription processing was $148,000 for the quarter
ended June 30, 1999 compared to $96,000 for the same period ending June 30,
1998, resulting in gross margins of 42% and 8% respectively. Cost of
transaction/subscription processing for the nine month period ending June 30,
1999 was $408,000 for a gross profit of $190,000 or 32% as compared to a gross
profit of $71,000 or 24% for the prior period ending June 30, 1998.
Cost of consulting service revenues provided by the Company was
$224,000, for the quarter ended June 30, 1999 or a gross profit of 47%.
This compares to a gross profit of $45,000 or 24% for the same period in 1998.
Cost of consulting service revenues provided by the Company for the nine months
ended June 30, 1999 was $640,000 for a gross profit of $478,000 or 43%. This
compares to a gross profit of $124,000 or 37% for the same period in 1998.
Cost of network development revenues was $78,000 for the quarter
ended June 30, 1999, or a gross profit of $92,000 or 54%, as compared to
$33,000, or a gross profit of 60% in 1998. This increase is attributable to the
development of additional staff and the higher compensation noted above. Cost of
network development revenues was $218,000 for the nine months ended June 30,
1999, for a gross profit of $151,000 or 41%, as compared to gross profit of
$43,000, or a gross margin of 46% in 1998.
Quarterly marketing and sales expenses increased approximately
$212,000 from approximately $211,000 for the quarter ended June 30, 1998 to
approximately $423,000 in the same period in 1999. For the nine month period
ending June 30, 1999, marketing and sales expenses increased $601,000 from
$543,000 to $1,144,000 in the same period in 1998. The increase is attributable
to salaries for new hires and the costs of attendance at trade shows associated
with the Company's efforts to market its EDI/Internet services. The increase is
also a result of additional advertising expenses.
General and administrative expenses decreased by approximately $94,000
from approximately $441,000 for the quarter ended June 30, 1998 to approximately
$347,000 for the same period in 1999. For the nine month period ending June 30,
1999, general and administrative expenses increased $57,000 from $1,088,000 to
$1,145,000. The increase is attributable to new hiring of employees,
professional services, the cost of benefits and administrative support for new
hires in other departments,
11
and compensation expense for options issued.
Research and development expenses increased by approximately $82,000 for
the three months, from approximately $70,000 for the three months ending June
30, 1998 to approximately $152,000 in 1999. For the nine month period ending
June 30, 1999, research and development expenses increased $84,000 from $260,000
to $344,000.
During the quarter ending June 30,1999 a new department was formed,
Customer Satisfaction, to provide support for DynamicWeb's Suite of products,
EDIxchange, EDIxchangeConnect, EDIxchangeBuy, EDIxchangeSell. This department
handles the idenification, documentation and resolution of issues with
customers. Personnel from the Operations and Telesales departments were moved
into this area along with the hiring of an additional employee.Expenses for the
department for the quarter ending June 30,1999 were approximately $33,000. Since
this is a new department there is no prior period comparison.
YEAR 2000 COMPLIANCE
The "Year 2000" issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Accordingly,
computer programs that have date sensitive software might recognize a date
using "00" as the year 1900 rather than the year 2000. This circumstance could
result in a program failure or miscalculation causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices, operate equipment or engage in similar normal business
activities. The Company has reviewed its internal computer systems, as well as
its products and services, that could be affected by the Year 2000 issue and has
identified certain systems, products and services that could be affected. The
Company presently believes that, with modification to existing software and
conversion to new software, the Year 2000 issues relating to such systems,
products and services will not cause significant operational or customer
problems. The Company is addressing these issues and intends to complete these
efforts, including testing phases, by October 31, 1999. The Company does
not anticipate that the cost of implementing these solutions will be material
to its business, financial condition and results of operations. However, if
such modifications and conversions are not made or not completed in a timely
manner, then resulting Year 2000 issues could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues in a variety of ways. Many
companies are expending significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to implement new eCommerce initiatives such as those
offered by the Company. In addition, Year 2000 issues could cause some number of
companies, including current Company customers, to reevaluate the goals,
objectives and timelines of on-going eCommerce initiatives, and as a result
delay the construction by the Company of its customers procuring extranet and
subsequent supplier trading communities. Any of the foregoing could result in a
material adverse effect on the Company's business, operating results and
financial condition.
