VENTRO CORP, 10-Q, 2000-11-14

VENTRO CORP
10-Q, 2000-11-14
CHEMICALS & ALLIED PRODUCTS

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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 SEPTEMBER 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 October 31, 2000, 45,828,003 shares of the registrant's common stock,
$0.0002 par value per share, were issued and outstanding.

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<PAGE> 2

VENTRO CORPORATION

FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)............................ 1
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999.................................. 1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and 1999..... 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 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................................... 14
Item 3. Qualitative and Quantitative Disclosure about Market Risk... 19

PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 21
Item 2. Changes in Securities and Use of Proceeds................... 21
Item 3. Defaults Upon Senior Securities............................. 21
Item 4. Submission of Matters to a Vote of Securities Holders....... 21
Item 5. Other Information........................................... 21
Item 6. Exhibits and Reports on Form 8-K............................ 21
SIGNATURE............................................................ 22
</TABLE>

i
<PAGE> 3

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)

VENTRO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 130,569 $ 21,934
Short-term investments.................................... 98,854 81,161
Restricted cash........................................... 5,687 --
Accounts receivable, net.................................. 14,181 12,414
Due from marketplace companies............................ 9,207 --
Other current assets...................................... 7,162 5,041
--------- --------
Total current assets.............................. 265,660 120,550
Property and equipment, net................................. 27,473 10,264
Ownership interest in marketplace companies, net............ 34,370 --
Intangible assets, net...................................... 351,475 13,107
Other long-term assets...................................... 19,988 20,012
--------- --------
Total assets...................................... $ 698,966 $163,933
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 14,035 $ 8,445
Accrued compensation...................................... 6,655 3,958
Accrued expenses.......................................... 24,631 25,648
Other current liabilities................................. 405 369
--------- --------
Total current liabilities......................... 45,726 38,420
Convertible subordinated notes.............................. 250,000 --
Other long-term liabilities................................. 372 494
Commitments and contingencies
Stockholders' equity:
Preferred stock........................................... -- --
Common stock.............................................. 9 7
Additional paid-in capital................................ 631,879 189,842
Deferred stock-based compensation......................... (4,740) (6,380)
Notes receivable from stockholders........................ -- (985)
Accumulated deficit....................................... (223,985) (57,465)
Accumulated other comprehensive loss...................... (295) --
--------- --------
Total stockholders' equity........................ 402,868 125,019
--------- --------
Total liabilities and stockholders' equity........ $ 698,966 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Transaction revenue............................. $ 24,771 $ 8,490 $ 72,349 $ 11,561
Other revenue................................... 3,941 -- 4,883 --
-------- -------- --------- --------
Total revenues.................................. 28,712 8,490 77,232 11,561
Cost of revenues:
Cost of transaction revenue..................... 23,598 8,086 68,704 10,994
Cost of other revenue........................... 3,703 -- 3,999 --
-------- -------- --------- --------
Total cost of revenues.......................... 27,301 8,086 72,703 10,994
Gross profit............................ 1,411 404 4,529 567
Operating expenses:
Research and development(1)..................... 13,446 5,643 33,820 11,398
Sales and marketing(2).......................... 15,186 6,903 44,739 15,316
General and administrative(3)................... 8,128 2,572 20,551 7,198
Amortization of deferred stock-based
compensation................................. 547 547 1,641 1,445
Amortization of goodwill........................ 34,100 -- 87,013 --
-------- -------- --------- --------
Total operating expenses................ 71,407 15,665 187,764 35,357
-------- -------- --------- --------
Operating loss.................................... (69,996) (15,261) (183,235) (34,790)
Interest expense.................................. (4,237) (60) (8,592) (108)
Interest income and other, net.................... 4,246 1,321 10,696 1,585
Equity loss(4).................................... (6,324) -- (14,629) --
Gain on sale of investment........................ -- -- 29,240 --
-------- -------- --------- --------
Net loss.......................................... $(76,311) $(14,000) $(166,520) $(33,313)
======== ======== ========= ========
Basic and diluted net loss per share.............. $ (1.69) $ (0.59) $ (3.91) $ (3.33)
======== ======== ========= ========
Weighted average shares of common stock used in
computing basic and diluted net loss per
share........................................... 45,064 23,640 42,574 10,007
</TABLE>

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

(1) Excluding $202 in amortization of deferred stock-based compensation for both
the three months ended September 30, 2000 and 1999, and $606 and $533 for
the nine months ended September 30, 2000 and 1999, respectively.

