VENTRO CORP, 10-Q, 2000-08-14

VENTRO CORP
10-Q, 2000-08-14
CHEMICALS & ALLIED PRODUCTS

Previous: FRANKLIN FINANCE CORP, 10-Q, EX-27, 2000-08-14

Next: VENTRO CORP, 10-Q, EX-27.1, 2000-08-14

<PAGE> 1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-Q
------------------------

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM __________ TO __________ .

COMMISSION FILE NUMBER: 0-26811

------------------------

VENTRO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 77-0465496
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

------------------------

1500 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 567-8900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

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 [ ]

On July 31, 2000, 45,635,932 shares of the registrant's common stock,
$0.0002 par value per share, were issued and outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2

VENTRO CORPORATION

FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June
30, 2000 and December 31, 1999..................... 1
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2000 and
1999............................................... 2
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2000 and 1999........ 3
Notes to Condensed Consolidated Financial
Statements......................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 12
Item 3. Qualitative and Quantitative Disclosure about Market
Risk................................................ 17

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................... 18
Item 2. Changes in Securities and Use of Proceeds........... 18
Item 3. Defaults Upon Senior Securities..................... 18
Item 4. Submission of Matters to a Vote of Securities
Holders............................................. 18
Item 5. Other Information................................... 19
Item 6. Exhibits and Reports on Form 8-K.................... 19
SIGNATURE................................................... 20
</TABLE>

i
<PAGE> 3

VENTRO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 245,358 $ 21,934
Short-term investments.................................... 50,975 81,161
Accounts receivable, net.................................. 11,364 12,414
Due from vertical marketplace companies................... 4,690 --
Other current assets...................................... 9,862 5,041
--------- --------
Total current assets.............................. 322,249 120,550
Property and equipment, net................................. 22,921 10,264
Ownership interest in vertical marketplace companies, net... 31,695 --
Intangible assets, net...................................... 388,704 13,107
Other long-term assets...................................... 14,410 20,012
--------- --------
Total assets...................................... $ 779,979 $163,933
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,443 $ 8,445
Accrued compensation...................................... 7,140 3,958
Accrued expenses.......................................... 20,668 25,648
Notes payable and other current liabilities............... 12,904 369
--------- --------
Total current liabilities......................... 53,155 38,420
Convertible subordinated notes.............................. 250,000 --
Other long-term liabilities................................. 590 494
Commitments and contingencies
Stockholders' equity:
Common stock.............................................. 9 7
Additional paid-in capital................................ 629,650 189,842
Deferred stock-based compensation......................... (5,287) (6,380)
Notes receivable from stockholders'....................... -- (985)
Accumulated deficit....................................... (147,674) (57,465)
Accumulated other comprehensive loss...................... (464) --
--------- --------
Total stockholders' equity........................ 476,234 125,019
--------- --------
Total liabilities and stockholders' equity........ $ 779,979 $163,933
========= ========
</TABLE>

---------------
(1) Derived from audited financial statements

See accompanying notes to the condensed consolidated financial statements

1
<PAGE> 4

VENTRO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Transaction revenue............................... $ 24,290 $ 2,906 $ 47,578 $ 3,071
Other revenue..................................... 942 -- 942 --
--------- -------- --------- --------
Total revenues............................ 25,232 2,906 48,520 3,071
Cost of revenues:
Cost of transaction revenue....................... 23,116 2,753 45,106 2,908
Cost of other revenue............................. 296 -- 296 --
--------- -------- --------- --------
Total cost of revenues.................... 23,412 2,753 45,402 2,908
Gross profit.............................. 1,820 153 3,118 163
Operating expenses:
Research and development(1)....................... 11,260 3,462 20,374 5,755
Sales and marketing(2)............................ 16,364 5,224 29,553 8,412
General and administrative(3)..................... 7,658 3,611 12,423 4,626
Amortization of deferred stock-based
compensation................................... 547 547 1,094 899
Amortization of intangible assets................. 34,099 -- 52,913 --
--------- -------- --------- --------
Total operating expenses.................. 69,928 12,844 116,357 19,692
--------- -------- --------- --------
Operating loss...................................... (68,108) (12,691) (113,239) (19,529)
Interest expense.................................... (4,307) (23) (4,355) (49)
Interest income and other, net...................... 4,688 209 6,450 264
Equity loss(4)...................................... (6,603) -- (8,305) --
Gain (loss) on investment........................... (45,292) -- 29,240 --
--------- -------- --------- --------
Net loss............................................ $(119,622) $(12,505) $ (90,209) $(19,314)
========= ======== ========= ========
Basic and diluted net loss per share................ $ (2.69) $ (2.86) $ (2.18) $ (6.05)
========= ======== ========= ========
Weighted average shares of common stock used in
computing basic and diluted net loss per share.... 44,499 4,366 41,329 3,191
</TABLE>

---------------
(1) Excluding $202 in amortization of deferred stock-based compensation for both
the three months ended June 30, 2000 and 1999, and $404 and $332 for the six
months ended June 30, 2000 and 1999, respectively.

(2) Excluding $252 in amortization of deferred stock-based compensation for both
the three months ended June 30, 2000 and 1999, and $504 and $414 for the six
months ended June 30, 2000 and 1999, respectively.

(3) Excluding $93 in amortization of deferred stock-based compensation for both
the three months ended June 30, 2000 and 1999, and $186 and $153 for the six
months ended June 30, 2000 and 1999, respectively.

(4) Includes $2,555 and $0 in amortization of goodwill related to vertical
marketplace companies for the three and six months ended June 30, 2000 and
1999.

