<PAGE> 1
FORM 10-Q FOR PERIOD ENDED JUNE 30, 1998
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
AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number 0-24457
SOFTWARE.NET CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <C>
Delaware 94-3212136
(State of Incorporation) (I.R.S. Employer Identification Number)
1195 West Fremont Avenue, Sunnyvale, California 94087
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (408) 616-4200
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 No X
---- ----
The number of shares outstanding of each of the issuer's classes of common
stock as of June 30, 1998:
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<C> <C>
Class Number of Shares
Common Stock, par value $0.001 27,296,452
</TABLE>
<PAGE> 2
PART I. Financial Information
Item 1. Financial Statements
software.net CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 7,577 $ 3,434 $13,769 $ 6,592
Cost of revenues 6,408 2,892 11,662 5,675
-------- -------- ------- -------
GROSS PROFIT 1,169 542 2,107 917
Operating expenses:
Research and development 1,120 184 1,723 339
Sales and marketing 4,268 332 6,220 597
General and administrative 1,178 247 1,813 410
-------- -------- ------- -------
6,566 763 9,756 1,346
-------- -------- ------- -------
OPERATING LOSS (5,397) (221) (7,649) (429)
Other income (expense):
Interest income 87 32 114 72
Interest expense (254) -- (256) --
-------- -------- ------- -------
(167) 32 (142) 72
-------- -------- ------- -------
Loss from continuing operations (5,564) (189) (7,791) (357)
Loss from discontinued operations -- (455) -- (1,038)
-------- -------- ------- -------
NET LOSS $( 5,564) $( 644) $(7,791) $(1,395)
======== ======== ======= =======
Accretion of Premium on Preferred Stock (25) (25) (51) (51)
NET LOSS APPLICABLE TO COMMON -- --
SHAREHOLDERS $( 5,589) $( 669) $(7,842) $(1,446)
======== ======== ======= =======
Basic and Diluted Net Loss Per Share
from Continuing Operations $( 0.47) $( 0.02) $( 0.75) $( 0.04)
Basic and Diluted Net Loss Per Share
from Discontinued Operations $ - $ (0.05) - $( 0.12)
-------- -------- ------- --------
Basic and diluted loss per share $( 0.47) $( 0.07) $( 0.75) $( 0.16)
======== ======== ======= =======
Number of shares used in computing basic
and diluted net loss per share 11,863 9,000 10,471 9,000
======== ======== ======= =======
Pro forma basic and diluted net loss
per share from continuing operations $( 0.25) $(0.01) $( 0.37) $(0.02)
Pro forma basic and diluted net loss
per share from discontinued operations -- $(0.03) -- $(0.06)
-------- -------- ------- -------
Pro forma basic and diluted net loss
per share $( 0.25) $( 0.04) $( 0.37) $( 0.08)
======== ======== ======= =======
Number of shares used in computing pro forma
basic and diluted net loss per share 22,197 17,045 21,224 17,045
======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
software.net Corporation
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited) (note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 47,045 $ 2,571
Accounts receivable less allowances of
$500 in 1998 and $400 in 1997 1,906 1,181
Prepaid partnership agreements 5,271 396
Other Prepaid expenses and current assets 437 120
Cost of deferred revenue 81 4,938
-------- --------
Total current assets 54,740 9,206
Property and equipment, net 1,155 380
Deposits and other non-current assets 1,162 --
Intangible assets 956 --
-------- --------
Total assets $ 58,013 $ 9,586
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current note payable $ 4,800 $ --
Accounts payable 3,484 2,256
Other accrued liabilities 2,166 270
Current obligation under capital leases 11 18
Deferred revenue 395 5,569
-------- --------
Total current liabilities 10,856 8,113
Note payable to a shareholder and director -- 60
Non-current obligations under capital leases 33 39
Commitments:
Redeemable Convertible Preferred Stock -- 12,565
Stockholders' Equity: (Net Capital Deficiency)
Common stock 69,502 47
Deferred compensation (3,298) --
Accumulated deficit (19,080) (11,238)
-------- --------
Total stockholders' equity 47,124 (11,191)
-------- --------
Total liabilities and stockholders
equity (net capital deficiency) $ 58,013 $ 9,586
======== ========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
See notes to consolidated financial statements.
<PAGE> 4
software.net Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(7,791) $(1,396)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 237 27
Amortization of deferred compensation 494 --
Net loss of discontinued operations -- 1,038
Changes in operating assets and liabilities:
Accounts receivable (725) (798)
Prepaid expenses, deposits, and other assets (6,354) (62)
Cost of deferred revenue 4,857 272
Accounts payable 1,228 563
Other accrued liabilities 1,896 (57)
Deferred revenue (5,174) (322)
Cash used in discontinued operations -- (312)
-------- -------
Net cash used in operating activities (11,332) (1,047)
INVESTING ACTIVITIES
Acquisition of property and equipment (894) (95)
Cash used in discontinued operations -- (910)
-------- -------
Net cash used in investing activities (894) (1,005)
FINANCING ACTIVITIES
Proceeds from short-term note payable 4,800 --
Repayment of note payable to shareholder and director (60) --
Repayment of capital leases (13) (7)
Net proceeds from sale of redeemable convertible
preferred stock 2,950 --
Net proceeds from sale of common stock 49,023 --
-------- -------
Net cash provided by financing activities 56,700 (7)
-------- -------
Increase (decrease) in cash and equivalents 44,474 (2,060)
Cash and cash equivalents at beginning of period 2,571 3,737
-------- -------
Cash and cash equivalents at end of period $ 47,045 $ 1,677
======== =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
software.net Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for 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 generally accepted accounting principles for complete
financial statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of Management, all adjustments (consisting primarily of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's prospectus
dated June 17, 1998 comprising part of the Company's Registration Statement Form
S-1 filed with the Securities and Exchange Commission.
The Company completed an initial public offering of its common stock on June 22,
1998 (the "IPO"). A total of 5,750,000 shares of common stock was sold by the
Company to the public at a price of $9.00 per share. The underwriting discount
was $0.63 per share.
Pursuant to a Common Stock and Warrants Subscription Agreement entered into in
March 1998 and as a result of the Company's IPO, the Company issued a warrant
(the "IPO Warrant") and made $2,000,000 in common stock available to America
Online, Inc.("AOL"). The IPO Warrant was issued for the purchase of 358,422
shares of common stock at an exercise price per share of $8.37. The shares
subject to the IPO Warrant are exercisable ratably over a 36 month period
commencing March 1, 1998 and are non-forfeitable. The Company has determined the
value of the IPO Warrant to be approximately $1,075,000 and has recorded this
amount as additional purchase price for the marketing rights under the marketing
agreement entered into with AOL. The value of the Warrant is being amortized on
a consistent basis with the marketing rights associated with the marketing
agreement. AOL also purchased $2,000,000 of common stock at the closing of the
IPO at the price paid by the Underwriters in the IPO.
Additionally, at the time of the IPO each share of the Company's redeemable
convertible preferred stock was converted into shares of the Company's common
stock as specified in the Company's Certificate of Incorporation. Each
outstanding share of Series A, B, C, and D redeemable convertible preferred
stock was converted into 2.00, 2.00, 1.00, and 1.00 shares of common stock,
respectively.
<PAGE> 6
On April 4, 1998, the Company's Board of Directors and stockholders adopted the
1998 Stock Option Plan and reserved an aggregate of 2,000,000 shares of Common
Stock for grants of stock options under such plan. In connection with certain
stock options granted in the three and six months ended June 30, 1998, the
Company recorded deferred compensation for the estimated difference between the
exercise price of the options and the deemed fair value of approximately $1.4
million and $3.8 million respectively which will be amortized over the four year
vesting period of the options.
