<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-29495
-------
WORLD COMMERCE ONLINE, INC.
---------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-2205697
-------- ----------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(407) 240-8999
--------------
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [ ] NO [X]*
* THE REGISTRANT BECAME SUBJECT TO THE REPORTING REQUIREMENTS OF THE SECURITIES
EXCHANGE ACT OF 1934 ON APRIL 14, 2000 AND HAS FILED ALL REPORTS REQUIRED TO BE
FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SINCE THEN.
NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK, PAR VALUE $.01 PER
SHARE, AS OF MAY 12, 2000: 15,445,537 SHARES.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS 16 PAGES, OF WHICH THIS IS PAGE 1.
<PAGE> 2
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS, AS OF MARCH 31, 2000
(UNAUDITED) AND DECEMBER 31, 1999
PAGE 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
1999, AND FOR THE PERIOD MARCH 30, 1994 (DATE OF
INCEPTION) THROUGH MARCH 31, 2000 (UNAUDITED) PAGE 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
1999, AND FOR THE PERIOD MARCH 30, 1994 (DATE OF
INCEPTION) THROUGH MARCH 31, 2000 (UNAUDITED) PAGE 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) PAGE 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS PAGE 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK PAGE 13
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS PAGE 13
NONE
ITEM 2. CHANGES IN SECURITIES PAGE 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES PAGE 13
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PAGE 13
NONE
ITEM 5. OTHER INFORMATION PAGE 13
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE 14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,931,277 $ 10,553,021
Prepaid expenses and other current assets 821,913 232,754
Receivable from investors 100,000 3,785,000
------------ ------------
Total current assets 10,853,190 14,570,775
Property and equipment, net 7,007,561 6,477,743
Intangible assets, net 1,515,876 1,596,260
Other assets 24,238 24,238
------------ ------------
Total assets $ 19,400,865 $ 22,669,016
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 2,630,715 $ 1,855,185
Accrued compensation and benefits 146,191 372,075
Capital lease obligation, current 169,167 71,611
------------ ------------
Total current liabilities 2,946,073 2,298,871
Long-term liabilities:
Capital lease obligation 478,036 91,927
Redeemable convertible preferred stock:
Preferred stock Series A, $0.001 par value;
authorized 4,250,000 shares, issued and
outstanding 4,250,000 and 4,000,000 shares
at March 31, 2000 and December 31, 1999,
respectively, stated at liquidation value,
net of related costs 8,478,211 7,978,211
Preferred stock Series B, $0.001, par value;
authorized 5,110,000 shares, issued and
outstanding 5,000,000 shares at March 31,
2000 and December 31, 1999, stated at
liquidation value, net of related costs 19,620,772 19,620,772
------------ ------------
Total redeemable convertible preferred stock 28,098,983 27,598,983
Stockholders' deficit:
Common stock, $0.001 par value; authorized
90,000,000 shares, issued and outstanding
15,445,357 and 15,435,357 shares at
March 31, 2000 and December 31, 1999, respectively 15,445 15,435
Additional paid-in capital 46,898,109 43,175,872
Deferred stock-based compensation (4,861,948) (4,863,980)
Accumulated deficit (54,188,478) (45,602,372)
Accumulated comprehensive income (loss) 14,645 (45,720)
------------ ------------
Total stockholders' deficit (12,122,227) (7,320,765)
------------ ------------
Total liabilities and stockholders' deficit $ 19,400,865 $ 22,669,016
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
PERIOD
MARCH 30,
1994 (DATE OF
THREE MONTHS ENDED INCEPTION
MARCH 31, THROUGH
------------------------------- MARCH 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Advertising revenue $ 2,099 $ -- $ 16,244
Subscription revenue 7,025 -- 14,934
Transaction revenue 42,007 -- 63,083
Floral product revenue -- -- 350,130
Other revenue -- -- 40,273
Service revenues from related parties -- -- 342,396
------------ ------------ ------------
Total revenues 51,131 -- 827,060
------------ ------------ ------------
Costs and operating expenses:
Cost of floral product -- -- 308,749
Product and technology development 2,628,558 91,394 6,051,042
Sales and marketing 3,499,010 189,431 9,547,136
General and administrative 1,450,432 379,277 9,383,389
Depreciation and amortization 615,335 4,681 1,047,620
------------ ------------ ------------