See accompanying notes to the condensed consolidated financial statements

2
<PAGE> 5

VENTRO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (90,209) $(19,314)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 6,194 604
Amortization of deferred stock-based compensation......... 1,093 899
Amortization of intangible assets......................... 55,498 780
Equity loss............................................... 8,305 --
Gain on investment........................................ (29,240) --
Interest expense related to warrants...................... -- 57
Issuance of common stock for services..................... -- 263
Non-cash charges related to stock-option grants........... 120 --
Changes in operating assets and liabilities:
Accounts receivable....................................... 1,119 (2,379)
Due from vertical marketplace companies................... (4,690) --
Other current assets...................................... (9,755) (731)
Other long-term assets.................................... (7,161) (539)
Accounts payable.......................................... (11,273) 3,312
Accrued compensation...................................... 1,433 804
Accrued expenses.......................................... 8,608 2,106
--------- --------
Net cash used by operating activities............... (69,958) (14,138)
--------- --------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (14,207) (2,537)
Purchases of short-term investments......................... (269,439) --
Sale and maturities of short-term investments............... 339,127 --
Investment in vertical marketplace companies................ (8,388) --
Purchase of Promedix, net of cash........................... 222 --
Purchase of SpecialtyMD, net of cash........................ 67 --
--------- --------
Net cash provided by/(used by) investing
activities.......................................... 47,382 (2,537)
--------- --------
FINANCING ACTIVITIES
Principal payments on capital lease obligations............. (87) (5)
Principal payments on notes payable......................... (103) (102)
Net proceeds from issuance of preferred stock............... -- 30,197
Net proceeds from issuance of common stock.................. -- 14
Repurchase of common stock.................................. -- (1)
Net proceeds from issuance of convertible subordinated
notes..................................................... 242,500 --
Issuance of warrants........................................ 375 --
Issuance of common stock under ESPP......................... 1,216 --
Proceeds from exercise of options........................... 1,114 --
Payments of stockholders' notes receivable.................. 985 7
--------- --------
Net cash provided by financing activities........... 246,000 30,110
--------- --------
Net increase in cash and cash equivalents................... 223,424 13,435
Cash and cash equivalents at beginning of period............ 21,934 5,990
--------- --------
Cash and cash equivalents at end of period.................. $ 245,358 $ 19,425
========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Issuance of shares in exchange for stockholders' notes
receivable................................................ $ -- $ 957
Equipment purchased under notes payable..................... $ -- $ 1,132
Issuance of common stock for intangible asset............... $ -- $ 13,910
Issuance of shares for services provided.................... $ -- $ 1,781
Issuance of warrants for services........................... $ $ 526
Issuance of shares in connection with the acquisition of
Promedix.................................................. $ 314,770 $ --
Issuance of shares in connection with the acquisition of
SpecialtyMD............................................... $ 103,708 $ --
Issuance of shares in connection with the investment in
Amphire................................................... $ 31,614 $ --
Unrealized gain on available-for-sale securities............ $ 464 $ --
Other non-cash equity transactions.......................... $ 608 $ --
</TABLE>

See accompanying notes to the condensed consolidated financial statements

3
<PAGE> 6

VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. DESCRIPTION OF BUSINESS

Ventro Corporation (the "Company" or "Ventro"), formerly known as Chemdex
Corporation, is a builder and operator of vertical marketplace companies that
transact with enterprises, buyers and suppliers to enable them to streamline
business processes, enhance productivity and reduce costs. Ventro marketplace
companies offer complete e-commerce solutions consisting of extensive online
marketplaces, electronic procurement, the systems integration needed to
interface with third party and back office systems, and comprehensive services
and support. Ventro was incorporated as Chemdex Corporation in Delaware on
September 4, 1997.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation, Equity and Cost Method

The various interests that Ventro acquires in companies are accounted for
under three broad methods: consolidation, the equity method and the cost method.
The applicable accounting method is generally determined based on our voting
interest in a company.

Consolidation. Companies in which Ventro directly or indirectly owns more
than 50% of the outstanding voting securities are generally accounted for under
the consolidation method of accounting. Under this method, a company's accounts
are reflected within our Consolidated Statements of Operations. As of June 30,
2000, the consolidated financial statements include all the accounts of the
Company and those of its wholly-owned subsidiaries, Promedix.com, Inc.
("Promedix"), and SpecialtyMD.com Corporation ("SpecialtyMD"). All significant
inter-company accounts and transactions were eliminated.

Equity Method. Companies whose results Ventro does not consolidate, but
over whom Ventro exercises significant influence, are generally accounted for
under the equity method of accounting. Whether or not we exercise significant
influence with respect to a company depends on an evaluation of several factors
including, among others, representation on the company's board of directors and
ownership level, generally 20% - 50% interest in the voting securities of the
company including voting rights associated with our holdings in common,
preferred and other convertible instruments in the company. Under the equity
method of accounting, our share of the earnings or losses of these companies are
included in the equity income (loss) section of the Consolidated Statements of
Operations. As of June 30, 2000, Ventro accounted for our interest in two
companies, Industria Solutions, Inc. ("Industria"), and Amphire Solutions, Inc.
("Amphire"), under the equity method of accounting.

Cost Method. Companies not accounted for under the equity method are
accounted for under the cost method of accounting. Under this method, our share
of the earnings or losses of these companies is not included in our Consolidated
Statements of Operations. As of June 30, 2000, Ventro accounted for our interest
in three companies under the cost method of accounting.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Transaction revenue includes gross revenues from sales of products and
related shipping fees, net of discounts and provisions for sales returns and
other allowances. Sales returns and allowances have not been significant to
date.

4
<PAGE> 7
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Ventro generally acts as a principal when we purchase products from
suppliers and resell them to customers. Our products are shipped directly to
customers using third party carriers. Under principal based agreements, we
obtain and validate a customer's order, purchase the product from a manufacturer
or supplier at a negotiated price, arrange for shipment of products, establish
the total purchase price of our products and shipping fees, collect payment from
customers, ensure that products reach customers, and process returns. In
addition, we contractually take title to products upon shipment and bear the
risk of loss for collection, delivery and product returns from customers. To
date, an insignificant portion of our revenues are derived from agreements with
suppliers for whom Ventro acts as an agent and simply facilitates a customer's
order. Under agency based agreements with suppliers and distributors, Ventro
recognizes a percentage share of revenues generated when products are shipped to
customers.

Other revenue includes revenues from license fees and service revenues.

Revenues from license fees are recognized when an agreement has been
signed, delivery of the product has occurred, no significant Company obligations
remain, the fee is fixed or determinable, collectibility is probable and
vendor-specific objective evidence exists to allocate a portion of the total fee
to any undelivered elements of the arrangement. The Company recognizes license
fee revenues in accordance with Americal Institute of Certified Public
Accountants Statement of Position 97-2 "Software Revenue Recognition" (SOP
97-2).

Service revenues are comprised of revenues from support arrangements,
consulting fees and training. Support arrangements provide for technical support
and the right to unspecified upgrades on an if-and-when-available basis, but do
not provide for specified upgrade rights. Revenue from support arrangements is
recognized on a straight-line basis as service revenues over the life of the
related agreement, which is typically one year. If support or consulting
services are included in an arrangement that includes a license agreement,
amounts related to support or consulting are allocated based on vendor-specific
objective evidence. Vendor-specific objective evidence for support and
professional services is based on the price when such elements are sold
separately, or, when not sold separately, the price established by management
having the relevant authority. Where discounts are offered on multiple element
arrangements, a proportionate amount of that discount is applied to each element
included in the arrangement based on each element's fair value. Consulting and
training revenue is recognized when provided to the customer.

Sales to one significant customer accounted for approximately 10% of our
transaction revenues in the quarter ended June 30, 2000. There have been no
sales to customers outside the United States since inception.