In May 1998, the Company repaid Internet Commerce Services Corporation (also
know as CyberSource Corporation) $400,000 plus accrued interest for a loan
memorialized in a promissory note issued by the Company to Internet Commerce
Services, which provided for repayment in a lump sum on or before September 18,
1998 and bearing interest at a rate of 5.32% compounded semi-annually.
No provision for income taxes has been recorded due to operating losses with no
current tax benefit.
The Company entered into a credit agreement (the "Credit Agreement") with
Deutsche Bank AG ("Deutsche Bank")in May 1998. Pursuant to the Credit Agreement,
on May 21, 1998, Deutsche Bank issued a standby letter of credit to the Company
in the amount of $600,000 (the "Credit Facility") and loaned the Company an
additional $4,200,000 (the "Loan"). To date the Company has used the funds made
available under these arrangements to: (i) make a down-payment on a lease
entered into by the Company in May of 1998; (ii) meet rental obligations under
that lease; (iii) dispose of liabilities of the Company accrued in the ordinary
course of business; and (iv) support other working capital needs of the Company.
The Loan bears interest at a rate equal to the higher of (i) the daily Federal
Funds Rate plus 0.5% per annum or (ii) Deutsche Bank daily prime lending rate
("Base Rate"), plus 3.0%, per annum (approximately 12% at June 30, 1998).
Interest is payable quarterly, in arrears, during the term of the Credit
Agreement. The Company is also required to pay a standby letter of credit fee
equal to a percentage of the face amount of the Credit Facility equal to the
Base Rate plus 3% less the LIBOR rate for a three-month loan. In conjunction
with the Credit Agreement, the Company is required to pay to Deutsche Bank (i)
an upfront fee of $120,000 and (ii) a credit line fee equal to 7.50% of the
amount by which the Company's gross revenues during the term of the Credit
Agreement exceed certain agreed upon thresholds, subject to maximum payments of
$337,500 in the aggregate. All amounts borrowed under the Credit Agreement are
due on November 16, 1998. The Company is presently in full compliance with the
terms of the Credit Agreement and does not anticipate a change to such status
with respect to such terms. In connection with the Credit Agreement, Deutsche
Bank has received a first priority lien on all of the Company's assets,
including intellectual property. Pursuant to the terms of the Credit Agreement,
the Company is subject to certain financial and non-financial covenants
including limitations on payments of dividends, additional borrowings,
acquisitions and disposition of assets and maintenance of maximum operating cash
flow deficiencies and minimum quick ratios.
The Company entered into a sublease in May 1998 for approximately 75,197
square feet of office space located in Sunnyvale, California (the "Sublease").
The Company intends that this location will serve as the Company's principal
administrative, engineering, marketing and customer service facility. The
Sublease term commenced as of July 1, 1998, and will end sixty-two (62) months
thereafter, unless sooner terminated. Under the terms of the Sublease, the
Company made a security deposit payment of $297,000 cash and issued an
<PAGE> 7
irrevocable letter of credit for $595,000 prior to occupancy and commencement of
the Sublease term. Under the terms of the sublease, the Company is obligated to
make monthly payments of approximately $149,000 increasing to $174,000 over the
term of the Sublease. The Company does not have an option to renew or extend the
term of this Sublease.
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (FAS 128). Pro forma net loss per share
has been computed under FAS 128 and also gives effect to the conversion of
redeemable convertible preferred stock not included in net loss per share that
converted upon completion of the IPO.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted FAS 130 in the three and six months ended March
31, 1998 and June 30, 1998. There was no impact to the Company as a result of
the adoption of FAS 130, as there is no difference between the Company's net
loss reported and the comprehensive net loss under FAS 130 for the periods
presented.
Accounting standard SOP 98-1 was issued in first quarter, 1998, and is effective
in 1999. It requires capitalization of the development costs of software to be
used internally, e.g., for manufacturing or administrative processes. The
Company, which currently expenses such amounts as incurred, expects to adopt the
standard in the first quarter of 1999 for developmental costs incurred in that
quarter and thereafter.
software.net Corporation
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" are forward looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. When used in this report
or elsewhere by management from time to time, the words "believes,"
"anticipates," "intends," plans," estimates," and similar expressions are
forward looking statements. Such forward looking statements contained herein are
based on current expectations and entail various risks and uncertainties that
could cause actual results to differ materially from those expressed in such
forward looking statements. For a more detailed discussion of these and other
business risks, see the Company's final prospectus filed pursuant to Rule 424 of
the Securities Act of 1933, as amended (File No. 333-51121) dated June 17, 1998,
comprising a part of the Company's Registration Statement on Form S-1, as
amended, filed with the Commission.
OVERVIEW
Software.net is a leading online reseller of commercial off-the-shelf computer
software ("Software") to the consumer, small business, and large enterprise
markets. The company operates its own Web site and delivers Software to its
customers over the Internet through electronic software delivery ("ESD") and
through physical delivery in shrink-wrap packages.
Since inception the Company has experienced increasing net losses on an
annual basis. For the foreseeable future, the Company intends to expend
significant financial and management resources on brand development (including
the possible change of its brand name), marketing and promotion, site content
development, strategic relationships (such as those with AOL, Netscape
<PAGE> 8
Communications Corporation ("Netscape"), and Excite, Inc. ("Excite")), and
technology and operating infrastructure, including ESD capabilities. Because the
Company has relatively low gross margins, achieving profitability given planned
investment levels depends upon the Company's ability to generate and sustain
substantially increased levels of net revenue. As a result, the Company expects
to incur additional losses and continued negative cash flow from operations for
the foreseeable future, and such losses are anticipated to increase
significantly from current levels as marketing and promotion costs increase,
including new and increased expenses on greater staff amounts and expenses on
mass media advertising. There can be no assurance that the Company's revenues
will increase or even continue at their current level or that the Company will
achieve or maintain profitability or generate cash from operations in future
periods. The Company's current and future expense levels are to a large extent
fixed at a significant level primarily due to the marketing agreements, and
these levels are based on its operating plans and estimates of future revenues
which depend on anticipated sales resulting from the marketing agreements and
increased advertising and government sales. Sales and operating results
generally depend on the volume and timing of orders received, which are
difficult to forecast. Further, as noted above, the Company expects these costs
to increase above the fixed minimum. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues would have an immediate
adverse effect on the Company's business, financial condition and results of
operations. In view of the rapidly evolving nature of the Company's business and
its limited operating history in the online Software reselling business, the
Company is unable to accurately forecast its revenues and believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside of the Company's control. Factors that may adversely affect the
Company's quarterly operating results include: (i) the Company's ability to
retain existing customers, attract new customers and maintain customer
satisfaction; (ii) the announcement or introduction of new sites, services and
products by the Company and its competitors; (iii) price competition; (iv) the
level of use of the Internet and online services and increasing consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company; (v) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner; (vi) the level of traffic on the
Company's Web site; (vii) the termination of any strategic marketing alliances
such as those with AOL, Excite or Netscape pursuant to which the Company has
exposure to traffic on third party Web sites, or the termination of contracts
with major purchasers, particularly the United States government agencies (the
"U.S. government"); (viii) technical difficulties, system downtime or Internet
brownouts; (ix) the failure of Internet bandwidth to increase significantly over
time and/or an increase in the cost to consumers of exploiting Internet
bandwidth; (x) the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and infrastructure;
(xi) the number of popular Software titles introduced during the period; (xii)
certain government regulations; and (xiii) general economic conditions and
economic conditions specific to the Internet, online commerce and the Software
industry. The Company expects that it may experience seasonality in its
business, reflecting a combination of seasonal fluctuations in Internet usage
and traditional retail, governmental and corporate entity seasonal spending
patterns.