Total costs and operating expenses 8,193,335 664,783 26,337,936
------------ ------------ ------------
Loss from operations (8,142,204) (664,783) (25,510,876)
Net interest income (expense) 118,015 (21,466) (59,098)
Other non-operating expense (61,917) -- (118,504)
------------ ------------ ------------
Net loss $ (8,086,106) $ (686,249) $(25,688,478)
Deemed dividend on redeemable convertible preferred stock (500,000) --
------------ ------------
Net loss available to common stockholders $ (8,586,106) $ (686,249)
============ ============
Basic and diluted net loss per common share $ (0.56) $ (0.05)
============ ============
Weighted average number of shares used in computing
basic and diluted net loss per common share 15,437,115 15,114,778
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30,1994
(DATE OF
INCEPTION)
THREE MONTHS THROUGH
ENDED MARCH 31, MARCH 31,
2000 1999 2000
------------ --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,086,106) $(686,249) $(25,688,478)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 660,585 4,681 1,136,642
Provision for doubtful accounts -- -- 40,322
Stock-based compensation 680,649 -- 2,781,075
Loss on retirement of property & equipment 3,322 -- 33,431
Loss on foreign currency translation 58,544 -- 88,615
Professional fees paid through the issuance
of common stock and warrants 2,343,630 97,430 6,571,766
Interest paid through the issuance of warrants -- -- 151,800
Change in operating assets & liabilities:
Accounts receivable -- -- (40,322)
Prepaid expenses & other current assets (127,628) (38,115) (360,382)
Other assets -- -- (24,238)
Accounts payable and accrued liabilities 975,530 32,091 2,739,304
Accrued compensation and benefits (225,884) (9,229) 146,191
------------ --------- ------------
Net cash used in operating activities (3,717,358) (599,391) (12,424,274)
------------ --------- ------------
Cash flows from investing activities:
Purchase of property and equipment and
software development (1,052,976) (47,422) (6,801,690)
------------ --------- ------------
Net cash used in investing activities (1,052,976) (47,422) (6,801,690)
------------ --------- ------------
Cash flows from financing activities:
Issuance of common stock -- 195,000 1,127,500
Issuance of redeemable convertible
preferred stock, net of related expenses 4,185,000 500,000 25,632,983
Purchase of treasury stock -- -- (20,000)
Proceeds from shareholder loans -- -- 132,693
Proceeds from other debt -- -- 2,445,545
Payments on shareholder loans -- -- (69,293)
Payments on capital leases (36,410) (6,055) (92,187)
------------ --------- ------------
Net cash provided by financing activities 4,148,590 688,945 29,157,241
------------ --------- ------------
Net change in cash (621,744) 42,132 9,931,277
Cash and cash equivalents, beginning of period 10,553,021 42,335 --
------------ --------- ------------
Cash and cash equivalents, end of period $ 9,931,277 $ 84,467 $ 9,931,277
============ ========= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30,
1994 (DATE
THREE MONTHS ENDED OF INCEPTION)
MARCH 31, THROUGH
----------------------------- MARCH 31,
2000 1999 2000
------------- ------------- --------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Non-cash investing and financing:
Equipment acquired through capital leases $ 520,075 $ -- $ 739,390
========== =============== ==========
Common stock and warrants issued in exchange
for professional services $2,343,630 $ 125,000 $7,167,241
========== =============== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL:
World Commerce Online, Inc. and its consolidated subsidiaries (the
"Company") is a provider of business-to-business electronic commerce
("B2B e-commerce") technology products and services to the global
perishable products industries. The Company provides its customers
with access to the Company's secure Internet-based trading systems and
to industry-specific Internet communities supplying comprehensive
industry data and information resources as well as communication
tools.
The Company is in the development stage. Planned principal operations
have commenced but have not produced significant revenue. The Company
plans to generate revenues from its B2B e-commerce business from three
primary sources: transaction fees, subscription fees and advertising
revenue.
The Company has experienced operating losses since its inception.
Additional operating losses are anticipated for the foreseeable future
as the Company builds its revenue base while expanding its operations,
sales and marketing activities and product technology development.