NOTE 3. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared by Ventro in accordance with generally accepted accounting
principles ("GAAP"), from interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (all of
which are normal and recurring in nature), considered necessary for a fair
presentation, have been included in the accompanying unaudited financial
statements. Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation. Operating results for
the three and six months ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the full year ending December 31, 2000 or
for any future period.

5
<PAGE> 8
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

NOTE 4. NET LOSS PER SHARE

Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128), which requires dual presentation of basic earnings per share ("EPS") and
diluted EPS.

Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common shares and common share
equivalents outstanding during the period. Common share equivalents consist of
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method). For the three and six months ended June 30, 2000 and
1999, no common share equivalents were used in calculating diluted net loss per
share as the impact would have been antidilutive. Additionally, Ventro had $250
million of Convertible Subordinated Notes due 2007, convertible into Ventro's
common stock at $90.78 per share, outstanding at June 30, 2000 that were not
included in the computation of diluted net loss per share because to do so would
have had an antidilutive effect for the periods presented. As a result, the
basic and diluted per share amounts are equal for the periods ended June 30,
2000 and 1999.

Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding, including common equivalent shares from
the convertible preferred stock (using the if-converted method), which
automatically converted into common stock upon the completion of the initial
public offering as if converted at the original date of issuance, for both basic
and diluted net loss per share, even though inclusion is antidilutive.

The following table sets forth the computation of loss per share, in
thousands:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss....................................... $(119,622) $(12,505) $(90,209) $(19,314)
Weighted-average shares outstanding basic and
diluted................................... 44,499 4,366 41,329 3,191
--------- -------- -------- --------
Basic and diluted net loss per share........... $ (2.69) $ (2.86) $ (2.18) $ (6.05)
========= ======== ======== ========
Pro forma weighted-average shares outstanding
basic and diluted......................... 21,043 17,661
-------- --------
Pro forma basic and diluted net loss per
share........................................ $ (0.59) $ (1.09)
======== ========
</TABLE>

NOTE 5. COMPREHENSIVE INCOME (LOSS)

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130), establishes standards of reporting and display
of comprehensive income (loss) and its components of net income (loss) and
"Other Comprehensive Income." Other comprehensive income refers to expenses,
gains and losses that are not included in net income (loss) but rather are
recorded directly in stockholders' equity. The components of comprehensive loss
for the three and six months ended June 30, 2000 and 1999 were as follows (in
thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss....................................... $(119,622) $(12,505) $(90,209) $(19,314)
Unrealized gains (losses) on available-for-sale
securities................................... 31,223 -- (464) --
--------- -------- -------- --------
Comprehensive loss............................. $ (88,399) $(12,505) $(90,673) $(19,314)
========= ======== ======== ========
</TABLE>

6
<PAGE> 9
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

NOTE 6. ACQUISITIONS

Promedix

On February 10, 2000, the Company acquired Promedix, a provider of
e-commerce solutions for healthcare purchasing professionals. Promedix is based
in Salt Lake City, Utah. Promedix links buyers and suppliers of specialty
medical products, providing healthcare professionals with a one-stop shop for
product research, purchase and order fulfillment through relationships with
distributors and manufacturers. The Company issued 12.1 million shares of its
common stock for all of the outstanding preferred and common stock of Promedix
based on an exchange ratio of 1.2647 shares of Ventro for 1.0000 shares of
Promedix. The transaction was accounted for as a purchase. In connection with
the acquisition, the Company recorded a total purchase price of $325.3 million.
The purchase price was allocated to assembled workforce ($2.0 million), customer
relationships ($1.9 million), supplier relationships ($2.1 million), and
goodwill ($319.3 million), net of tangible and intangible assets. A valuation
specialist used the Company's management estimates to establish the amount of
assembled workforce, customer relationships, and supplier relationships
recorded. Intangible assets of $325.3 million will be amortized ratably over a
two to three year period.

SpecialtyMD

On February 10, 2000, the Company acquired SpecialtyMD, a provider of a
range of comprehensive search and content functions, which will add an
interactive component to Ventro's e-commerce procurement solutions. In
connection with the purchase, the Company issued 1.1 million shares of its
common stock for all of the outstanding common stock of SpecialtyMD based on an
exchange ratio of 1.0000 shares of SpecialtyMD for 0.1033 shares of Ventro. The
transaction was accounted for as a purchase. The Company recorded a total
purchase price of $107.7 million. The purchase price was allocated to assembled
workforce ($0.9 million), developed technology ($2.7 million), non-compete
agreements ($15.0 million), goodwill ($89.9 million) and net tangible
liabilities ($0.8 million). A valuation specialist used the Company's management
estimates to establish the amount of assembled workforce, developed technology,
and non-compete agreements recorded. Intangible assets of $108.5 million will be
amortized ratably over a two to three year period.

PRO FORMA RESULTS

The pro forma unaudited results of operations for the six month periods
ended June 30, 2000 and 1999, assuming the purchase of both Promedix and
SpecialtyMD had been consummated as of January 1, 1999, is as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
----------- ----------
<S> <C> <C>
Revenues.............................................. $ 48,521 $ 2,906
Net loss.............................................. $(109,429) $(93,680)
Net loss per common share basic and diluted........... $ (2.49) $ (3.38)
</TABLE>

The pro forma results are not necessarily indicative of what would have occurred
if the acquisitions had been consummated on January 1, 1999. In addition, they
are not intended to be a projection of future results and do not reflect any
synergies that might be affected from combined operations.

NOTE 7. OWNERSHIP INTEREST IN VERTICAL MARKETPLACE COMPANIES

On January 24, 2000, Ventro, DuPont, IBM and @ Ventures, the venture
capital division of CMGI, Inc., announced the formation of Industria, a new
business-to-business e-commerce company in the worldwide fluid processing
market. For a cash investment of $5.0 million, as well as a contribution of the
company's

7
<PAGE> 10
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

technology, Ventro's ownership interest in Industria is currently approximately
49%. The investment is accounted for using the equity method.

On April 11, 2000, Ventro and Entangible.com announced the formation of
Amphire, a new business-to-business e-commerce company in the foodservice
market. In connection with the formation of Amphire, Ventro acquired a portion
of Entangible.com for cash and equity totalling $35 million. Ventro's ownership
interest in Amphire is currently approximately 49%. The investment is accounted
for using the equity method.

As of the date that Amphire was formed, April 11, 2000, Ventro's carrying
value in Amphire, accounted for under the equity method exceeded its share of
the underlying equity in the net assets by $34.5 million. This excess relates to
ownership interest acquired and is being amortized over a three year period.
Amortization of goodwill of $2.6 million is included in "equity loss" in the
accompanying consolidated statements of operations for the three and six months
ended June 30, 2000. The total amortization charges to be recognized in the
future are anticipated to be approximately $5.7 million, $11.5 million, $11.5
million and $3.2 million for the remaining six months of 2000 and for 2001, 2002
and 2003, respectively.