<PAGE> 9
Gross margins may be impacted by a number of different factors, including
the mix of revenues from sales of shrink-wrap products versus revenues from ESD
product sales, the mix of Software products sold, the mix of revenues among
sales to government, corporate and consumer purchasers and the mix of revenues
from strategic partners such as AOL, Excite, Netscape and the Company's Web
site. The Company typically derives higher gross margins from advertising and
promotional revenues than from Software product sales. The Company typically
realizes higher gross margins on ESD Software product sales than on sales of
shrink-wrap Software products and lower gross margins on sales of widely
available commodity Software products than on sales of specialty Software
products. In addition, the Company typically realizes higher gross margins on
sales to consumer purchasers than on sales to government or corporate
purchasers. In addition, the Company also may from time to time offer attractive
pricing programs, which may reduce its gross margins periodically. The Company
believes that the size of new Software products will continue to increase and
that such Software products will not be suitable for ESD in the absence of
significant increases in network bandwidth. This trend may impact the Company's
ability to realize the higher gross margins associated in the ESD Software
product sales in respect of such Software products. Any change in one or more of
the foregoing factors could materially adversely affect the Company's gross
margins and operating results in future periods.
RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 1998
Net Revenues. Net revenues increased from $6.6 million in the six months
ended June 30, 1997 to $13.8 million in the six months ended June 30, 1998,
primarily as a result of increased sales to consumer and corporate customers and
as a result of a new U.S. government contract. Net revenues from ESD Software
sales were $8.1 million in the six months ended June 30, 1998.
Net revenues increased from $3.4 million in the quarter ended June 30, 1997 to
$7.6 million in the same quarter of the current year primarily as a result of
new U.S. government contracts and increased sales to consumer and corporate
customers. Net revenues from ESD Software sales were $4.3 million in the quarter
ended June 30, 1998.
Cost of Revenues. Cost of revenues consists primarily of the costs of
Software and Software licenses sold to consumer and corporate customers and
related credit card processing fees, as well as the costs of Software licenses
and Software updates provided to the U.S. government. Total cost of revenues
increased from $5.7 million in the six months ended June 30, 1997 to $11.7
million in the six months ended June 30, 1998 as a result of increased Software
sales.
Total cost of revenues increased from $2.9 million in the quarter ended June 30,
1997 to $6.4 million in the quarter ended June 30, 1998, as a result of
increased Software sales.
Gross Margin. Gross margin (gross profit as a percentage of net revenues)
increased from 13.9% in the six months ended June 30, 1997 to 15.3% in the six
months ended June 30, 1998. This increase primarily was due to a shift in the
Company's revenue mix, resulting from an increased percentage of higher margin
advertising and promotional revenues received from Software publishers. The
Company may in the future expand or increase the discounts it offers to its
customers and may otherwise alter its pricing structures and policies. Such
actions may have an adverse impact on gross margin in future periods. In
<PAGE> 10
addition, the Company's gross margin in future periods may decline to the extent
that revenues from sales to the U.S. government or sales to large enterprise
customers increase as a percentage of the Company's total net revenues.
Gross margin decreased from 15.8% in the quarter ended June 30, 1997 to 15.4% in
the quarter ended June 30, 1998. This decrease primarily was due to a decreased
percentage of total revenue being derived from higher margin advertising and
promotional revenues received from Software publishers.
Research and Development Expenses. Research and development expenses
primarily consist of personnel and other expenses associated with developing and
enhancing the Company's Web sites, as well as associated facilities-related
expenses. Research and development expenses increased from $339,000 in the six
months ended June 30, 1997 to $1.7 million in the six months ended June 30,
1998. Research and development expenses as a percentage of net revenues
increased from 5.1% in the six months ended June 30, 1997 to 12.5% in the six
months ended June 30, 1998. Research and development expenses increased in
absolute dollars and as a percentage of net revenues primarily due to an
increase in personnel and equipment-related costs.
Research and development expenses increased from $184,000 in the quarter ended
June 30, 1997 to $1.1 million in the quarter ended June 30, 1998. Research and
development expenses as a percentage of net revenues increased from 5.4% in the
quarter ended June 30, 1997 to 14.8% in the quarter ended June 30, 1998.
Research and development expenses increased in absolute dollars and as a
percentage of net revenues primarily due to an increase in personnel and
equipment-related costs. The Company believes that continued investment in
research and development is critical to attaining its strategic objectives and,
as a result, expects research and development expenses to increase significantly
in absolute dollars in future periods.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of personnel and related expenses, promotional expenditures and costs
associated with operating the Company's Web sites. In addition, sales and
marketing expenses include the expenditures associated with the Company's
strategic marketing alliances. Sales and marketing expenses increased from
$597,000 in the six months ended June 30, 1997 to $6.2 million in the six months
ended June 30, 1998. Sales and marketing expenses as a percentage of net
revenues were 9.1% in the six months ended June 30, 1997 and 45.2% in the six
months ended June 30, 1998. Sales and marketing expenses increased in absolute
dollars and as a percentage of net revenues primarily due to costs associated
with the Company's strategic marketing alliances, as well as an increase in
personnel and advertising expenditures.
Sales and marketing expenses increased from $332,000 in the quarter ended June
30, 1997 to $4.3 million in the quarter ended June 30, 1998. Sales and marketing
expenses as a percentage of net revenues were 9.7% in the quarter ended June 30,
1997 and 56.3% in the quarter ended June 30, 1998. Sales and marketing expenses
increased in absolute dollars and as a percentage of net revenues primarily due
to costs associated with the Company's strategic marketing alliances, as well as
an increase in personnel and advertising expenditures. The Company's current
strategic marketing alliances with AOL, Excite and Netscape provide for payments
totaling approximately $26 million over the respective terms of these
agreements. At June 30, 1998 approximately $20 million remained to be paid. The
costs associated with the AOL and Netscape agreements will be expensed ratably
over their respective terms. The costs associated with the Excite agreement will
be expensed as payments become due under the contract terms. The Company may
<PAGE> 11
enter into similar strategic marketing alliances requiring significant minimum
payments in the future and, as a result, may experience substantial increases in
its sales and marketing expenses. In addition, the Company intends to pursue an
aggressive branding and marketing campaign (including the possible change of its
brand name) and therefore expects sales and marketing expenses to increase
significantly in absolute dollars in future periods.
General and Administrative Expenses. General and administrative expenses
primarily consist of personnel expenses, legal expenses, and facilities-related
expenses. General and administrative expenses increased from $410,000 in the six
months ended June 30, 1997 to $1.8 million in the six months ended June 30,
1998. General and administrative expenses as a percentage of net revenues were
6.2% in the quarter ended June 30, 1997 and 13.2% in the quarter ended June 30,
1998. General and administrative expenses increased in absolute dollars and as a
percentage of net revenues primarily due to increased personnel-related costs
and facilities-related expenses associated with the hiring of additional
personnel as well as increased reserves associated with the increase in net
revenues.
General and administrative expenses increased from $247,000 in the quarter ended
June 30, 1997 to $1.2 million in the quarter ended June 30, 1998. General and
administrative expenses as a percentage of net revenues were 7.2% in the quarter
ended June 30, 1997 and 15.5% in the quarter ended June 30, 1998. General and
administrative expenses increased in absolute dollars and as a percentage of net
revenues primarily due to increased personnel-related costs and
facilities-related expenses associated with the hiring of additional personnel
as well as increased reserves associated with the increase in net revenues. The
Company expects general and administrative expenses to increase in absolute
dollars as the Company builds its infrastructure and as a result of the costs
associated with being a public company.