At March 31, 2000, the condensed consolidated financial statements of
the Company include the accounts of the Company and its consolidated
subsidiaries. The condensed consolidated financial statements of the
Company as of and for the three months ended March 31, 2000 have not
been audited. In the opinion of management, the unaudited condensed
consolidated financial statements include all adjustments and accruals
(consisting of normal recurring adjustments) necessary to present
fairly the Company's consolidated financial position at March 31, 2000
and the consolidated results of its operations and cash flows for the
three months ended March 31, 2000 and 1999. Results of interim periods
are not necessarily indicative of the results to be expected during
the remainder of the current year or for any future period. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The accounting policies used in preparing these
condensed consolidated financial statements are the same as those
described in the Company's registration statement on Form 10, as
amended, filed on April 3, 2000.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). The bulletin draws on existing accounting rules
and provides specific guidance on how those accounting rules should be
applied, and specifically addresses gross versus net basis of
reporting revenues for companies which operate Internet sites as well
as the accounting for up-front fees. As of January 1, 2000, the
Company adopted SAB 101. The Company does not believe that SAB 101
will have a material impact on its financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities.
It requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value. The Company, to date, has not engaged
in derivative and hedging activities, and accordingly does not believe
that the adoption of SFAS No. 133 will have a material impact on the
financial reporting and related disclosures of the Company. The
Company will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral
of the Effective Date of the FASB Statement No. 133," in fiscal year
2001.
7
<PAGE> 8
3. NET LOSS PER SHARE:
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares
outstanding during the period. Dilutive net loss per share is computed
using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of common stock equivalents.
Common stock equivalent shares consist of convertible preferred stock,
stock options and warrants. For the three months ended March 31, 2000,
options to purchase 2,800,800 shares of common stock, preferred stock
convertible into 9,250,000 shares of common stock, warrants to
purchase 2,181,000 shares of common stock, and a warrant to purchase
110,000 shares of preferred stock convertible into 110,000 shares of
common stock were excluded from the calculation of earnings per share
since their inclusion would be antidilutive.
4. COMPREHENSIVE INCOME:
The Company has adopted Statement of Financial Accounting Standards
No.130, "Reporting Comprehensive Income." Total comprehensive loss of
$8,071,461 for the three months ended March 31, 2000 includes net loss
of $8,086,106 and other comprehensive income of $14,645. The Company's
only item of other comprehensive income is foreign currency
translation adjustment that has been reported separately within
stockholders' deficit on the condensed consolidated balance sheets.
Total comprehensive loss for the three months ended March 31, 1999
equaled the net loss of $686,249. There were no items of other
comprehensive income or loss for the three months ended March 31,
1999.
5. STOCK OPTION PLAN:
The World Commerce Online, Inc. 1999 Stock Option Plan (the "Plan")
was adopted by the Company's shareholders in October 1999. The Plan
covers up to 3.0 million shares of common stock and permits the
Company to grant to employees, directors, officers, and consultants of
the Company and its subsidiaries: (i) incentive stock options ("ISOs")
and (ii) nonqualified stock options ("NSOs"). The Plan is administered
by the Compensation Committee of the Board of Directors, which also
selects the individuals who receive grants under the plan. As of March
31, 2000, the grants that had been made under the Plan were NSOs and
ISOs.
For the three months ended March 31, 2000, the Company recognized
$445,649 of stock-based compensation expense related to options and
expects to recognize $4,861,948 over the remaining vesting period of
the options.
6. EQUITY TRANSACTIONS:
In March 2000, the Company issued to a consultant of the Company two
warrants representing the right to purchase 155,000 and 95,000,
shares, respectively, of common stock at an exercise price of $18 per
share. The warrant representing 155,000 shares vest immediately with
40,000 shares of the second warrant vesting on June 30, 2000 and
55,000 shares vesting on September 30, 2000 provided that the existing
consulting agreement remains in effect on those dates. The estimated
fair value of these warrants based on a Black Scholes option pricing
model is approximately $1,595,000 and $977,000, respectively, of which
approximately $1,487,000 was recorded as product and technology
development expense during the three months ended March 31, 2000.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In March 2000, an investor of the Company exercised its option to
purchase 250,000 shares of Series A convertible preferred stock at
$2.00 per share. Because on the date of issuance of such shares, the
estimated fair market value of the Company's common stock exceeded the
conversion price, the Company has treated as a preferred stock
dividend an amount of $500,000 related to this transaction.