(2) Excluding $252 in amortization of deferred stock-based compensation for both
the three months ended September 30, 2000 and 1999, and $756 and $666 for
the nine months ended September 30, 2000 and 1999, respectively.

(3) Excluding $93 in amortization of deferred stock-based compensation for both
the three months ended September 30, 2000 and 1999, and $279 and $246 for
the nine months ended September 30, 2000 and 1999, respectively.

(4) Includes $2,875 and $0 in amortization of equity interest in marketplace
companies for the three months ended September 30, 2000 and 1999, and $5,430
and $0 for the nine months ended September 30, 2000 and 1999, respectively.

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>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(166,520) $(33,313)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 14,276 2,962
Amortization of deferred stock-based compensation......... 1,641 1,445
Amortization of goodwill.................................. 87,013 --
Equity loss............................................... 14,629 --
Gain on sale of investment................................ (29,240) --
Interest expense related to warrants...................... -- 80
Issuance of common stock for services..................... -- 263
Non-cash charges related to stock-option grants........... 120 --
Issuance of warrants for rent expense..................... -- 375
Changes in operating assets and liabilities:
Accounts receivable....................................... (1,767) (3,597)
Due from marketplace companies............................ (9,207) --
Other current assets...................................... (2,471) (3,528)
Other long-term assets.................................... (40) 84
Accounts payable.......................................... 5,590 3,883
Accrued compensation...................................... 2,697 1,964
Accrued expenses.......................................... (1,017) 6,950
--------- --------
Net cash used by operating activities............... (84,296) (22,432)
--------- --------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (23,231) (5,671)
Purchases of short-term investments......................... (346,153) --
Sale and maturities of short-term investments............... 359,291 --
Restricted cash............................................. (5,687) --
Purchase of strategic investments........................... (12,000) --
Investment in marketplace companies......................... (29,800) --
Purchase of Promedix, net of cash........................... 1,248 --
Purchase of SpecialtyMD, net of cash........................ 1,372 --
--------- --------
Net cash provided by/(used by) investing
activities.......................................... (54,960) (5,671)
--------- --------
FINANCING ACTIVITIES
Principal payments on capital lease obligations............. (269) (5)
Principal payments on notes payable......................... (103) (163)
Net proceeds from issuance of preferred stock............... -- 30,198
Net proceeds from issuance of common stock.................. 4,590 117,639
Repurchase of common stock.................................. (87) (3)
Repurchase of fractional shares............................. -- (1)
Net proceeds from issuance of convertible subordinated
notes..................................................... 242,400 --
Issuance of warrants........................................ 375 --
Payments of stockholders' notes receivable.................. 985 11
--------- --------
Net cash provided by financing activities........... 247,891 147,676
--------- --------
Net increase in cash and cash equivalents................... 108,635 119,573
Cash and cash equivalents at beginning of period............ 21,934 5,990
--------- --------
Cash and cash equivalents at end of period.................. $ 130,569 $125,563
========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Issuance of shares in exchange for stockholders' notes
receivable................................................ $ -- $ 957
Repurchase of common stock issued in exchange for
Stockholders' notes receivable............................ $ -- $ (31)
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................................................... $ 19,199 $ --
Conversion of preferred common shares....................... $ -- $ 3
Payments on notes receivable................................ $ -- $ 18
Unrealized gain on available-for-sale securities............ $ 295 $ --
Other non-cash equity transactions.......................... $ 536 $ --
</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 leading builder of and service provider to business to
business ("B2B") marketplaces. Ventro offers a variety of products and services,
through its complete marketplace solution, that take online B2B marketplaces
from concept to liquidity. Ventro marketplaces include Chemdex, Promedix.com,
Inc., ("Promedix"), Broadlane, Inc., ("Broadlane"), Industria Solutions, Inc.,
("Industria"), Amphire Solutions, Inc. ("Amphire") and MarketMile, Inc.
("MarketMile"). The Company has recently begun a transition in its business
model to reduce its focus on operating wholly-owned marketplaces and concentrate
on developing new technology and services for marketplaces that are partly-owned
by Ventro or owned and managed by other companies. Because the Company has
decided to focus primarily on generating revenues as a Marketplace Service
Provider, the Board of Directors has retained a financial advisor to explore
alternatives for its wholly-owned marketplaces, Chemdex and Promedix, including
sale or strategic partnerships. 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 September
30, 2000, the consolidated financial statements include all the accounts of the
Company and those of its wholly-owned subsidiaries, 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 September 30, 2000, Ventro accounted for our interest in three
companies under the equity method of accounting. The Company periodically
evaluates the carrying value of its investments accounted for under the equity
method accounting and, as of September 30, 2000, such investments were recorded
at the lower of carrying value or estimated net realizable value.