Interest Income (Loss), Net. Interest income (loss), net, consists of
earnings on the Company's cash and cash equivalents, net of interest expense.
Interest income (loss), net, decreased from $72,000 in the six months ended June
30, 1997 to ($142,000) in the six months ended June 30, 1998, primarily as a
result of interest income from higher average cash balances offset by interest
expenses associated with the Company's credit facility.
Interest income (loss), net, decreased from $32,000 in the quarter ended June
30, 1997 to ($167,000) in the quarter ended June 30, 1998, primarily as a result
of interest expenses associated with the Company's credit facility.
Income Taxes. The Company has recorded a net loss for the six months and
quarters ended June 30, 1997 and June 30, 1998. As a result, no provision for
income taxes has been recorded in either of these quarters.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had approximately $47 million of cash and
cash equivalents compared with $2.8 million at December 31, 1997. From inception
through June 22, 1998, the Company has financed its operations primarily through
private sales of Preferred Stock through which the Company raised net cash
proceeds totaling $14.8 million. On June 22, 1998, the Company raised net
proceeds of $47.0 million through an initial public offering ("IPO") of
5,750,000 shares of common stock. In addition, the Company raised an additional
$2 million at the closing of the IPO through the sale of common stock to AOL
pursuant to a Common Stock and Warrants Subscription Agreement entered
<PAGE> 12
into in March 1998 and $4.8 million through a credit facility entered into with
Deutsche Bank, A.G. (the "Deutsche Bank Credit Facility") in May 1998. The
Company's current strategic marketing alliances provide for payments of
approximately $1.4 million in the remainder of 1998, approximately $8.3 million
in 1999, approximately $9.0 million in the year 2000 and approximately $500,000
in the year 2001. Additionally, in conjunction with the Deutsche Bank Credit
Facility the Company is required to pay Deutsche Bank a credit line fee equal to
7.50% of the amount by which the Company's gross revenues during the term of the
Credit Facility exceed certain agreed upon thresholds, subject to maximum
payments of $337,500 in the aggregate. All amounts borrowed under the Credit
Facility are due on November 16, 1998.
The Company currently has no other material commitments other than those
under its operating leases, U.S government contracts, and for certain equipment
leases.
The Company believes that the net proceeds from its IPO, together with its
current cash and cash equivalents, and the funds borrowed under the Credit
Facility in May 1998, will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures through the next eight months.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell additional equity
or debt securities or to obtain additional credit facilities, in part to fund
its financial obligations to AOL and Excite. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all.
Net cash used in operating activities was $1.0 million for the six months
ended June 30, 1998 and $11.3 million for the six months ended June 30, 1998.
Cash used in operating activities for the six months ended June 30, 1998
resulted from a net loss of $7.8 million, an increase in prepaid expenses,
deposits and other assets of $6.3 million, and a decrease in deferred revenue.
These amounts were offset by a decrease in cost of deferred revenue, and
increases in accounts payable and accrued liabilities. The decrease to both
deferred revenue and cost of deferred revenue was due to the recognition of
revenue and cost of revenue associated with U.S. government contracts. The
increase in prepaid expenses primarily was due to a payment of $5.5 million to
AOL as specified in the Company's marketing agreement with said entity.
Net cash used in investing activities for the six months ended June 30,
1998 of $894,000 was attributable to purchases of property and equipment.
Net cash provided by financing activities of $56.7 million for the six
months ended June 30, 1998 primarily
<PAGE> 13
consists of proceeds from the Company's IPO, the credit facility with Deutsche
Bank, A.G., and the sale of the Company's Series D redeemable convertible
preferred stock.
The Company utilizes third-party equipment and software that may not be Year
2000 compliant. The Company is in the early stages of conducting an audit of its
third-party suppliers as to the Year 2000 compliance of their systems. Failure
of the Company's internal computer systems or of such third-party equipment or
software, or of systems maintained by the Company's suppliers, to operate
properly with regard to the Year 2000 and thereafter could require the Company
to incur unanticipated expenses to remedy any problems, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase products
from the Company, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings-Not Applicable.
ITEM 2. Changes in Securities
On June 17, 1998, in connection with the Company's initial
public offering, a Registration Statement on Form S-1 (No. 333-51121)
was declared effective by the Securities and Exchange Commission,
pursuant to which 5,750,000 shares of the Company's Common Stock
(including the underwriters' over-allotment) were offered and sold for
the account of the Company at a price of $9.00 per share, generating
gross offering proceeds of $51.75 million. The managing underwriters
were Deutsche Bank Securities, Inc., Donaldson Lufkin & Jenrette
Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and C.E. Unterberg, Towbin. After deducting approximately
$3.62 million in underwriting discounts and $1.1 million in other
related expenses, the net proceeds of the offering were approximately
$47.0 million. The Company has used $6 million of the net proceeds of
the offering for a payment to America Online, Inc. ("AOL") under the
Company's agreement with AOL. The remaining $41 million has been
invested in investment grade, interest bearing securities. The Company
intends to use such remaining proceeds for capital expenditures, for
payment of its obligations to AOL and Excite pursuant to its
agreements with AOL and Excite, and for general corporate purposes
including working capital to fund anticipated operating losses.
ITEM 3. Defaults Upon Senior Securities-Not Applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders-Not
Applicable.
ITEM 5. Other Information-Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
4.1 Common Stock Warrant issued by Registrant to America
Online, Inc.
10.1 Agreement dated as of June 12, 1998, by and between
the Registrant and the United States Department of
Defense, Defense Logistics Agency (#N00140-98-D-1756).
10.2 Offer Letter from Registrant to Mala Anand, dated as
of June 15, 1998.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended June 30,
1998: -Not Applicable
<PAGE> 14
SIGNATURES
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.
software.net Corporation
(Registrant)
DATE: BY: /s/ Michael J. Praisner
----------------- --------------------------------------
Michael J. Praisner
Vice President and
Chief Financial Officer
DATE: BY: /s/ Mark L. Breier
----------------- --------------------------------------
Mark L. Breier
President and
Chief Executive Officer
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.1 Common Stock Warrant issued by Registrant to America
Online, Inc.
10.1 Agreement dated as of June 12, 1998, by and between
the Registrant and the United States Department of
Defense, Defense Logistics Agency (#N00140-98-D-1756).
10.2 Offer Letter from Registrant to Mala Anand, dated as
of June 15, 1998.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
<PAGE> 1
WARRANT CERTIFICATE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE
SECURITIES LAWS OF ANY JURISDICTION AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS A
REGISTRATION STATEMENT IS IN EFFECT UNDER THE SECURITIES ACT
AND ANY APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH
SECURITIES OR A WRITTEN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY IS PROVIDED TO THE COMPANY TO THE
EFFECT THAT NO REGISTRATIONS ARE REQUIRED UNDER SUCH
SECURITIES LAWS.
Warrant No. 1 358,423 Warrants
(Subject to Adjustment
as Provided Herein)
SOFTWARE.NET CORPORATION
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for value
received AMERICA ONLINE, INC., 22000 AOL Way, Dulles, Virginia 20166, or its
registered assigns (the "Holder") is the owner of the number of warrants
("Warrants") specified above, each of which entitles the Holder thereof to
purchase one fully paid and non-assessable share of Common Stock, no par value
("Common Stock"), of software.net Corporation, a Delaware corporation (fomerly
CyberSource Corporation, a California corporation) (the "Company"), at a
purchase price of $8.37 per share of Common Stock in lawful money of the United
States of America in cash or by certified or cashier's check or a combination of
cash and certified or cashier's check (subject to adjustment as hereinafter
provided).