The following table outlines the Company's activity with its vertical
marketplace companies, accounted for under the equity method, for the six months
ended June 30, 2000 (in thousands):

<TABLE>
<CAPTION>
OWNERSHIP INITIAL EQUITY LOSS AMORTIZATION CARRYING
INTEREST INVESTMENT OF INVESTEE OF GOODWILL VALUE
(%) ($) ($) ($) ($)
--------- ------------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Industria............ 49 5,000 (5,000) -- --
Amphire.............. 49 35,000 (750) (2,555) 31,695
------ ------ ------ -------
40,000 (5,750) (2,555) 31,695
====== ====== ====== =======
</TABLE>

NOTE 8. INTANGIBLE ASSETS

Intangible assets were comprised of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
VWR related intangible, net of amortization.......... $ 9,853 $11,592
BIO related intangible, net of amortization.......... 1,336 1,515
Promedix related intangibles, net of amortization.... 283,144 --
SpecialtyMD related intangibles, net of
amortization....................................... 94,371 --
-------- -------
Total intangible assets.................... $388,704 $13,107
======== =======
</TABLE>

NOTE 9. OTHER LONG-TERM ASSETS

Other long-term assets were comprised of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Deposits and other.................................... $ 812 $ 512
Notes receivable from Promedix and SpecialtyMD........ -- 5,000
Deferred acquisition costs............................ -- 14,500
Deferred debt offering costs.......................... 7,598 --
Long-term investments................................. 6,000 --
------- -------
Total other long-term assets................ $14,410 $20,012
======= =======
</TABLE>

8
<PAGE> 11
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

NOTE 10. INVESTMENTS

The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management determines
the appropriate classification of debt and equity securities at the time of
purchase and reevaluates such designation as of each balance sheet date. To
date, all marketable securities have been classified as available-for-sale and
are carried at fair value with material unrealized gains and losses, if any,
included in stockholders' equity. Realized gains and losses on
available-for-sale securities are included in interest income and other, net.

NOTE 11. ISSUANCE OF 6% CONVERTIBLE SUBORDINATED NOTES

On April 3, 2000, the Company issued $250,000,000 of 6% Convertible
Subordinated Notes ("the Notes") with a scheduled maturity in 2007, for which
the Company received net cash proceeds of $242.5 million. The Notes are
unsecured and are subordinated to existing and future senior debt as defined in
the indenture pursuant to which the Notes were issued. Interest on the Notes of
approximately $7.5 million, is payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on October 1, 2000. The deferred debt
offering costs are being amortized as interest expense ratably over the term of
the Notes.

The Notes are convertible into common stock of the Company at a conversion
price of $90.78 per share subject to adjustment if certain events affecting our
common stock occur. The Company may redeem the Notes, as a whole or in part, on
or after April 4, 2003. Unless the Notes are redeemed, repaid, or converted
prior thereto, the Notes will mature on April 1, 2007 at their principal amount.
Ventro has or may use the net proceeds from the offering of the Notes for
general corporate purposes, including working capital to fund anticipated
operating losses, investments in new business products, technologies and
markets, capital expenditures, and acquisitions or investments in complementary
businesses, products and technologies.

NOTE 12. DEFERRED STOCK-BASED COMPENSATION

We have recorded deferred stock-based compensation for options granted
prior to June 30, 1999 for the difference at the option grant date between the
exercise price and the deemed fair value of the common stock underlying the
options. As of June 30, 2000, we had recorded aggregate deferred stock
compensation of $8.7 million. The deferred stock compensation is being amortized
over the vesting periods of the stock options. We recognized a total of $0.5
million in stock compensation expense for both the three months ended June 30,
2000 and 1999. The total charges to be recognized in future periods from
amortization of deferred stock compensation as of June 30, 2000 are anticipated
to be approximately $1.1 million, $2.2 million, $1.8 million and $0.2 million
for the remaining six months of 2000 and for 2001, 2002 and 2003, respectively.

NOTE 13. SEGMENT REPORTING

During the year ended December 31, 1998, we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS 131). FAS 131 changes the way companies report
selected segment information in annual financial statements and requires
companies to report selected segment information in interim financial reports to
stockholders.

Ventro currently operates in two operating segments; the life science
product segment for sales attributable to Chemdex, and the specialty medical
product segment for sales attributable to Promedix.

As the specialty medical product segment is immaterial, both as a
percentage and in dollar amount, to total revenues, net loss and total assets,
separate disclosure of these amounts are not shown.

9
<PAGE> 12
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

NOTE 14. RELATED PARTY TRANSACTIONS

The president and Chief Executive Officer ("CEO") of VWR Scientific
Products Corporation ("VWR"), Paul J. Nowak is a director of the Company. In
addition, we issued VWR 2,538,405 shares of our common stock as a part of
Chemdex's strategic relationship agreement in March 1999. VWR and Chemdex
jointly market VWR core products and Chemdex core products to VWR's existing and
new customers and jointly solicit several key existing VWR suppliers to
distribute, market and sell their products through the Chemdex Marketplace. VWR
currently performs some of the billing and cash collection functions for the
sale of jointly marketed products and will continue to perform these functions
until they can be transitioned to Chemdex. With respect to sales of VWR core
products, we act as an intermediary and forward orders received through the
Chemdex Marketplace to VWR for fulfillment and customer service. We receive no
fee for orders for VWR core products from VWR's 40 largest customers and we
receive a minimal fee for all other orders for VWR core products forwarded to
VWR. We are responsible for fulfillment and customer service for all Chemdex
core product and orders for third party products received from VWR customers
through the Chemdex Marketplace. Under the terms of the agreement, VWR provides
support for the purchases of third party products in return for a fee that
approximates VWR's costs incurred.

In addition, during the three months ended June 30, 2000, Ventro recognized
other revenue of $692,000 in connection with sales of a software license to a
distributor of life science products whose president and CEO is a director of
the company. Additionally, we issued to the distributor 2,538,405 shares of the
Company's common stock, in March 1999, in connection with one of our strategic
relationship agreements.

The Company also provided consulting services of $250,000 to a
pharmaceutical company during the three months ended June 30, 2000. The
pharmaceutical company has an ownership position (31%) in Industria, a company
in which we own approximately 49% of the voting stock.

The statement of operations for the three and six month period ended June
30, 2000, exclude operating expenses incurred related to vertical marketplace
companies in which Ventro has a significant equity investment. Ventro invoices
the vertical marketplace company on a monthly basis for expenses incurred on
their behalf. Management believes that collectibility of all amounts invoiced to
date is probable. To date, Ventro has invoiced operating expenses of
approximately $7.1 million, and we have collected $2.8 million. The related
party receivable is included in accounts receivable, net in the accompanying
balance sheet at June 30, 2000.

NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
year ending December 31, 2001. FAS 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we currently hold no
derivative financial instruments and do not currently engage in hedging
activities, adoption of FAS 133 is not expected to have a material impact on our
financial condition or results of operations.

In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB 101), which summarizes the SEC staff's views on
applying GAAP to the recognition of revenue in financial statements. Among other
things, SAB 101 provides that the determination of whether to report revenues at
the gross amount billed or the net amount earned by the vendor generally depends
on whether the risks assumed by the vendor, together with other transaction
attributes, indicate that the vendor is, in substance, acting as a principal or
as an agent in the transaction, respectively.

10
<PAGE> 13
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The Financial Accounting Standards Board's Emerging Issues Task Force
("EITF" or "Task Force") reached a consensus on Issue No. 99-19, "Reporting
Revenue Gross as a Principal versus Net as an Agent" ("Issue 99-19") at the July
19-20, 2000 meeting. Issue 99-19 addressed when a vendor should report revenue
as the gross amount billed to a customer versus the net amount earned by the
vendor in the transaction. At the July 19-20, 2000, meeting the Task Force
affirmed as a consensus the tentative conclusion reached at the May 17-18, 2000,
meeting, with minor modifications to the indicators. The Task Force reached a
consensus that none of the indicators should be considered presumptive or
determinative; however, the relative strength of each indicator should be
considered. The Task Force believes that the primary obligor, general inventory
risk and pricing latitude are the strongest indicators that would point to
recording revenue gross. The Task Force amended the consensus to allow
transition to mirror the required implementation date for SAB 101.

SAB 101B delayed the effective date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999, (fourth
quarter of 2000 for the Company). For companies adopting SAB 101 or EITF 99-19
subsequent to the first quarter, financial information for prior quarters would
be restated with cumulative effect adjustment reflected in the first quarter in
accordance with FASB Statement No. 3, "Reporting Accounting Changes in Interim
Financial Statements". In subsequent periods, registrants should disclose the
amount of revenue, if material, recognized in those periods that were included
in the cumulative effect adjustment. With regard to income statement
presentation (reporting revenue gross vs. net), the SEC staff normally would
expect retroactive application for all periods presented. The Company is
currently evaluating the new indicators but the Company believes they act as a
principal in purchasing products from the Company's suppliers and reselling them
to the Company's customers because the Company assumes the risks and rewards of
ownership and, consequently, the Company included the gross revenues from sales
of product and related shipping fees, net of discounts and provisions for sales
returns and other allowances, in net revenues. Management does not believe that
the adoption of SAB 101 or EITF 99-19 will materially change the Company's
financial position, results of operations or cash flows.

In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" -- an interpretation of APB Opinion No. 25 (FIN 44). FIN 44
applies prospectively to new stock option awards, exchanges of awards in a
business combination, modifications to outstanding awards, and changes in
grantee status that occur on or after July 1, 2000. Although the Company is
still in the process of analyzing the impact of FIN 44, if any, on its
consolidated statements and related disclosures, we expect that there will be no
material impact on its financial position or its results of operations.

In March 2000, the FASB's EITF reached a consensus on EITF 00-2, Accounting
for web site development costs. EITF 00-2 discusses how an entity should account
for costs incurred to develop a web site. We are currently evaluating EITF 00-2
and the potential financial reporting impact of this issue.

NOTE 16. SUBSEQUENT EVENTS

On August 3, 2000, Ventro and American Express Company ("American
Express"), announced the formation of MarketMile LLC ("MarketMile"), a new
business-to-business e-commerce company in the business products and services
market. For a cash investment of $9.0 million, Ventro will own approximately 35%
of MarketMile. The investment will be accounted for using the equity method.

11
<PAGE> 14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements. In some cases,
readers can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue." These statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from
those stated herein. Although management of Ventro believes that the
expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, performance, or achievements. For a
discussion of factors that could cause our results to differ, refer to
Management's Discussion and Analysis and the Risk Factors sections of Ventro's
Annual Report on Form 10-K for the year ended December 31, 1999 (File Number
0-26811). These risks include, among others, our history of losses and our
anticipated continued losses for the foreseeable future, our unproven business
model, proposed accounting rules which might require us to report substantially
lower revenues, and our dependence on our strategic relationship with VWR
Scientific Products Corporation.

OVERVIEW

Ventro Corporation, formerly known as Chemdex Corporation, is a builder and
operator of vertical marketplace companies that enter into transactions with
enterprises, buyers and suppliers, enabling them to streamline business
processes, enhance productivity and reduce costs. Ventro marketplace companies
offer e-commerce solutions consisting of extensive online marketplaces,
electronic procurement, the systems integration needed to interface with third
party and back office systems and comprehensive services and support.

We are currently operating or developing six Ventro marketplace companies
that are either wholly-owned by us or in which we own a significant minority
interest. Our division Chemdex is a provider of e-commerce solutions to the life
sciences research products market. Promedix, a wholly-owned subsidiary,
addresses the specialty medical product marketplace. Ventro and Tenet Healthcare
Corporation formed Broadlane to provide e-commerce solutions for the
high-volume, hospital and medical supplies market, initially focusing on
commodity hospital supplies. Ventro and DuPont formed Industria Solutions to
provide e-commerce solutions for the fluid processing industry. Ventro and
Entangible.com formed Amphire Solutions, which will provide e-commerce solutions
to the U.S. food service industry. As part of the formation of Amphire, Ventro
acquired a portion of Entangible.com for cash and equity totalling $35 million.
Finally, Ventro and American Express formed Marketmile, to provide e-commerce
solutions for the business products and services market. Broadlane, Industria
Solutions, Amphire Solutions and Marketmile are currently in the development
stage. We are a significant minority shareholder in each of Broadlane, Industria
Solutions, Amphire Solutions and Marketmile.

We acquired Promedix and SpecialtyMD on February 10, 2000. The acquisitions
were accounted for under the purchase method of accounting. The acquisition
costs of Promedix and SpecialtyMD were $325.3 million and $107.7 million,
respectively. The intangible assets acquired in the Promedix and SpecialtyMD
acquisitions were $325.3 million and $108.5 million, respectively. Accordingly,
intangible assets increased from $13.1 million at December 31, 1999 to $388.7
million at June 30, 2000, as a result of these acquisitions. The intangible
assets will be amortized over two to three years and the amortization expense is
estimated to be approximately $145.1 million per year, beginning February 10,
2000. Promedix had no revenue and a loss from continuing operations of $12.1
million for 1999. SpecialtyMD had $31,000 of revenue and a net loss of $4.3
million for 1999.