Cost Method. Companies not consolidated or 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 September 30, 2000, Ventro
accounted for our interest in five companies under the cost method of
accounting. The Company periodically evaluates the carrying value of its
investments accounted for under the cost method of accounting and, as of
September 30, 2000, such investments were recorded at the lower of cost or
estimated net realizable value.

4
<PAGE> 7
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

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.

In accordance with the Financial Accounting Standards Board's Emerging
Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent" ("EITF 99-19"), Ventro generally records gross revenue
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 American 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. Service revenues
to marketplaces are recognized when Ventro does not exercise significant
influence over the marketplace company or if Ventro's carrying value in the
marketplace company amounts to $0.

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

Ventro capitalizes product development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", and EITF 00-2, "Accounting
for Web Site Development Costs", under which certain software development costs
incurred subsequent to the establishment of technological feasibility may be
capitalized and amortized over the estimated lives of the related products. We
determine technological feasibility to be established upon the internal release
of the product for acceptance testing. Upon the general release of the product
to
5
<PAGE> 8
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

customers, development costs for that product are amortized based on the
estimated economic life of the product. Capitalized software costs amounted to
$2.9 million and $0 at September 30, 2000 and 1999, respectively.

The related amortization of the capitalized development costs, accounted
for as either research and development costs or cost of revenue for products or
services sold to marketplaces, was nominal at September 30, 2000 as all costs
were capitalized during the third quarter. Amortization is provided on a
product-by-product basis, using the greater of the straight-line method or the
current year revenue as a percentage of total revenue estimates for the related
software product, not to exceed two years, commencing the month after the date
of product release. Quarterly, the Company reviews and expenses the unamortized
cost of any feature identified as being impaired. The Company also reviews
recoverability of the total unamortized cost of all features and software
products in relation to estimated product and service revenues, and, when
necessary, makes an appropriate adjustment to net realizable value.

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.

Reclassification

Certain amounts in prior years' financial statements have been reclassified
to conform to the current year presentation.

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 nine months ended September 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.

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 nine months ended September 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 September 30, 2000
that were not included in the computation of diluted net loss per

6
<PAGE> 9
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

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 September 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, in July 1999, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net loss....................................... $(76,311) $(14,000) $(166,520) $(33,313)
Weighted-average shares outstanding basic and
diluted................................... 45,064 23,640 42,574 10,007
-------- -------- --------- --------
Basic and diluted net loss per share........... $ (1.69) $ (0.59) $ (3.91) $ (3.33)
Pro forma weighted-average shares outstanding
basic and diluted......................... 28,372 21,065
Pro forma basic and diluted net loss per
share........................................ $ (0.49) $ (1.58)
</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 nine months ended September 30, 2000 and 1999 were as follows
(in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net loss....................................... $(76,311) $(14,000) $(166,520) $(33,313)
Unrealized gains (losses) on available-for-sale
securities................................... 170 -- (295) --
-------- -------- --------- --------
Comprehensive loss............................. $(76,141) $(14,000) $(166,815) $(33,313)
======== ======== ========= ========
</TABLE>

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

7
<PAGE> 10
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

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 are being 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 adds 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 are being amortized ratably over a
two to three year period.