1. Warrant; Purchase Price. Each Warrant shall entitle the Holder
initially to purchase one share of Common Stock of the Company and the purchase
price payable upon exercise of the Warrants shall initially be $8.37 per share
of Common Stock (the "Purchase Price"). The Purchase Price and number of shares
of Common Stock issuable upon exercise of each Warrant are subject to adjustment
as provided in Article 6. The shares of Common Stock issuable upon exercise of
the Warrants (and/or other shares of Common Stock so issuable by reason of any
adjustments pursuant to Article 6) are sometimes referred to herein as the
"Warrant Shares."
<PAGE> 2
2. Exercise; Expiration Date.
2.1. The Warrants are exercisable, at the option of the Holder, in
whole or in part at any time and from time to time in an amount up to 9,956
Warrants for each full month following March 1, 1998 and ending, in each case,
on the Expiration Date, upon surrender of this Warrant Certificate to the
Company together with a duly completed Notice of Exercise, in the form attached
hereto as Exhibit A, and payment of an amount equal to the Purchase Price times
the number of Warrants to be exercised. In the case of exercise of less than all
the Warrants represented by this Warrant Certificate, the Company shall cancel
the Warrant Certificate upon the surrender thereof and shall execute and deliver
a new Warrant Certificate for the balance of such Warrants. Notwithstanding the
foregoing provisions of this Section 2.1, in the event of a Change of Control
(as hereafter defined), any outstanding Warrants granted hereunder that are not
then exercisable, in accordance with the vesting provisions set forth in this
Section 2.1, shall become immediately exercisable. For purposes of this Section
2.1, a Change of Control shall mean (i) at such time as any person (other than
existing shareholders of the Company) obtains the right to designate a majority
of the members of the Company's Board of Directors or acquires sufficient shares
of the Company's outstanding voting stock to cause the election of a majority of
the seats on the Company's Board of Directors, (ii) the Company merges with
another entity and the Company's stockholders prior to the merger do not retain
control of the combined entity, or (iii) the Company sells substantially all of
its assets or capital stock.
2.2. The term "Expiration Date" shall mean 5:00 p.m. California time
on March 1, 2005 or if such day shall in the State of California be a holiday or
a day on which banks are authorized to close, then 5:00 p.m. California time the
next following day which in the State of California is not a holiday or a day on
which banks are authorized to close.
3. Registration and Transfer on Company Books.
3.1. The Company shall maintain books for the registration and
transfer of the Warrants and the registration and transfer of the Warrant
Shares.
3.2. Prior to due presentment for registration of transfer of this
Warrant Certificate, or the Warrant Shares, the Company may deem and treat the
registered Holder as the absolute owner thereof.
4. Reservation of Shares. The Company covenants that it will at all times
reserve and keep available out of its authorized capital stock, solely for the
purpose of issue upon exercise of the Warrants, such number of shares of capital
stock as shall then be issuable upon the exercise or exchange of all outstanding
Warrants and upon conversion of shares issuable upon exercise of such Warrants.
The Company covenants that all shares of capital stock which shall be issuable
upon exercise of the Warrants shall be duly and validly issued and fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issue thereof, and that upon issuance such shares shall be listed on each
national securities exchange, if any, or the Nasdaq National Market on which the
other shares of such outstanding capital stock of the Company are then listed or
traded.
-2-
<PAGE> 3
5. Loss or Mutilation. Upon receipt by the Company of reasonable evidence
of the ownership of and the loss, theft, destruction or mutilation of any
Warrant Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company (provided that if Holder is an
institutional investor or a nominee of an institutional investor, such
institutional investor's own unsecured agreement of indemnity shall be deemed to
be satisfactory for such purpose), or, in the case of mutilation, upon surrender
and cancellation of the mutilated Warrant Certificate, the Company shall execute
and deliver in lieu thereof a new Warrant Certificate representing an equal
number of Warrants.
6. Adjustment of Purchase Price and Number of Shares Deliverable.
6.1. The number of Warrant Shares purchasable upon the exercise of
each Warrant and the Purchase Price with respect to the Warrant Shares shall be
subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital stock, (ii)
subdivide its outstanding shares of Common Stock through stock split or
otherwise, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue by reclassification of its
Common Stock (including any reclassification in connection with a consolidation
or merger in which the Company is the continuing corporation) other securities
of the Company, the number and/or nature of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so that the
Holder shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which it would have owned or have been entitled
to receive after the happening of any of the events described above, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this paragraph
(a) shall become effective retroactively as of the record date of such event.
(b) In case the Company shall issue rights, options or warrants
or securities convertible into or exercisable or exchangeable directly or
indirectly into Common Stock to all holders of its shares of Common Stock ,
entitling them to subscribe for or purchase shares of Common Stock at a price
per share which (together with the value of the consideration, if any, payable
for such rights, options, warrants or convertible securities) is lower on the
record date referred to below than the then Market Price Per Share of such
Common Stock (as determined pursuant to Section 9.2) the number of Warrant
Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares immediately theretofore
purchasable upon exercise of each Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding on such record date
plus the number of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the then Market Price Per Share of such Common Stock.
Such adjustment shall be made whenever such rights, options, warrants or
convertible securities are issued, and shall become effective retroactively as
of the record date for
-3-
<PAGE> 4
the determination of shareholders entitled to receive such rights, options,
warrants or convertible securities. In the case such subscription price may be
paid in consideration, part of which or all which is in a form other than cash,
the value of such consideration shall be determined in good faith by the Board
of Directors of the Company.
(c) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise become
entitled to receive, shares of capital stock of the Company (other than
dividends or distributions on its Common Stock referred to in paragraph (a)
above), evidences of its indebtedness or rights, options, warrants or
convertible securities providing the right to subscribe for or purchase any
shares of the Company's capital stock or evidences of its indebtedness (other
than any rights, options, warrants or convertible securities referred to in
paragraph (b) above), then in each case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the exercise of each
Warrant, by a fraction, of which the numerator shall be the then Market Price
Per Share of the Warrant Shares (as determined pursuant to Section 9.2) on the
record date mentioned below in this paragraph (c), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such record
date, less the then fair value (as determined by the Board of Directors of the
Company, in good faith) of the portion of the shares of the Company's capital
stock other than Common Stock, evidences of indebtedness, or of such rights,
options, warrants or convertible securities, distributable with respect to each
Warrant Share. Such adjustment shall be made whenever any such distribution is
made, and shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
(d) In the event of any capital reorganization or any
reclassification of the capital stock of the Company or in case of the
consolidation or merger of the Company with another corporation (other than a
consolidation or merger in which the outstanding shares of the Company's Common
Stock are not converted into or exchanged for other rights or interests), or in
the case of any sale, transfer or other disposition to another corporation of
all or substantially all the properties and assets of the Company, the Holder of
each Warrant shall thereafter be entitled to purchase (and it shall be a
condition to the consummation of any such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition that appropriate
provisions shall be made so that such Holder shall thereafter be entitled to
purchase) the kind and amount of shares of stock and other securities and
property (including cash) which the Holder would have been entitled to receive
had such Warrants been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition; and in any such case appropriate adjustments shall be made in the
application of the provisions of this Article 6 with respect to rights and
interest thereafter of the Holder of the Warrants to the end that the provisions
of this Article 6 shall thereafter be applicable, as near as reasonably may be,
in relation to any shares or other property thereafter purchasable upon the
exercise of the Warrants. The provisions of this Section 6.1(d) shall similarly
apply to successive reorganizations, reclassifications, consolidations, mergers,
sales, transfers or other dispositions.
-4-
<PAGE> 5
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1, the
Purchase Price with respect to the Warrant Shares shall be accordingly adjusted
in order to reflect the number of Warrant Shares then and thereafter issuable.