Transaction revenues consists primarily of product sales to customers and
charges to customers for outbound freight. Under most of our supplier agreements
entered into for Chemdex and Promedix, we act as a principal in purchasing
products from our suppliers and reselling them to our customers. Accordingly, we
recognize net revenues equal to the amount paid by our customers and cost of
revenues equal to the amount we pay to our suppliers for these products. Under
our principal-based agreements, we are responsible for selling the products,
collecting payment from customers, ensuring that the shipment reaches customers
and

12
<PAGE> 15

processing returns. In addition, we take title to products upon shipment and
bear the risk of loss for collection, delivery and merchandise returns from
customers. Some of our agreements with our suppliers treat us as an agent of the
supplier, in which case we receive a percentage fee on product sales. We
recognize revenue from product sales, net of any discounts, and from fees under
agency-based supplier agreements, when the products are shipped to customers.
Products are shipped directly to customers by suppliers based on customer
delivery date specifications.

Other revenue consists of software license fees and service revenue. Ventro
generally recognizes software licenses upon delivery of the product or ratably
over a contractual period if unspecified software products are to be delivered
during that period. Service revenue is recognized as the services are performed.

SAB 101B delayed the effective date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999, (fourth
quarter of 2000 for Ventro). For companies adopting SAB 101 or EITF 99-19
subsequent to the first quarter, financial information for prior quarters would
be restated with cumulative effect adjustment reflected in the first quarter in
accordance with FASB Statement No. 3, "Reporting Accounting Changes in Interim
Financial Statements". In subsequent periods, registrants should disclose the
amount of revenue, if material, recognized in those periods that were included
in the cumulative effect adjustment. With regard to income statement
presentation (reporting revenue gross vs. net), the SEC staff normally would
expect retroactive application for all periods presented. We are currently
evaluating the new indicators but believe we act as a principal in purchasing
products from our suppliers and reselling them to our customers because we
assume the risks and rewards of ownership and, consequently, we included the
gross revenues from sales of product and related shipping fees, net of discounts
and provisions for sales returns and other allowances, in net revenues.
Management does not believe that the adoption of SAB 101 or EITF 99-19 will
materially change our financial position, results of operations or cash flows.

Ventro had sales to only one significant customer that accounted for
approximately 10% of our revenues in the quarter ended June 30, 2000. Our
agreement with another customer, in connection with its role as our initial test
location for our purchasing solution, provides that we will not receive price
discounts on products of some suppliers purchased by that customer if that
customer purchases specified minimum quantities of product through the Chemdex
Marketplace. As a result, we receive little or no gross margin on sales of these
supplier products to that customer. The loss of revenues from any of our
significant customers would have a significant negative effect on our business,
revenues, results of operations and financial condition.

13
<PAGE> 16

EFFECTS OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS

The various interests that we acquire in companies are accounted for under
three broad methods: consolidation, the equity method and the cost method. The
applicable accounting method is generally determined based on our voting
interest in a company.

Consolidation. Companies in which we directly or indirectly own more than
50% of the outstanding voting securities are generally accounted for under the
consolidation method of accounting. Under this method, a company's accounts are
reflected within our Consolidated Statements of Operations. As of June 30, 2000,
the consolidated financial statements include all the accounts of the Company
and those of its wholly-owned subsidiaries, Promedix and SpecialtyMD. All
significant inter-company accounts and transactions were eliminated

Equity Method. Companies whose results we do not consolidate, but over whom
we exercise significant influence, are generally accounted for under the equity
method of accounting. Whether or not we exercise significant influence with
respect to a company depends on an evaluation of several factors including,
among others, representation on the company's board of directors and ownership
level, generally 20% - 50% interest in the voting securities of the company
including voting rights associated with our holdings in common, preferred and
other convertible instruments in the company. Under the equity method of
accounting, our share of the earnings or losses of these companies are included
in the equity income (loss) section of the Consolidated Statements of
Operations. As of June 30, 2000, we accounted for our interest in two companies,
Industria Solutions and Amphire Solutions, under the equity method of
accounting.

Cost Method. Companies not accounted for under the equity method are
accounted for under the cost method of accounting. Under this method, our share
of the earnings or losses of these companies is not included in our Consolidated
Statements of Operations. As of June 30, 2000, we accounted for our interest in
three companies under the cost method of accounting.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Revenues

Transaction revenue increased by $21.4 million from $2.9 million for the
three months ended June 30, 1999 to $24.3 million for the three months ended
June 30, 2000 and increased $44.5 million from $3.1 million for the six months
ended June 30, 1999 to $47.6 million for the six months ended June 30, 2000. The
increase in revenue was primarily due to the increase in our customer base and
increased market acceptance of our procurement solution.

Other revenues totaling $942,000 for both the three months and six months
ended June 30, 2000 were attributable to the addition of other revenue streams
recognized during the three months ended June 30, 2000. Ventro recognized other
revenue of $692,000 in connection with the sale of a software license to a
distributor of life science products whose president and CEO is a director of
the company. Additionally, we issued to the distributor 2,538,405 shares of our
common stock, in March 1999 in connection with one of our strategic relationship
agreements.

Ventro also provided consulting services of $250,000 to a pharmaceutical
company during the three months ended June 30, 2000. The pharmaceutical company
has an ownership position (31%) in Industria, a company in which we own
approximately 49% of the voting stock.

In the future, the level of our net revenues will depend on a number of
factors including, but not limited to, the following:

- number of customers we are able to obtained retain;

- frequency of our customer's purchases;

- quantity and mix of products and services our customers purchase;

- quantity of the types of products and services we are able to offer for
sale;

- price we charge for our products and services;

14
<PAGE> 17

- amount we charge for shipping;

- extent of sales incentives we offer;

- level of customer returns we experience;

- seasonality that we may experience;

- number of vertical marketplaces we enter; and

- mix of gross and net revenue transactions.

Cost of Revenues

Cost of transaction revenue increased by $20.3 million from $2.8 million
for the three months ended June 30, 1999 to $23.1 million for the three months
ended June 30, 2000 and increased $42.2 million from $2.9 million for the six
months ended June 30, 1999 to $45.1 million for the six months ended June 30,
2000. Cost of transaction revenue consists primarily of the costs of acquiring
products from our suppliers for sale to our customers. During the six months
ended June 30, 2000, cost of transaction revenue included a portion of
amortization charges of intangibles for customer and supplier relationships
related to the purchase of Promedix, as well as amortization charges of
intangibles for developed technology related to the purchase of SpecialtyMD.
During the six months ended June 30, 2000, cost of transaction revenue, in
absolute dollars, increased consistent with the increase in transaction revenue.