Pro-forma Results

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenues............................................. $ 77,233 $ 11,561
Net loss............................................. $(185,740) $(150,850)
Net loss per common share
Basic and diluted.................................. $ (4.36) $ (4.85)
</TABLE>

The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been consummated on January 1, 1999 and 2000.
In addition, they are not intended to be a projection of future results.

NOTE 7. INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
VWR related intangible, net of amortization........ $ 8,984 $11,592
BIO related intangible, net of amortization........ 1,247 1,515
Promedix related intangibles, net of
amortization..................................... 255,948 --
SpecialtyMD related intangibles, net of
amortization..................................... 85,296 --
-------- -------
Total intangible assets.................. $351,475 $13,107
======== =======
</TABLE>

8
<PAGE> 11
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

NOTE 8. OTHER LONG-TERM ASSETS

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

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Deposits and other................................. $ 388 $ 512
Notes receivable from Promedix and SpecialtyMD..... -- 5,000
Deferred acquisition costs......................... -- 14,500
Deferred debt offering costs....................... 7,600 --
Long-term investments.............................. 12,000 --
------- -------
Total other long-term assets............. $19,988 $20,012
======= =======
</TABLE>

NOTE 9. 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 10. 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 11. 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 September 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 September
30, 2000 and 1999. The total charges to be recognized in future periods from
amortization of deferred stock compensation as of September 30, 2000 are
anticipated to be approximately $0.5 million, $2.2 million, $1.8 million and
$0.2 million for the remaining three months of 2000 and for 2001, 2002 and 2003,
respectively.

9
<PAGE> 12
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

NOTE 12. 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.

NOTE 13. OWNERSHIP INTEREST IN 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 the contribution of
technology, Ventro received an ownership interest in Industria of 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. As part of the formation of Amphire, Ventro acquired a portion of
Entangible.com for cash and equity totaling $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 expense of $2.9 million for the three months ended September 30,
2000 and $5.4 million for the nine months ended September 30, 2000 is included
in "equity loss" in the accompanying consolidated statements of operations. The
total amortization charges to be recognized in future are anticipated to be
approximately $2.9 million, $11.5 million, $11.5 million and $3.2 million for
the remaining three months of 2000 and for 2001, 2002 and 2003, respectively.

On August 3, 2000, Ventro and American Express Company, announced the
formation of 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 received an ownership interest in MarketMile of approximately 35%. The
investment is accounted for using the equity method.

In addition, Ventro has approximately an 18.9% interest in Broadlane, a new
business-to-business e-commerce company in the healthcare industry that Ventro
formed with Tenet Healthcare in January 2000. The investment is accounted for
using the cost method.

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

<TABLE>
<CAPTION>
EQUITY
OWNERSHIP INITIAL 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 3,276 5,430 26,294
MarketMile................... 35 9,000 923 -- 8,077
</TABLE>

10
<PAGE> 13
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, was a director of the Company until
October 2000 (see note 17). 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 LabPoint, a
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 LabPoint 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 LabPoint. 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 September 30, 2000, Ventro
recognized other revenue of $59,000 in connection with maintenance services on a
software license to a distributor of life science products whose president and
CEO was a director of the company.

The Company also provided consulting services of $250,000 to an affiliate
of a company during the three months ended September 30, 2000. The company has
an ownership position (19%) in Industria, a company in which we own
approximately 49% of the voting stock.

The statement of operations for the three and nine month period ended
September 30, 2000 excludes operating expenses incurred related to marketplace
companies in which Ventro has a significant equity investment. Ventro invoices
the marketplace company on a monthly basis for expenses incurred on its behalf.
Management believes that collectibility of all amounts invoiced to date is
probable. To date, Ventro has invoiced operating expenses of approximately $19.8
million, and we have collected $10.6 million. The related parties receivable is
included in the accompanying balance sheet at September 30, 2000. Revenues and
cost of sales recognized from these transactions with Industria and Broadlane
amounted to $3.6 million in the third quarter.