6.2. In the event the Company shall declare a dividend, or make a
distribution to the holders of its Series D Preferred generally, whether in
cash, property or assets of any kind, including any dividend payable in stock or
securities of any other issuer owned by the Company (excluding any dividend or
distribution referred to in Section 6.1(a) or (c) above), the Purchase Price of
each Warrant shall be reduced, without any further action by the parties hereto,
by the Per Share Value (as hereinafter defined) of the dividend. For purposes of
this Section 6.2, the "Per Share Value" of a cash dividend or other distribution
shall be the dollar amount of the distribution on each share of Series D
Preferred and the "Per Share Value" of any dividend or distribution other than
cash shall be equal to the fair market value of such non-cash distribution on
each share of Series D Preferred as determined in good faith by the Board of
Directors of the Company.
6.3. No adjustment in the number of Warrant Shares purchasable under
the Warrants, or in the Purchase Price with respect to the Warrant Shares, shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the number of Warrant Shares issuable upon the exercise of such
Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.3 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest share or the nearest
cent, as the case may be. Anything in this Section 6 to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make such changes in the number of Warrant Shares purchasable upon the exercise
of each Warrant, or in the Purchase Price thereof, in addition to those required
by such Section, as it in its discretion shall determine to be advisable in
order that any dividend or distribution in shares of Common Stock, subdivision,
reclassification or combination of shares of Common Stock, issuance of rights,
warrants or options to purchase Common Stock, or distribution of shares of stock
other than Common Stock, evidences of indebtedness or assets (other than
distributions of cash out of retained earnings) or convertible or exchangeable
securities hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
6.4. Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Purchase Price of such
Warrant Shares after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
-5-
<PAGE> 6
6.5. In the event that at any time prior to the expiration of the
Warrants and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with respect to
the Common Stock); or
(b) the Company shall offer for subscription to the holders of
the Common Stock (as a class) any additional shares of stock of any class or any
other securities convertible into Common Stock or any rights to subscribe
thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the Common
Stock, regardless of the effect of any such event on the outstanding number of
shares of Common Stock; or
(d) the Company shall declare a dividend, other than a dividend
payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(d); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection with a
consolidation, merger, or sale of all or substantially all of its property,
assets and business as an entity); (each such event hereinafter being referred
to as a "Notification Event"); or
the Company shall cause to be mailed to the Holder, not less than 20 days prior
to the record date, if any, in connection with such Notification Event
(provided, however, that if there is no record date, or if 20 days prior notice
is impracticable, as soon as practicable) written notice specifying the nature
of such event and the effective date of, or the date on which the books of the
Company shall close or a record shall be taken with respect to, such event. Such
notice shall also set forth facts indicating the effect of such action (to the
extent such effect may be known at the date of such notice) on the Purchase
Price and the kind and amount of the shares of stock or other securities or
property deliverable upon exercise of the Warrants.
6.6. The form of Warrant Certificate need not be changed because of
any change in the Purchase Price, the number of Warrant Shares issuable upon the
exercise of a Warrant or the number of Warrants outstanding pursuant to this
Section 6, and Warrant Certificates issued before or after such change may state
the same Purchase Price, the same number of Warrants, and the same number of
Warrant Shares issuable upon exercise of Warrants as are stated in the Warrant
Certificates theretofore issued pursuant to this Agreement. The Company may,
however, at any time, in its sole discretion, make any change in the form of
Warrant Certificate that it may deem appropriate and that does not affect the
substance thereof, and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
-6-
<PAGE> 7
7. Conversion Rights.
7.1. In lieu of exercising of any portion of the Warrants as provided
in Section 2.1 hereof, the Warrants represented by this Warrant Certificate (or
any portion thereof) may, at the election of the Holder, be converted into the
nearest whole number of shares of Common Stock equal to: (1) the product of (a)
the number of shares of Common Stock then issuable upon the exercise of each
Warrant multiplied by (b) the excess, if any, of (i) the Market Price Per Share
(as determined pursuant to Section 9.2) with respect to the date of conversion
over (ii) the Purchase Price in effect on the business day next preceding the
date of conversion, divided by (2) the Market Price Per Share with respect to
the date of conversion.
7.2. The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding, provided that they are at the time currently
exercisable. In order to exercise the conversion privilege, the Holder shall
surrender to the Company, at its offices, this Warrant Certificate accompanied
by a duly completed Notice of Conversion in the form attached hereto as Exhibit
B. The Warrants (or so much thereof as shall have been surrendered for
conversion) shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Warrant Certificate for
conversion in accordance with the foregoing provisions. As promptly as
practicable on or after the conversion date, the Company shall issue and shall
deliver to the Holder (i) a certificate or certificates representing the number
of shares of Common Stock to which the Holder shall be entitled as a result of
the conversion, and (ii) if the Warrant Certificate is being converted in part
only, a new certificate of like tenor and date for the balance of the
unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company. The Company may, at its option,
at any time during the term of the Warrants, reduce the then current Purchase
Price to any amount deemed appropriate by the Board of Directors of the Company
and/or extend the date of the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of Market Price Per
Share.
9.1. Anything contained herein to the contrary notwithstanding, the
Company shall not be required to issue any fraction of a share of Common Stock
in connection with the exercise of Warrants. Warrants may not be exercised in
such number as would result (except for the provisions of this paragraph) in the
issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
9.2. As used herein, the "Market Price Per Share" with respect to any
class or series of Common Stock on any date shall mean the average closing price
per share of the Company's Common Stock for the five trading days immediately
preceding such date. The
-7-
<PAGE> 8
closing price for each such day shall be the last sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the principal securities exchange on
which the shares of such Common Stock of the Company are listed or admitted to
trading or, if applicable, the last sale price, or in case no sale takes place
on such day, the average of the closing bid and asked prices of such Common
Stock on Nasdaq National Market or any comparable system, or if such Common
Stock is not reported on Nasdaq National Market or a comparable system, the
average of the closing bid and asked prices as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If such bid and asked prices are not available,
then "Market Price Per Share" shall be equal to the fair market value of such
Common Stock as determined in good faith by the Board of Directors of the
Company.
10. Registration and Information Rights. The Holder shall be entitled to
the registration rights, the special covenants of the Company relating to
certain rights to information, and other covenants contained in that certain
Registration Rights Agreement dated as of March 18, 1998, between the Holder and
the Company and Common Stock and Warrant Subscription Agreement dated as of
March 18, 1998, between the Holder and the Company (the "Subscription
Agreement").
11. Transferability of Warrant. THIS WARRANT CERTIFICATE AND/OR THE
WARRANTS MAY ONLY BE TRANSFERRED UPON COMPLIANCE WITH THE TERMS OF THE
SUBSCRIPTION AGREEMENT.
12. Amendments.
12.1. Any term of this Warrant Certificate may be amended and the
observance of any term of the Warrant Certificate may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder.
12.2. No waivers of, or exceptions to, any term, condition or
provision of this Warrant Certificate, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
13. Governing Law. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of California.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its officers thereunto duly authorized and its corporate seal
to be affixed hereon, as of this 17 day of June, 1998
SOFTWARE.NET CORPORATION, a
Delaware corporation.
By: /s/ Mark L. Breier
-----------------------------
Name: Mark L. Brier
Title: President and Chief Executive Officer
-9-
<PAGE> 10
EXHIBIT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise, pursuant to Section
2 of the Warrant Certificate accompanying this Notice of Exercise, _______
Warrants of the total number of Warrants owned by the undersigned pursuant to
the accompanying Warrant Certificate, and herewith makes payment of the Purchase
Price of such shares in full.