Cost of other revenues totaling $296,000 for both the three months and six
months ended June 30, 2000 were attributable to the costs related to other
services generated for sale to our customers.

Total cost of revenues as a percentage of total revenues will fluctuate
based on a number of factors, including, but not limited to, the following:

- the cost of our products and services and purchase discounts that we
negotiate with individual suppliers;

- our pricing strategy relative to the cost of our products and services;

- the mix of products and services our customers purchase;

- our price strategy for shipping relative to the cost of shipping; and

- mix of gross and net revenue transactions.

Operating Expenses

Research and Development. Research and development expenses increased by
$7.8 million from $3.5 million for the three months ended June 30, 1999 to $11.3
million for the three months ended June 30, 2000 and increased $14.6 million
from $5.8 million for the six months ended June 30, 1999 to $20.4 million for
the six months ended June 30, 2000. Research and development expenses consist of
personnel and other expenses associated with developing, updating, and enhancing
software in support of the Chemdex and Promedix Marketplaces, content
engineering for SpecialtyMD, and amortization charges of intangibles for
assembled workforces related to the purchase of Promedix and SpecialtyMD. Our
research and development expenses have increased each quarter since inception
primarily due to increased staffing and associated costs related to the design,
development and maintenance of the Chemdex and Promedix Marketplaces, and

15
<PAGE> 18

content and design expenses. We believe that our success is dependent in large
part on continued enhancement and development of our vertical marketplaces.

We expect that research and development expenses will increase in absolute
dollars in the future as we:

- continue to enhance and improve our Internet-based purchasing solution;

- add increasing amounts of supplier data to our databases;

- develop and introduce new solutions and services; and

- integrate our Internet-based purchasing system with our customers' and
suppliers' systems.

Sales and Marketing. Sales and marketing costs increased by $11.2 million
from $5.2 million for the three months ended June 30, 1999 to $16.4 million for
the three months ended June 30, 2000 and increased $21.2 million from $8.4
million for the six months ended June 30, 1999 to $29.6 million for the six
months ended June 30, 2000. Sales and marketing expenses consist primarily of
advertising and promotional expenses, as well as, payroll and related expenses
for personnel engaged in supplier relations, enterprise sales activities and
enterprise account management. Further, sales and marketing costs include,
intangible asset amortization expenses related to our VWR and Biotechnology
Industry Organization ("BIO") agreements and intangible asset amortization
expenses, including a portion of customer and supplier relationships and
assembled workforces related to the purchase of Promedix and SpecialtyMD. Sales
and marketing expenses have increased since inception as we have continued to
expand our sales and marketing efforts primarily in connection with our
corporate marketing and branding strategy. We intend to continue to aggressively
expand our supplier and customer relationships and to expand our brand
awareness. We expect sales and marketing expenses to increase in future periods.

General and Administrative. General and administrative expenses increased
by $4.1 million from $3.6 million for the three months ended June 30, 1999 to
$7.7 million for the three months ended June 30, 2000 and increased $7.8 million
from $4.6 million for the six months ended June 30, 1999 to $12.4 million for
the six months ended June 30, 2000. General and administrative expenses consist
primarily of salaries, fees for professional services, lease expenses and
amortization expenses of intangible assets. General and administrative expenses
have increased primarily as a result of the addition of finance and
administrative personnel, costs of leasing additional office space to support
our growth, amortization of intangibles, and expenses related to increased
professional service fees. We expect general and administrative expenses to
increase in future periods as additional administrative services will be needed
to support our expanded operations.

Amortization of Deferred Stock-Based Compensation. We have recorded
aggregate deferred compensation charges of $8.7 million in connection with stock
options granted through June 30, 1999. For both quarters ended June 30, 1999 and
2000, we expensed $.6 million, and for both six month periods ended June 30 1999
and 2000, we expensed $1.1 million, related to the amortization of deferred
compensation. The deferred compensation amounts are being amortized over the
vesting period of the stock options which is generally four years.

Amortization of Intangible Assets. We have recorded amortization charges of
$34.1 million and $52.9 million, for the three and six months ended June 30,
2000, respectively, associated with our VWR and BIO agreements, and the
acquisition of Promedix and SpecialtyMD.

Interest Expense. Interest expense increased from $23,000 to $4.3 million
for the three months ended June 30, 1999 and 2000, respectively and increased
from $48,000 to $4.4 million for the six months ended June 30, 1999 and 2000,
respectively. Interest expense consists primarily of interest related to the
issuance of $250,000,000 of 6% Convertible Subordinated Notes on April 3, 2000
and financed equipment and other financing arrangements.

Interest and Other Income, net. Interest and other income, net increased
from $209,000 to $4.7 million for the three months ended June 30, 1999 and 2000,
respectively and increased from $264,000 to $6.5 million for the six months
ended June 30, 1999 and 2000, respectively. Interest and other income, net has
been derived primarily from earnings on investments in cash equivalent
securities. Interest and other income, net

16
<PAGE> 19

during the second quarter of 2000 increased significantly due to increased cash
and cash equivalents resulting from our issuance of $250,000,000 of 6%
Convertible Subordinated Notes on April 3, 2000.

LIQUIDITY AND CAPITAL RESOURCES FOR THE SIX MONTHS ENDED JUNE 30, 2000

Prior to our initial public offering in July 1999, we funded our operations
primarily by the private sale of our equity securities, through which we raised
approximately $45.0 million. In July 1999, we completed the initial public
offering of our common stock and realized net proceeds from the offering of
approximately $117.4 million. In April 2000, we completed our offering of 6%
convertible subordinated notes and realized net proceeds of $242.5 million. As
of June 30, 2000, our principal sources of liquidity included approximately
$296.3 million of cash, cash equivalents and short-term investments and $4.1
million in equipment financing arrangements.

Net cash used in operating activities totaled $70.0 million and $14.1
million in the first six months of 2000 and 1999, respectively. The net cash
used in operating activities in the first six months of 2000 was primarily due
to our net loss, which was partially offset by non-cash charges for depreciation
and amortization of deferred stock-based compensation and intangible assets, as
well as increases in accounts payable and accrued liabilities. Net cash used in
operating activities in the first six months of 1999 related primarily to our
net loss, which was partially offset by non-cash charges of depreciation and
amortization of deferred stock-based compensation, sales and marketing and
interest expense related to warrants and increases in accounts payable and
accrued expenses.

Net cash provided by investing activities was $47.4 million in the first
six months of 2000 and $2.5 million for the first six months of 1999. Net cash
provided by investing activities during the first six months of 2000 was
primarily the result of net sale and maturities of short-term investments,
totaling $69.7 million. This was partially offset by substantial investments in
computer equipment and software, and payments of $8.4 million in connection with
the formation of Amphire. Net cash used in investing activities in the first
three months of 1999 primarily related to purchases of short term investments,
computer equipment, and office furniture.