NOTE 15. FUTURE COMMITMENTS

The Company leases equipment under a noncancellable operating lease with an
equipment vendor which contains certain renewal and purchase options. As part of
the lease agreement, the Company is required to hold a certificate of deposit as
a form of security. This certificate is for $5.7 million and is classified as
restricted cash on our balance sheet. Future minimum payments under the lease
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------
(IN THOUSANDS)
<S> <C>
2000................................... $ 2,164
2001................................... 5,353
2002................................... 3,224
-------
Total minimum lease payments........... $10,741
</TABLE>

11
<PAGE> 14
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

NOTE 16. 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.

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 a 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 it acts 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 EITF published its consensus on EITF No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. EITF No. 00-3 states that a software element covered by SOP
97-2 is only present in a hosting arrangement if the customer has the
contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on their own hardware or contract with another party
unrelated to the vendor to host the software. The Company has historically
treated its hosted services as service arrangements which is in accordance with
the guidance contained in this pronouncement. The Company's hosting arrangements
generally do not allow customers the contractual right to take possession of the
software.

In March 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions Involving Stock Compensation -- An Interpretation of
APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and,
among other issues, clarifies the following: the definition of and determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of various modifications to the terms of previously fixed stock options or
awards, and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company

12
<PAGE> 15
VENTRO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED

does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.

In March 2000, the EITF issued its consensus on Issue on No. 00-2,
"Accounting for Web Site development Costs." ("EITF 00-2"). The Company accounts
for the development and maintenance of its website in accordance with EITF 00-2.

NOTE 17. SUBSEQUENT EVENTS

Resignations

On October 24, 2000, Paul Nowak, the President and CEO of VWR, announced
his resignation from the Board of Directors of the Company.

In November 2000, Pierre Samac, the Company's Chief Technology Officer,
resigned and entered into a one year consulting agreement with the Company.

Market Mile Investment

On November 10, 2000, Ventro committed to contribute $4.0 million in
MarketMile's Series C Preferred Stock Financing in the fourth quarter of 2000.

13
<PAGE> 16

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 and the impact of rapid technological changes.

OVERVIEW

Ventro Corporation (the "Company" or "Ventro"), formerly known as Chemdex
Corporation, is a leading business-to-business marketplace service provider.
Ventro offers a variety of products and services through its complete
marketplace solution that take online B2B marketplaces from concept to
liquidity. Ventro marketplaces include Chemdex, Promedix.com, Inc.,
("Promedix"), Broadlane, Inc., ("Broadlane"), Industria Solutions, Inc.,
("Industria"), Amphire Solutions, Inc., ("Amphire") and MarketMile, Inc.
("MarketMile").

The Company has recently begun a transition in its business model to reduce
its focus on operating wholly owned marketplaces and concentrate on developing
new technology and services for marketplaces, whether partly-owned by Ventro, or
owned and managed by other companies. We anticipate that our technology and
services will be the core of the Ventro business model as we move forward.
Because the Company has decided to concentrate on revenues from providing
technology and services, rather than operating wholly-owned marketplaces, our
Board of Directors has retained a financial advisor to explore alternatives for
Chemdex and Promedix, including sale or strategic partnerships. Any such
transactions could require the approval of Ventro's shareholders and the holders
of its outstanding convertible notes.

We are currently operating or developing six Ventro marketplace companies
that are either wholly-owned by us or in which we own a 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 totaling $35 million. Finally, Ventro and
American Express Company formed MarketMile, to provide e-commerce solutions in
the business products and services market. 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, Inc. ("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 $351.5 million at September 30, 2000, as a result of these
acquisitions. The intangible assets are being amortized over two to three years
and the amortization expense is estimated to be approximately $145.1 million per
year, beginning February 10, 2000.

14
<PAGE> 17

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.