8
<PAGE> 9
8. SUBSEQUENT EVENT:
In April 2000, we entered into a software license agreement
("Agreement") with i2 Technologies, Inc., ("i2") a leading provider of
intelligent eBusiness solutions. We will use i2's TradeMatrix(TM)
platform to optimize demand consolidation, supply segregation and order
fulfillment with FreshPlex(TM) and Floraplex.(TM) FreshPlex(TM) and
Floraplex(TM) will be powered by i2's Tradematrix(TM) e-marketplace
platform to offer a variety of services to the food and floral
industries. FreshPlex (TM) and Floraplex(TM) will also provide
logistics and transportation services to the global perishables
products industry utilizing i2's transportation solutions. We will also
provide the platform for the trading and transaction application.
Terms of the Agreement include an exclusivity provision which requires
i2, for a period of six months from the date of the Agreement, to not
develop and execute a sales and marketing strategy with several of our
major competitors. As consideration for acquiring the software license
we issued to i2 a warrant representing the right to purchase 1.25
million shares of our common stock at an exercise price of $7.00 a
share. The warrant vests immediately and has a fair value of
approximately $8 million based on a Black Scholes option pricing model.
As part of the Agreement we agreed to pay i2 a royalty fee equal to 5%
of our gross revenues with minimum royalty payments of $0.5 million,
$0.75 million and $1 million, respectively, in each of the three
successive years after the launch date of the software which is
currently estimated to be complete in September 2000. In addition, we
have entered into a three-year joint marketing agreement that requires
the development of a joint marketing plan between the companies to
facilitate our "go to market" strategy. As payment for their marketing
efforts, i2 will receive a finder's fee for customer leads it provides
to us. The finder's fee is equal to 50% of the fees we receive from a
customer for use, sale or license of our solutions, less specific
deductions as outlined in the Agreement.
9. COMMITMENTS AND CONTINGENCIES:
In December 1999, the Company entered into an agreement with a company
to integrate their Internet-based financial services product into
Floraplex(TM) for the Americas market segment for the grower to
wholesaler transactions providing Internet-based sourcing of financial
payment and credit services. The three-year agreement is contingent
upon the identification and selection of financial partners acceptable
to the Company to facilitate the payment system. As of March 31, 2000,
the Company had not identified and selected a financial partner. Upon
selection of financial partners acceptable to the Company and
satisfaction of the implementation requirements, the Company is
committed to specified transaction levels in each of the three years
beginning with fiscal year 2000 at agreed-upon pricing levels. The
minimum commitment relative to fees per payment transactions processed
in an annual period is approximately $150,000 in 2000, $240,000 in
2001, and $650,000 in 2002.
The Company is, from time to time, party to certain litigation which
relates to matters arising in the ordinary course of business.
Management believes that such litigation is not expected to have a
material impact on the financial position or results of operations of
the Company.
10. BUSINESS SEGMENT INFORMATION:
As of and for the periods presented, the Company has primarily
operated in one business segment, providing business-to-business
electronic commerce solutions to the fresh cut flower industry.
During the three months ended March 31, 2000, the Company derived
approximately $11,000 in revenues in the United States and
approximately $40,000 in revenues in Holland. The Company derived
approximately 65% of its revenues from three customers and two of those
customers exceeded 10% of total revenues.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements and the notes to those
statements that appear elsewhere in this Form 10-Q. The following discussion
and analysis contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ from those discussed in
the forward-looking statements. Factors that could cause or contribute to any
differences include, but are not limited to, the risks described in the
Company's registration statement on Form 10, as amended, filed on April 3,
2000, with the Securities and Exchange Commission.
OVERVIEW
We provide B2B e-commerce technology products and services for the
global perishable products industries including trading systems and supply chain
management software applications, industry-specific information resources and
Internet-based communication skills. Our Global Trade Communities, including
Floraplex(TM), for the global floriculture industry, and FreshPlex(TM), for the
global produce industry, which we market to supply chain participants and other
businesses with an Internet focus, deliver our customers' web-enabled
procurement tools, including trading systems and supply chain management
software applications, and an industry-specific Internet portal.