By:
-------------------------------------
Name:
-----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
-10-
<PAGE> 11
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7
of the Warrant Certificate accompanying this Notice of Conversion, _________
Warrants of the total number of Warrants owned by the undersigned pursuant to
the accompanying Warrant Certificate into shares of the Common Stock of the
Company (the "Shares"). The number of Shares to be received by the undersigned
shall be calculated in accordance with the provisions of Section 7.1 of the
accompanying Warrant Certificate.
By:
-------------------------------------
Name:
-----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
-11-
<PAGE> 1
EXHIBIT 10.1
<TABLE>
<CAPTION>
ORDER FOR SUPPLIES OR SERVICES OMB No. 0704-0187
(Contractor must submit four copies of invoice) Expires June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Public reporting burden for this collection of information is estimated to average 1 hour per response. Including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing
the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information
including suggestions for reducing this burden to Department of Defense, Washington Headquarters Services, Directorate for
Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-1302 and to the Offices of
Management and Budget, Paperwork Reduction Project (0704-0187), Washington, DC 20503.
PLEASE DO NOT RETURN YOUR FORM TO EITHER OF THESE ADDRESSES.
SEND YOUR COMPLETED FORM TO THE PROCUREMENT OFFICIAL IDENTIFIED IN ITEM 6.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. CONTRACT/PURCH ORDER NO. 2. DELIVERY ORDER NO 3. DATE OF ORDER 4. REQUISITION PURCH REQUEST NO. 5. PRIORITY
N00140-98-D-1756 0002 (YYMMDD) SEE PAGE 2
12 JUN 1998
- ------------------------------------------------------------------------------------------------------------------------------------
6. ISSUED BY CODE NOO140 7. ADMINISTERED BY (If other than Item 6) CODE SO5OTA 8. DELIVERY FOR
FLEET & INDUSTRIAL SUPPLY DCMAO SAN FRANCISCO [X] DEST
CENTER NORFOLK 1265 BORREGAS AVENUE [ ] OTHER
PHILADELPHIA DETACHMENT SUNNYVALE, CA 94089
700 ROBBINS AVENUE BLDG 2B 408-541-7099 (See Schedule
PHILADELPHIA, PA 19111-5083 if other)
Eileen Flanigan Code 02P22B 215-697-9636
- ------------------------------------------------------------------------------------------------------------------------------------
9. CONTRACTOR CODE FACILITY CODE 10. DELIVER TO FOB POINT BY (Date) 11. MARK IF
NAME AND ADDRESS (YYMMDD) BUSINESS IS
CYBERSOURCE CORPORATION 12 JUN 98-11 NOV 98 [ ] SMALL
550 S WINCHESTER BLVD. ---------------------------------- [ ] SMALL
STE. 301 12. DISCOUNT TERMS DISAD-
SAN JOSE, CA 95128 NONE VANTAGED
---------------------------------- [ ] WOMEN-
13. MAIL INVOICES TO OWNED
SEE BLOCK 14
- ------------------------------------------------------------------------------------------------------------------------------------
14. SHIPS TO CODE 15. PAYMENT WILL BE MADE BY CODE MARK ALL
DEFENSE LOGISTICS AGENCY DFAS-COLUMBUS CENTER PACKAGES AND
MR. DAN ISLEY DFAS-CO-JWV-VAN NUYS DIVISION PAPERS WITH
8725 JOHN J KINGMAN ROAD, STE. 2533, PO BOX 18215 CONTRACT OR
RM. 3631 COLUMBUS, OH 43218-2157
FT BELVOIR, VA 22060-6221
- ------------------------------------------------------------------------------------------------------------------------------------
16. DELIVERY [X] This delivery order is issued on another Government agency or in accordance with and subject to terms and
TYPE conditions of above numbered contract.
OF ---------------------------------------------------------------------------------------------------------------------------
ORDER PURCHASE [ ] Reference your furnish the following on terms specified herein.
---------------------------------------------------------------------------------------------------------
ACCEPTANCE. THE CONTRACTOR HEREBY ACCEPTS THE OFFER REPRESENTED BY THE NUMBERED PURCHASE ORDER AS IT
MAY PREVIOUSLY HAVE BEEN OR IS NOW MODIFIED, SUBJECT TO ALL THE TERMS AND CONDITIONS SET FORTH, AND
AGREES TO PERFORM THE SAME.
- -------------------------------------- -------------------------------------- -------------------------------------- -----------
NAME OF CONTRACTOR SIGNATURE TYPED NAME AND TITLE DATE SIGNED
(YYMMDD)
[ ] If this box is marked, supplier must sign Acceptance and return the following number of copies:
- ------------------------------------------------------------------------------------------------------------------------------------
17. ACCOUNTING AND APPROPRIATION DATA/LOCAL USE
SEE PAGE 2
- ------------------------------------------------------------------------------------------------------------------------------------
18. ITEM NO. 19. SCHEDULE OF SUPPLIES/SERVICES 20. QUANTITY 21. UNIT 22. UNIT PRICE 23. AMOUNT
ORDERED/
ACCEPTED*
- ------------------------------------------------------------------------------------------------------------------------------------
SEE SCHEDULE
- ------------------------------------------------------------------------------------------------------------------------------------
*If quantity accepted by the Government is 24. UNITED STATES OF AMERICA 25. TOTAL $4,489,879.68
same as quantity ordered, indicate by X. /s/ D.P. DAMANSKIS ----------------------------------
If different, enter actual quantity accepted ---------------------------- 29.
below quantity ordered and encircle. BY: D.P. DAMANSKIS DIFFERENCES ----------------
CONTRACTING/ORDERING OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
26. QUANTITY IN COLUMN 20 HAS BEEN 27. SHIP NO 28. DO VOUCHER NO. 30. INITIALS
[ ] INSPECTED [ ] RECEIVED [ ] ACCEPTED, AND CONFORMS ----------------
TO THE CONTRACT EXCEPT -----------
AS NOTED [ ] PARTIAL ------------------ ----------------------------------
[ ] FINAL 32. PAID BY 33. AMOUNT VERIFIED CORRECT FOR
------------- --------------------------------------
DATE SIGNATURE OF AUTHORIZED GOVERNMENT ----------------------------------
REPRESENTATIVE 34. CHECK NUMBER
- ------------------------------------------------------------------------
36. I certify this account is correct and proper 31. PAYMENT ----------------------------------
for payment. 35. BILL OF LADING NO
[ ] COMPLETE
------------- -------------------------------------- [ ] PARTIAL
DATE SIGNATURE AND TITLE OF [ ] FINAL
CERTIFYING OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
37. RECEIVED AT 38. RECEIVED BY 39. DATE RECEIVED 40. TOTAL CONTAINERS 41. S/R ACCOUNT 42. S/R VOUCHER NO
(Print) (YYMMDD) NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
DD Form 1155, JUN 94 PREVIOUS EDITION MAY BE USED
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
N00140-97-D-1756/0002 Page 2
CLIN DESCRIPTION QTY U/I U/P AMOUNT
0003 SOFTWARE SERVICES 1 LO XXX XXX
IN SUPPORT OF THE
PRODUCTS LISTED IN
SECTION C FOR THE PERIOD
FROM 12 JUNE 1998
THROUGH 11 JUNE 1999.
0003AA SOFTWARE SERVICES 57408 EA $78.21 $4,489,879.68
IN SUPPORT OF THE
PRODUCTS LISTED IN
SECTION C FOR THE PERIOD
FROM 12 JUNE 1998
THROUGH 11 NOVEMBER 1998.