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.
Service revenues to Ventro marketplace companies are recognized when Ventro does
not exercise significant influence over the marketplace company or if Ventro's
carrying value in the marketplace company amounts to $0.

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 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 September 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.

15
<PAGE> 18

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 September 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 September 30, 2000, we accounted for our interest in three
companies under the equity method of accounting.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999

Revenues

Transaction revenue increased by $16.3 million from $8.5 million for the
three months ended September 30, 1999 to $24.8 million for the three months
ended September 30, 2000 and increased $60.7 million from $11.6 million for the
nine months ended September 30, 1999 to $72.3 million for the nine months ended
September 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 totaled $3.9 million for the three months ended September
30, 2000 and $4.9 million for the nine months ended September 30, 2000. Other
revenues consisted primarily of services provided to marketplace companies as
well as providing marketplace consulting services, license revenues and
maintenance services on software licenses. During the third quarter, Ventro
recognized revenues and cost of revenues amounting to $3.6 million by providing
services to marketplace companies.

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 obtain and retain;

- frequency of our customers' 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;

- amount we charge for shipping;

- extent of sales incentives we offer;

16
<PAGE> 19

- level of customer returns we experience;

- seasonality that we may experience;

- number of marketplace companies we enter;

- royalty rates and license fees we charge for technology and prices we
charge as a Marketplace Service Provider;

- number of marketplace companies for which we provide services; and

- mix of gross and net revenue transactions.

Cost of Revenues

Cost of transaction revenue increased by $15.5 million from $8.1 million
for the three months ended September 30, 1999 to $23.6 million for the three
months ended September 30, 2000 and increased by $57.7 million from $11.0
million for the nine months ended September 30, 1999 to $68.7 million for the
nine months ended September 30, 2000. Cost of transaction revenue consists
primarily of the costs of acquiring products from our suppliers for sale to our
customers. During the nine months ended September 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 nine months ended September 30, 2000, cost
of transaction revenue, in absolute dollars, increased consistent with the
increase in transaction revenue.

Cost of other revenues totaling $3.7 million for the three months ended
September 30, 2000 and $4.0 million for the nine months ended September 30, 2000
were attributable to the costs related to other services generated for sale to
our customers which include marketplace companies.

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, 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;

- Cost of developing and providing services as a Marketplace Service
Provider as we transition to a new business model;

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

- mix of gross and net revenue transactions.

Operating Expenses

The statement of operations for the three and nine month period ended
September 30, 2000, excludes operating expenses incurred related to marketplace
companies in which Ventro has a significant equity investment. Ventro invoices
the marketplace company on a monthly basis for expenses incurred on their
behalf. To date, Ventro has invoiced net operating expenses of approximately
$19.8 million, and we have collected $10.6 million. Management believes that
collectibility of all amounts invoiced to date is probable. The related party
receivable net is included in other current assets in the accompanying balance
sheet at September 30, 2000.

Research and Development. Research and development expenses increased by
$7.8 million from $5.6 million for the three months ended September 30, 1999 to
$13.4 million for the three months ended September 30, 2000 and increased by
$22.4 million from $11.4 million for the nine months ended September 30, 1999 to
$33.8 million for the nine months ended September 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
17
<PAGE> 20

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 as well as consultant
fees and prototype expenses related to the design and development of our
technology. We believe that our success is dependent in large part on continued
enhancement and development of this technology.

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 as well as develop and introduce new technology solutions
and services as we transition to becoming a Marketplace Service Provider.

Sales and Marketing. Sales and marketing costs increased by $8.3 million
from $6.9 million for the three months ended September 30, 1999 to $15.2 million
for the three months ended September 30, 2000 and increased by $29.4 million
from $15.3 million for the nine months ended September 30, 1999 to $44.7 million
for the nine months ended September 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 do not expect a significant change in sales and marketing
expenses during the fourth quarter and we anticipate a decline in such expenses
in fiscal 2001 compared with fiscal 2000 due to our transition to a Marketplace
Service Provider model.