We are a development stage enterprise as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7. Planned principal operations
have commenced but have not produced significant revenue to date.
RESULTS OF OPERATIONS
The following is derived from our condensed consolidated financial
statements as of and for the three months ended March 31, 2000 and 1999.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED
MARCH 31, 1999
REVENUES. Revenue for the three months ended March 31, 2000 was
$51,000. There was no revenue generated in the three months ended March 31,
1999. For the three months ended March 31, 2000, revenue was generated
primarily from three sources: approximately $42,000, or 82.4% of total revenue,
in transaction fees, approximately $2,000, or 3.9% of total revenue, in
advertising fees, and approximately $7,000, or 13.7% of total revenue, in
subscription fees.
PRODUCT AND TECHNOLOGY DEVELOPMENT. Product and technology development
expenses consist primarily of salaries and related personnel costs for our
internal development team including stock-based compensation costs, costs
related to the design, development, testing, deployment and enhancement of our
Global Trade Community technology and our Web-server infrastructure including
costs for third party consultants and costs for customer support, technology,
maintenance, and training. Product and technology development expenses for the
three months ended March 31, 2000 were $2.6 million compared to $0.1 million
for the three months ended March 31, 1999, an increase of approximately $2.5
million. The primary reasons for this increase were increases in non-cash
charges of approximately $0.1 million related to stock based compensation, an
increase in third party consultant expense of approximately $2.0 million of
which approximately $1.5 related to a non-cash charge related to the issuance
of warrants and an increase in employee headcount from 5 as of March 31, 1999
to 35 as of March 31, 2000 which resulted in an increase of approximately $0.3
million.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related personnel costs including stock-based compensation for our
sales and marketing organization and marketing costs for activities including
advertisements and trade shows. Sales and marketing expenses for the three
months ended March 31, 2000 were $3.5 million compared to $0.2 million for the
three months ended March 31, 1999, an increase of approximately $3.3 million.
The primary reasons for this increase were the amortization of approximately
$1.0 million related to warrants issued to third party consultants and a
customer, an increase in our global marketing efforts of approximately $ 0.5
million and an increase of approximately $0.4 million related to our
participation in and travel to trade shows worldwide. Additionally, our sales
and marketing department increased from 5 employees
10
<PAGE> 11
as of March 31, 1999 to 43 employees as of March 31, 2000 which resulted in an
increase of approximately $1.3 million which includes a non-cash charge of
approximately $0.5 million for stock based compensation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
consist primarily of salaries and related costs of operations and finance
personnel including stock-based compensation as well as costs for our operating
facilities, recruiting expenses, professional fees and telecommunication costs.
General and administrative expenses for the three months ended March 31, 2000
were $1.5 million compared to $0.4 million for the three months ended March 31,
1999, an increase of approximately $1.1 million. The primary reasons for this
increase were the hiring of personnel in all support departments and the
increase in professional costs. Our headcount increased from 2 as of March 31,
1999 to 20 as of March 31, 2000. This resulted in an increase of approximately
$0.4 million in salaries and wages, which includes a non-cash charge of
approximately $0.08 million in stock-based compensation, and $0.3 million in
related personnel costs and other operating costs as mentioned above.
Professional costs increased approximately $0.2 million for legal and
accounting costs associated with filing our registration statement on Form 10,
as amended, filed on April 3, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation and amortization of goodwill relating to our
acquisition. Depreciation and amortization expenses for the three months ended
March 31, 2000 were $0.6 million compared to $0.005 million for the three
months ended March 31, 1999, an increase of approximately $0.6 million due to
the amortization of goodwill recognized in connection with our acquisition of
Fresh Products Network B.V. in August 1999 and depreciation for additions in
property and equipment and capitalized software development costs.