Net cash provided by financing activities was $246.0 million in the first
six months of 2000 and $30.1 million for the first six months of 1999. During
the first six months of 2000, we received cash related to the issuance of common
stock under our employee stock purchase plan of $1.2 million, and $242.5 million
related to the issuance of 6% convertible subordinated notes and proceeds of
$1.1 million related to the exercise of options. Net cash from financing
activities during the first six months 1999 resulted primarily from the sale of
preferred stock.

We currently anticipate that cash and cash equivalents at June 30, 2000,
together with our equipment lease line will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. However, we may need to raise additional funds in future
periods through public or private financing, or other arrangements to fund our
operations and potential acquisitions, if any, over a long-term basis. Any
additional financing, if needed, might not be available on reasonable terms or
at all. Failure to raise capital when needed could seriously harm our business
and results of operations. If additional funds were raised through the issuance
of equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences or
privileges senior to our common stock.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

Our sales from inception to date have been made to U.S. customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. However,
in the near future, we expect to sell in foreign markets. As our sales would be
made in U.S. dollars, a strengthening of the U.S. dollar could make our products
less competitive in foreign markets.

At June 30, 2000, our cash and cash equivalents consisted primarily of
money market funds and commercial paper held by large institutions in the U.S.

We do not use derivative financial instruments in our operations or
investments.

17
<PAGE> 20

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On December 7, 1999, Fisher Scientific International and Fisher Scientific
Company, LLC ("Fisher") filed a complaint in Supreme Court, Kings County, Index
No. 47284/99 against Bruce Sobel and Chemdex. Fisher is seeking to enforce a
restrictive covenant contained in Sobel's prior employment agreement with Fisher
for alleged violation by Sobel of a non-disclosure and non-competition
agreement. Fisher's motion for a preliminary injunction against Sobel's
employment was denied on December 22, 1999. Fisher is presently seeking to amend
the complaint to include allegations against Sobel and Chemdex of
misappropriation of trade secrets, tortious interference with contractual
relations, and conversion. The Company believes that the complaint is without
merit and intends to contest the claims vigorously.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On July 27, 1999, Ventro issued 8,625,000 shares of common stock, including
the underwriters' overallotment, with net proceeds to Ventro of $117.4 million.
Morgan Stanley Dean Witter, BancBoston Robertson Stephens, and Volpe Brown
Whelan & Company were the managing underwriters in the offering. The shares of
common stock sold in the offering were registered under the Securities Act of
1933, as amended, on a Registration Statement on Form S-1 (No. 333-78505).

The net offering proceeds from Ventro's initial public offering were used
for general corporate purposes, to provide working capital to develop products,
expand the Company's operations and the acquisition of businesses, technologies,
products and services.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

(a) The Company held its annual meeting of stockholders in Palo Alto,
California on May 24, 2000. Of the 45,239,643 shares outstanding as of April 10,
2000, the record date, 36,480,482 shares were present or represented by proxy at
the meeting. At these meetings the following actions were voted upon:

(b) To elect the following nine (9) directors to serve until the next
Annual Meeting of Shareholders and until their successors are duly elected and
qualified:

<TABLE>
<CAPTION>
AUTHORITY
WITHHELD FOR
--------- ----------
<S> <C> <C>
Brook H. Byers........................................ 79,208 36,386,329
David P. Perry........................................ 80,282 36,385,255
Charles R. Burke...................................... 51,294 36,414,243
Jonathan D. Callaghan................................. 74,333 36,391,204
Paul J. Nowak......................................... 52,014 36,413,523
John A. Pritzker...................................... 51,784 36,413,753
Naomi O. Seligman..................................... 52,639 36,412,899
L. John Wilkerson..................................... 51,459 36,414,078
Jan Leschly........................................... 51,284 36,414,253
</TABLE>

(c)(1) To approve an amendment to the 1998 Stock Plan to reserve an
additional 3,500,000 shares of common stock thereunder for issuance:

<TABLE>
<CAPTION>
AGAINST ABSTAIN NO VOTES FOR
--------- ------- --------- ----------
<S> <C> <C> <C>
1,949,021 34,959 5,466,623 29,014,934
</TABLE>

18
<PAGE> 21

(2) To approve an amendment to the 1999 Board of Directors' Stock Plan to
reserve an additional 30,000 shares of common stock thereunder for issuance:

<TABLE>
<CAPTION>
AGAINST ABSTAIN NO VOTES FOR
------- ------- --------- ----------
<S> <C> <C> <C>
867,852 54,832 5,466,623 30,076,230
</TABLE>

(d) To approve the appointment of Ernst & Young LLP as the independent
auditors of Ventro for fiscal year 2000:

<TABLE>
<CAPTION>
AGAINST ABSTAIN NO VOTES FOR
------- ------- -------- ----------
<S> <C> <C> <C>
15,898 8,111 200 36,441,328
</TABLE>

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

The following is a list of exhibits filed as part of this Report on Form
10-Q. Where indicated by footnote, exhibits that were previously filed are
incorporated by reference.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated September 21, 1999 by and
among Ventro Corporation, Popcorn Acquisitions Corp. and
Promedix.com, Inc.(1)
2.2 Escrow Agreement for Ventro/Promedix(1)
2.3 Agreement and Plan of Merger dated December 10, 1999 by and
among Ventro Corporation, Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation(1)
2.6 First Amendment to Agreement and Plan of Merger dated as of
December 21, 1999 by and among Ventro Corporation, Popcorn
Acquisitions Corp. and Promedix.com, Inc.(1)
2.7 Escrow Agreement for Ventro/SpecialtyMD(1)
2.8 Form of Certificate of Merger between Chemdex Corporation
and Ventro Corporation(2)
4.1 Specimen of Ventro Common Stock Certificate(2)
10.39 Amendment to 1998 Stock Plan, as amended, and form of option
agreement(2)
10.40 Amendment to 1999 Employee Stock Purchase Plan(2)
27.1 Financial Data Schedule
</TABLE>

---------------
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-4 (File No.
333.90727) filed with the Commission on January 4, 2000, as amended, which
Registration Statement was declared effective on January 5, 2000.

(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-31774) filed with the Commission on March 6, 2000, which Registration
Statement was declared effective March 29, 2000.

(b) Reports on Form 8-K

None.

19
<PAGE> 22

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on August 14, 2000.

VENTRO CORPORATION

By /s/ JAMES G. STEWART
------------------------------------
James G. Stewart
Chief Financial Officer
(Principal Financial Officer)

20
<PAGE> 23

EXHIBIT INDEX