General and Administrative. General and administrative expenses increased
by $5.5 million from $2.6 million for the three months ended September 30, 1999
to $8.1 million for the three months ended September 30, 2000 and increased by
$13.4 million from $7.2 million for the nine months ended September 30, 1999 to
$20.6 million for the nine months ended September 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 the near future as additional administrative services
will be needed to support a transition to a Marketplace Service Provider model
and we anticipate a decline in such expenses in fiscal 2001 compared with fiscal
2000 due to our transition to a Marketplace Service Provider model.

Amortization of Deferred Stock-Based Compensation. We have recorded
aggregate deferred compensation charges of $8.7 million in connection with stock
options granted through September 30, 1999. For both quarters ended September
30, 1999 and 2000, we expensed $.5 million, and for nine months ended September
30 1999 and 2000, we expensed $1.4 million and $1.6 million, respectively,
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 Goodwill. We have recorded amortization charges of $34.1
million and $87.0 million, for the three and nine months ended September 30,
2000, respectively, associated with the acquisition of Promedix and SpecialtyMD.

Interest Expense. Interest expense increased from $0.06 million to $4.2
million for the three months ended September 30, 1999 and 2000, respectively and
increased from $0.1 million to $8.6 million for the nine months ended September
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.

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<PAGE> 21

Interest and Other Income, net. Interest and other income, net increased
from $1.3 million to $4.2 million for the three months ended September 30, 1999
and 2000, respectively and increased from $1.6 million to $10.7 million for the
nine months ended September 30, 1999 and 2000, respectively. Interest and other
income net has been derived primarily from earnings on investments in cash
equivalent securities and a gain on the sale of an investment.

LIQUIDITY AND CAPITAL RESOURCES FOR THE NINE MONTHS ENDED SEPTEMBER 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 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 September 30, 2000, our principal sources of liquidity included approximately
$235 million of cash, cash equivalents, short-term investments and restricted
cash as well as $4.1 million in equipment financing arrangements.

Net cash used in operating activities totaled $84.3 million and $22.4
million in the first nine months of 2000 and 1999, respectively. The net cash
used in operating activities in the first nine 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,
increases in accounts payable and accrued liabilities and gains on the sales of
investments. Net cash used in operating activities in the first nine 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,
amortization of intangible assets, and increases in accounts payable, accrued
expenses and accrued compensation.

Net cash used in investing activities was $55.0 million in the first nine
months of 2000 and $5.7 million for the first nine months of 1999. Net cash
provided by investing activities during the first nine months of 2000 was
primarily the result of net sale and maturities of short-term investments,
totaling $1.4 million. This was offset by substantial investments in computer
equipment and software, and payments of $5 million in connection with the
formation of Industria, $15.9 million in connection with the formation of
Amphire, $9.0 million in connection with the formation of MarketMile and $12
million in connection with strategic investments. Net cash used in investing
activities in the first nine months of 1999 primarily related to purchases of
short term investments, computer equipment, and office furniture.

Net cash provided by financing activities was $248.0 million in the first
nine months of 2000 and $147.7 million for the first nine months of 1999. During
the first nine months of 2000, we received cash related to the issuance of
common stock under our employee stock purchase plan of $2.9 million, $242.5
million related to the issuance of 6% convertible subordinated notes and
proceeds of $1.7 million related to the exercise of options. Net cash from
financing activities during the first nine months 1999 resulted primarily from
the sale of common and preferred stock.

We currently anticipate that cash and cash equivalents at September 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

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<PAGE> 22

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 September 30, 2000, our cash and cash equivalents consisted primarily of
commercial papers, short term municipals, corporate bonds and money market funds
held by large institutions in the U.S.

We do not use derivative financial instruments in our operations or
investments. As of September 30, 2000 the Company had entered into a operating
lease for computer hardware. The Company has collateralized letters of credit
which totals $5,686,948 for this lease. The related funds are included in
restricted cash.

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<PAGE> 23

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

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>
27.1 Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K

None.

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<PAGE> 24

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 November 14, 2000.

VENTRO CORPORATION

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

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<PAGE> 25

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>