STOCK-BASED COMPENSATION. Stock-based compensation expenses consist of
the amortization of deferred stock compensation resulting from the grant of
stock options at exercise prices deemed to be less than the fair value of the
common stock on the grant date. At March 31, 2000, deferred stock compensation,
which is a component of stockholders' equity, was $4.9 million. This amount is
being amortized ratably over the vesting periods of the applicable stock
options, typically four years, with either 25% cliff vesting or 28% vesting on
the first anniversary of the grant date and the balance vesting 2% monthly
thereafter. We have recognized approximately $0.7 million in stock-based
compensation, $0.5 million related to options and $0.2 million related to an
employee stock grant, for the three months ended March 31, 2000. We expect to
incur stock-based compensation expense of at least $1.7 million for the
remainder of 2000, $1.6 million in 2001 and 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). The bulletin draws on existing accounting rules and provides specific
guidance on how those accounting rules should be applied, and specifically
addresses gross versus net basis of reporting revenues for companies which
operate Internet sites as well as the accounting for up-front fees. SAB 101 is
effective for fiscal years beginning after December 15, 1999. As of January 1,
2000, we have adopted SAB 101. We do not believe that SAB 101 will have a
material impact on its financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
have not, to date, engaged in derivative and hedging activities, and
accordingly do not believe that the adoption of SFAS No. 133 will have a
material impact on our financial reporting and related disclosures of the
Company. We will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of
the Effective Date of the FASB Statement No. 133," in fiscal year 2001.
RECENT EVENT
In April 2000, we entered into a software license agreement
("Agreement") with i2 Technologies, Inc., ("i2") a leading provider of
intelligent eBusiness solutions. We will use i2's TradeMatrix(TM) platform to
optimize demand consolidation, supply segregation and order fulfillment with
FreshPlex(TM) and Floraplex.(TM) FreshPlex(TM) and Floraplex(TM) will be
powered by i2's Tradematrix(TM) e-marketplace platform to offer a variety of
services to the food and floral industries. FreshPlex (TM) and Floraplex(TM)
will also provide logistics and transportation services to the
11
<PAGE> 12
global perishables products industry utilizing i2's transportation solutions.
We will also provide the platform for the trading and transaction application.
Terms of the Agreement include an exclusivity provision which requires
i2, for a period of six months from the date of the Agreement, to not develop
and execute a sales and marketing strategy with several of our major
competitors. As consideration for acquiring the software license we issued to i2
a warrant representing the right to purchase 1.25 million shares of our common
stock at an exercise price of $7.00 a share. The warrant vests immediately and
has a fair value of approximately $8 million based on a Black Scholes option
pricing model.
As part of the Agreement we agreed to pay i2 a royalty fee equal to 5%
of our gross revenues with minimum royalty payments of $0.5 million, $0.75
million and $1 million, respectively, in each of the three successive years
after the launch date of the software which is currently estimated to be
complete in September 2000. In addition, we have entered into a three-year
joint marketing agreement that requires the development of a joint marketing
plan between the companies to facilitate our "go to market" strategy. As
payment for their marketing efforts, i2 will receive a finder's fee for
customer leads it provides to us. The finder's fee is equal to 50% of the fees
we receive from a customer for use, sale or license of our solutions, less
specific deductions as outlined in the Agreement.
LIQUIDITY AND CAPITAL RESOURCES
From inception, we have financed our operations through private sales
of our common stock and redeemable convertible preferred stock.
Net cash used in operating activities was approximately $3.7 million
for the three months ended March 31, 2000 and $0.6 million for the three months
ended March 31, 1999. This use of cash was primarily due to our net losses in
each of those periods. For the three months ended March 31, 2000, the net loss
was offset by an increase in accounts payable and accrued liabilities, a
non-cash stock-based compensation charge of $0.7 million, a non-cash charge of
$2.3 million through the issuance of warrants for professional services, and an
increase in depreciation and amortization expense of $0.7 million.
Net cash used in investing activities was approximately $1.0 million
for the three months ended March 31, 2000 and $0.05 million for the three
months ended March 31, 1999. The increase for the three months ended March 31,
2000, was primarily due to the acquisition of technology equipment and the
capitalization of software development costs.
Net cash provided by financing activities was approximately $4.1
million for the three months ended March 31, 2000 and $0.7 million for the
three months ended March 31, 1999. The increase for the three months ended
March 31, 2000, was due to the receipt of proceeds from investor receivables
from the sale of our Series B redeemable, convertible, preferred stock.
We expect to continue to incur losses and to utilize cash in our
operations for the foreseeable future. We believe that our current cash and
cash equivalents and expected cash from operations will be sufficient to meet
our anticipated requirements for our operations including the initial
implementation of FreshPlex for at least the next 9 months. We expect that we
will need to raise additional funds, including through equity offerings, in the
future in order to fully implement our FreshPlex strategy in 2001.