</TABLE>
Accounting and Appropriation Data
MIPR AQ8H2A2MPA512A AND B
AA 97X4930 5CAO 009 816.12 31.47 AQAC H2A2 AQ8H2A2MPA512A FDI:B S 033181
$1,819,948.80
AB 97X4930 5CAO 009 816.51 31.47 AQAC H2A2 AQ8H2A2MPA512B FDI:B S 033181
$2,670,792.00
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE OF PAGES
1 1
2. AMENDMENT/MODIFICATION NO. 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQ. NO. 5. PROJECT NO. (if applicable)
P00004 12 JUN 1998 N/A
4. ISSUED BY CODE N00140 7. ADMINISTERED BY (if other than Item 6) CODE 50507A
FLEET & INDUSTRIAL SUPPLY CENTER NORFOLK DCMAO Orlando
PHILADELPHIA DETACHMENT 3665 Maguire Blvd.
700 ROBBINS AVENUE BLDG. 2B Orlando, CA 32803-3728
PHILADELPHIA, PA 19111-5083
Eileen Flanigan Code 02P22B 215-697-9636
8. NAME AND ADDRESS OF CONTRACTOR (X) 9A. AMENDMENT OF SOLICITATION NO.
(No., street, county, State and ZIP Code)
9B. DATED (SEE ITEM 11)
Cybersource Corporation
3051 Tisch Way 10A. MODIFICATION OF CONTRACT/ORDER NO.
Ste. 900 N00140-97-D-1756
San Jose, CA 95128
X 10B. DATED (SEE ITEM 13)
CODE FACILITY CODE 12 Jun 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[ ] The above numbered solicitation is amended as set forth in Item 14. The hour and place specified for receipt of Offers
[ ] is extended. [ ] is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended,
by one of the following methods:
(a) By completing Items 8 and 13, and returning _____ copies of the amendment; (b) By acknowledging receipt of this amendment on
each copy of the offer submitted; of (c) By separate letter of telegram which includes a reference to the solicitation and
amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE
HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already
submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and
this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required)
No change
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority)
THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
X B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES
(such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14.
PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor [X] is not [ ] is required to sign this document and return ___ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where
feasible.)
See Page 2.
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains
unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print) 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or Print)
D. P. DAMANSKIS/Contracting Officer
15B. CONTRACT/OFFEROR 15C. DATE SIGNED 16B. UNITED STATES OF AMERICA 16C. DATE SIGNED
/s/ D. P. Damanskis 6/12/98
--------------------------- ----------------------------------
(Signature of person authorized to sign) (Signature of Contracting Officer)
</TABLE>
<PAGE> 4
N00140-97-D1756 Page 2
P00004
A. Option I, CLIN 0003 is revised as follows for ADMINISTRATIVE AND PAYMENT
PURPOSES ONLY:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLIN DESCRIPTION QTY U/I U/P AMOUNT
0003 SOFTWARE SERVICES 1 LO XXX XXX
IN SUPPORT OF THE
PRODUCTS LISTED IN
SECTION C FOR THE PERIOD
FROM 12 JUNE 1998
THROUGH 11 JUNE 1999.
0003AA SOFTWARE SERVICES 57408 EA $78.21 $489,879.68
IN SUPPORT OF THE
PRODUCTS LISTED IN
SECTION C FOR THE PERIOD
FROM 12 JUNE 1998
THROUGH 11 NOVEMBER 1998.
0003AB SOFTWARE SERVICES 57408 EA $78.24 $4,491,601.92
IN SUPPORT OF THE
PRODUCTS LISTED IN
SECTION C FOR THE PERIOD
FROM 12 NOVEMBER 1998
THROUGH 11 JUNE 1998.
</TABLE>
B. All other terms and conditions remain unchanged.
C. Any questions regarding this document should be directed to Ms. Eileen
Flanigan at 215-697-9636.
<PAGE> 1
EXHIBIT 10.2
[LOGO]
6/15/98
501 Forest Avenue #701
Palo Alto, CA 94301
Ms. Mala Anand
Dear Ms. Anand,
I am very pleased to offer you the position of software.net's Vice President of
Engineering. As Vice President of Engineering, you will report directly to Mark
Breier in his capacity as software.net's CEO.
Your salary will be $185,000 annually, and will generally be reviewed on an
annual basis. In addition, during your employment, you will be eligible for all
benefits made available to other similarly situated employees of the company
from time to time. These benefits may be added to or deleted from the benefits
package offered by the company at any time at the discretion of the Board of
Directors of the company.
When you commence your employment with the company, the company intends to
grant you a stock option to purchase 180,000 shares of the company's common
stock. One quarter (1/4) of the option shares (45,000) will become exercisable
after you have completed one full year of employment with the company, and,
thereafter one forty-eighth (1/48) of the option shares (3750.00) will become
exercisable following each month you remain employed by the company. The grant
of the stock options will be subject to the other terms and provisions of the
company's stock option plan and stock option agreement and the satisfaction of
all federal and state securities laws.
In addition, you will be eligible for two (2) bonus payouts, which will be paid
to you according to the following schedule. The first bonus payout will be
$15,000 after 6 months of employment, and the second bonus payout will be
$15,000 after 12 months of employment.
At all times your employment will be "at will". Under California law this means
that it is not for a specified period of time and at any time either you or the
company can terminate the employment, with or without cause, by giving notice
to the other party.
- --------------------------------------------------------------------------------
3031 Tisch Way o Suite 900 o San Jose, CA 95128
408.556.9300 o Fax 408.241.8258 o www.software.net
<PAGE> 2
Mala, we look forward to having you join the team and believe you have the
ability to make a significant contribution to our success. If you are in
agreement with the terms of this offer, please sign below and return it to me
on or before June 16, 1998.
Sincerely,
/s/ KASHIF SHAN
Kashif Shan
Sr. Human Resources Representative
Agreed:
/s/ MALA ANAND
- -------------------------------------
Mala Anand
Start Date:
7/6/98
- -------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SOFTWARE.NET CORPORATION FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 47,045
<SECURITIES> 0
<RECEIVABLES> 2,406
<ALLOWANCES> 500
<INVENTORY> 0
<CURRENT-ASSETS> 54,740
<PP&E> 1,372
<DEPRECIATION> 217
<TOTAL-ASSETS> 58,013
<CURRENT-LIABILITIES> 10,856
<BONDS> 0
0
0
<COMMON> 69,502
<OTHER-SE> (22,378)
<TOTAL-LIABILITY-AND-EQUITY> 58,013
<SALES> 13,769
<TOTAL-REVENUES> 13,769
<CGS> 11,662
<TOTAL-COSTS> 11,662
<OTHER-EXPENSES> 9,756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256
<INCOME-PRETAX> (7,791)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,791)
<DISCONTINUED> 0
<EXTRAORDINARY> (51)
<CHANGES> 0
<NET-INCOME> (7,791)
<EPS-PRIMARY> (.75)
<EPS-DILUTED> (.75)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
THE SOFTWARE.NET CORPORATION FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,677
<SECURITIES> 0
<RECEIVABLES> 1,229
<ALLOWANCES> 65
<INVENTORY> 0
<CURRENT-ASSETS> 3,591
<PP&E> 193
<DEPRECIATION> 59
<TOTAL-ASSETS> 4,472
<CURRENT-LIABILITIES> 1,784
<BONDS> 0
0
6,395
<COMMON> 45
<OTHER-SE> (3,850)
<TOTAL-LIABILITY-AND-EQUITY> 4,472
<SALES> 6,592
<TOTAL-REVENUES> 6,592
<CGS> 5,675
<TOTAL-COSTS> 5,675
<OTHER-EXPENSES> 1,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (357)
<DISCONTINUED> (1,038)
<EXTRAORDINARY> (51)
<CHANGES> 0
<NET-INCOME> (1,395)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