In addition, the Company has initiated communications with its significant
suppliers and customers in order to (i) determine the extent to which the
Company is vulnerable to such third parties' failure to remedy their own
Year 2000 issues and (ii) assess whether the Company has adequate resources for
required supplies, components and complementary offerings. As part of its
contingency planning efforts, the Company is preparing to identify alternate
sources or strategies where necessary if significant Year 2000 exposure is
identified. The Company is addressing these issues and intends to complete
these efforts by October 31, 1999. In addition, the Year 2000 issues present a
number of other risks and uncertainties that could affect adversely the
Company, including, without limitation, utilities failures, competition for
personnel skilled in the resolution of Year 2000 issues and the nature of
government responses to these issues. Although the Company believes that the
Year 2000 matters discussed above will not have a material adverse effect on its
business, financial condition or results of operations, the Company remains
uncertain whether or to what extent that it may be affected. Accordingly, the
Company's expenses to identify and address such risks and uncertainties, as well
as the expenses and liabilities to which the Company may become subject as a
result of such risks and uncertainties, could have a material adverse effect on
the Company's business, financial condition and results of operations.
12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Private placement
On April 26, 1999, the Company completed a private placement to
Cranshire Capital L.P. and Keeway Investments, LTD. of 235,295 shares of
Common Stock, par value $0.0001 per share.
The total offering price was $1,000,000, and the Company received
net proceeds of approximately $940,000. This private placement transaction
did not involve an underwriter, although PGN acted as placement agent and
received a fee of $53,750 and 5,000 shares of common stock.
This transaction was deemed to be exempt from registration under
the Securities Act of 1933, as amended, by virtue of Section 4(2) or
Regulation D promulgated thereunder, including Rule 506 of Regulation D.
Cranshire Capital, L.P. and Keeway Investments, Ltd. is are "accredited
investors" within the meaning of Rule 501 of Regulation D under the
Securities Act. The purchaser represented its intention to acquire the
securities for investment only and not with a view to the distribution
thereof. Required disclosure was provided, or access to information in
lieu of disclosure was present. Required legends are affixed to the
securities issued in such transaction.
On May 12, 1999, the Company completed a private placement to the
Shaar Fund, Ltd. of 1,000 shares of Series B 6% Convertible Preferred Stock
par value $0.001 per share (the "Preferred Stock") and 90,000 Common
Stock Purchase Warrants (the "Common Stock Purchase Warrants").
The total offering price was $1,000,000, and the Company received
net proceeds of approximately $750,000. This private placement transaction
did not involve an underwriter, although Trautman Kramer & Company Inc. acted
as placement agent and received a fee of $75,000.
This transaction was deemed to be exempt from registration under
the Securities Act of 1933, as amended, by virtue of Section 4(2) or
Regulation D promuglated thereunder, including Rule 506 of Regulation D.
The Shaar Fund, Ltd. is an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act. The purchaser represented
its intention to acquire the securities for investment only and not with
a view to
13
the distribution thereof. Required disclosure was provided, or access to
information in lieu of disclosure was present. Required legends are affixed
to the securities issued in such transaction.
The terms of exercise and conversion are as follows: The Warrants have a
term of five years and an exercisable price of $8.93 per share. The Series B
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 purchase or 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
7 days closing bid prices of the common stock for the 20 trading days
immediately preceding the conversion.
The applicable purchase or conversion prices are the lesser of $9.75
per share, or the following:
(1) For the preferred stock converted up to 180 days after purchase,
85% of the market price of DynamicWeb common stock.
(2) For preferred stock converted after 180 days after purchase, 80%
of the market price of DynamicWeb common stock.
The Shaar Fund may elect when to convert the Series B Preferred Stock,
except that all the remaining shares will be converted automatically
on February 12, 2002.
The company used the net proceeds for general purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
14
SIGNATURES
In accordance with the requirements of the Securities Exchange of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DynamicWeb Enterprises, Inc.
----------------------------
(Registrant)
August 14, 1999 By: /s/ Steve Vanechanos, Jr.
--------------------------------
Chief Executive Officer
15