If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to those accruing to holders of our common stock, and the terms of this
debt could impose restrictions on our operations. The sale of additional equity
or debt securities could result in additional dilution to our stockholders, and
we cannot be certain that additional financing will be available in amounts or
on terms acceptable to us, if at all. If we are unable to obtain this
additional financing, we may be required to reduce the scope of our planned
technology or product development and sales and marketing efforts, which could
harm our business.
12
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, our results of operations have not been impacted materially
by inflation in the United States, Holland or in the countries that comprise
Latin America. Approximately 80% of our revenues generated in the three months
ended March 31, 2000, were denominated in Dutch guilders.
It is likely that a significant percentage of our revenues will
continue to be denominated in foreign currencies, specifically the Dutch
guilder or the Euro. As a result, our revenues may be impacted by fluctuations
in these currencies and the value of these currencies relative to the U.S.
dollar. In addition, a portion of our monetary assets and liabilities and our
accounts payable and operating expenses are denominated in foreign currencies.
Therefore, we are exposed to foreign currency exchange risks. We have not tried
to reduce our exposure to exchange rate fluctuations by using hedging
transactions. However, we may choose to do so in the future. We may not be able
to do this successfully. Accordingly, we may experience economic loss and a
negative impact on earnings and equity as a result of foreign currency exchange
rate fluctuations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On March 14, 2000, we issued 10,000 shares of our common
stock, at a fair market value of $235,000 (based on the closing sale
price on the day before the date of issuance of our common stock on
the OTC Bulletin Board), to Gregory N. Chambers, an executive in our
sales and marketing organization, in connection with the commencement
of his employment with the Company.
On March 14, 2000, we sold 200,000 shares of our Series A convertible
preferred stock, at a purchase price of $2 per share, to Interprise
Technology Partners for $400,000 pursuant to Interprise's exercise of
an option, which we granted on March 30, 1999, to purchase such shares
at such price.
On March 29, 2000, we granted to Answerthink Consulting Group, Inc.
two warrants representing the right to purchase 250,000 shares of our
common stock as consideration for introducing us to i2 Technologies,
Inc. and in full payment of $200,000 worth of consulting services
rendered to us as of March 29, 2000. The warrant had a fair market
value (based on the closing sale price on the day before the date of
grant of our common stock on the OTC Bulletin Board) on the date of
the grant of $2,572,000.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
4.1 Warrant Agreement in favor of Answerthink
Consulting Group, Inc., dated March 29, 2000
(filed as an exhibit to our Form 10
Registration Statement, as amended, filed on
April 3, 2000 No. 0-29495)
4.2 Warrant Agreement in favor of Answerthink
Consulting Group, Inc., dated March 29, 2000
(filed as an exhibit to our Form 10
Registration Statement, as amended, filed on
April 3, 2000 No. 0-29495)
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD COMMERCE ONLINE, INC.
(Registrant)
Date: May 15, 2000 /s/ Robert H. Shaw
-------------------------------------
Robert H. Shaw
Chairman of the Board and
Chief Executive Officer
/s/ MARK E. PATTEN
-------------------------------------
Mark E. Patten
Chief Financial Officer and
Executive Vice President
(Principal Financial and
Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
4.1 Warrant Agreement in favor of Answerthink
Consulting Group, Inc., dated March 29, 2000
(filed as an exhibit to our Form 10
Registration Statement, as amended, filed on
April 3, 2000 No. 0-29495)
4.1 Warrant Agreement in favor of Answerthink
Consulting Group, Inc., dated March 29, 2000
(filed as an exhibit to our Form 10
Registration Statement, as amended, filed on
April 3, 2000 No. 0-29495)
27.1 Financial Data Schedule
16
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET, CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 2000, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,931,277
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28,098,983
0
<COMMON> 15,445
<OTHER-SE> (12,137,672)
<TOTAL-LIABILITY-AND-EQUITY> (19,400,865)
<SALES> 51,131
<TOTAL-REVENUES> 51,131
<CGS> 0
<TOTAL-COSTS> 8,193,335
<OTHER-EXPENSES> (61,917)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,086,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,086,106)
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<EXTRAORDINARY> 0
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<EPS-BASIC> (0.56)
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