<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 JUNE 30, 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 AUGUST 11, 2000: 16,263,904 SHARES.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS 18 PAGES, OF WHICH THIS IS PAGE 1.
1
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WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS, AS OF JUNE 30,
2000 (UNAUDITED) AND DECEMBER 31, 1999 PAGE 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999,
AND FOR THE PERIOD MARCH 30, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 2000 (UNAUDITED) PAGE 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) PAGE 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999, AND
FOR THE PERIOD MARCH 30, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 2000 (UNAUDITED) PAGE 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS PAGE 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK PAGE 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS PAGE 16
NONE
ITEM 2. CHANGES IN SECURITIES PAGE 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES PAGE 16
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PAGE 16
NONE
ITEM 5. OTHER INFORMATION PAGE 16
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE 17
</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>
JUNE 30, DECEMBER 31,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,932,008 $ 10,553,021
Prepaid expenses and other current assets 409,985 232,754
Receivable from investors -- 3,785,000
------------ ------------
Total current assets 4,341,993 14,570,775
Property and equipment, net 16,254,667 6,477,743
Intangible assets, net 1,327,565 1,596,260
Other assets 24,238 24,238
------------ ------------
Total assets $ 21,948,463 $ 22,669,016
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 3,564,794 $ 1,855,185
Accrued compensation and benefits 327,454 372,075
Capital lease obligation, current 210,377 71,611
------------ ------------
Total current liabilities 4,102,625 2,298,871
Long-term liabilities:
Capital lease obligation 369,883 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 June 30, 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 June 30, 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 15,465,357 and
15,435,357 shares at June 30, 2000 and December
31, 1999, respectively 15,465 15,435
Additional paid-in capital 56,123,198 43,175,872
Deferred stock-based compensation (3,805,387) (4,863,980)
Accumulated deficit (62,839,419) (45,602,372)
Accumulated comprehensive loss (116,885) (45,720)
------------ ------------
Total stockholders' deficit (10,623,028) (7,320,765)
------------ ------------
Total liabilities and stockholders' deficit $ 21,948,463 $ 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>
THREE MONTHS
ENDED
JUNE 30,
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Advertising revenue $ 6,489 $ --
Subscription revenue 8,402 --
Transaction revenue 31,857 --
------------ ------------
Total revenues 46,748 --
------------ ------------
Costs and operating expenses:
Product and technology development 2,442,251 571,682
Sales and marketing 3,601,942 502,161
General and administrative 1,571,751 636,432
Depreciation and amortization 1,211,490 27,864
------------ ------------
Total costs and operating expenses 8,827,434 1,738,139
------------ ------------
Loss from operations (8,780,686) (1,738,139)
Net interest income (expense) 78,148 (23,954)
Other non-operating income 51,598 --
------------ ------------
Net loss $ (8,650,940) $ (1,762,093)
============ ============
Basic and diluted net loss per common share $ (0.56) $ (0.12)
============ ============
Weighted average number of shares used in computing
basic and diluted net loss per common share 15,455,027 15,209,062
============ ============
</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 OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30, 1994
(DATE OF
SIX MONTHS INCEPTION)
ENDED THROUGH
JUNE 30, JUNE 30,
2000 1999 2000
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Advertising revenue $ 8,588 $ -- $ 22,733
Subscription revenue 15,427 -- 23,336
Transaction revenue 73,864 -- 94,940
Floral product revenue -- -- 350,130
Other revenue -- -- 40,273
Service revenues from related parties -- -- 342,396
------------ ------------ ------------
Total revenues 97,879 -- 873,808
------------ ------------ ------------
Costs and operating expenses:
Cost of floral product -- -- 308,749
Product and technology development 5,070,809 663,076 8,493,293
Sales and marketing 7,100,953 691,591 13,149,079
General and administrative 3,022,183 1,015,710 10,955,141
Depreciation and amortization 1,826,825 32,545 2,259,110
------------ ------------ ------------
Total costs and operating expenses 17,020,770 2,402,922 35,165,372
------------ ------------ ------------
Loss from operations (16,922,891) (2,402,922) (34,291,564)
Net interest income (expense) 196,164 (45,420) 19,051
Other non-operating expense (10,319) -- (66,905)
------------ ------------ ------------
Net loss $(16,737,046) $ (2,448,342) $(34,339,418)
Deemed dividend on redeemable convertible
preferred stock (500,000) --
------------ ------------
Net loss available to common stockholders $(17,237,046) $ (2,448,342)
============ ============
Basic and diluted net loss per common share $ (1.12) $ (0.16)
============ ============
Weighted average number of shares used in
computing basic and diluted net loss per
common share 15,442,352 15,162,180
============ ============
</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)
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30,1994
(DATE OF
INCEPTION)
SIX MONTHS THROUGH
ENDED JUNE 30, JUNE 30,
2000 1999 2000
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(16,737,046) $(2,448,342) $(34,339,418)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,826,825 32,545 2,302,880
Provision for doubtful accounts -- -- 40,322
Stock-based compensation 1,227,375 -- 3,327,801
Loss on retirement of property & equipment 10,908 -- 41,017
Loss on foreign currency translation -- -- 30,071
Professional fees paid through the issuance
of common stock and warrants 4,018,750 97,430 8,246,886
Interest paid through the issuance of warrants -- -- 151,800
Change in operating assets & liabilities:
Prepaid expenses & other current assets (186,674) (204,227) (459,750)
Other assets -- -- (24,238)
Accounts payable and accrued liabilities 1,926,963 731,328 3,690,737
Accrued compensation and benefits (42,043) (7,322) 330,032
------------ ----------- ------------
Net cash used in operating activities (7,954,942) (1,798,588) (16,661,860)
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 520,075 -- 520,075
Purchase of property and equipment and software
development (3,402,786) (790,067) (9,151,498)
------------ ----------- ------------
Net cash used in investing activities (2,882,711) (790,067) (8,631,423)
------------ ----------- ------------
Cash flows from financing activities:
Issuance of common stock -- 195,000 1,127,500
Proceeds from exercise of stock options 40,000 -- 40,000
Issuance of redeemable convertible
preferred stock, net of related expenses 4,285,000 3,378,211 25,732,983
Purchase of treasury stock -- -- (20,000)
Proceeds from stockholder loans -- -- 132,693
Proceeds from other debt -- -- 2,445,545
Payments on stockholder loans -- -- (69,293)
Payments on capital leases (103,353) (22,672) (159,130)
------------ ----------- ------------
Net cash provided by financing activities 4,221,647 3,550,539 29,230,298
------------ ----------- ------------
Effect of exchange rate on cash (5,007) -- (5,007)
Net change in cash (6,621,013) 961,884 3,932,008
Cash and cash equivalents, beginning of period 10,553,021 42,335 --
------------ ----------- ------------
Cash and cash equivalents, end of period $ 3,932,008 $ 1,004,219 $ 3,932,008
============ =========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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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
OF INCEPTION)
SIX MONTHS THROUGH
ENDED JUNE 30, JUNE 30,
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
========== ====== ==========
Software acquired through the issuance
of a warrant $8,019,824 $ -- $8,019,824
========== ====== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
7
<PAGE> 8
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 these primary sources: transaction
fees, subscription fees, advertising revenue, and integration fees.
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 June 30, 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 and six months ended June 30, 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 June 30, 2000 and
the consolidated results of its operations for the three months and six
months ended June 30, 2000 and 1999 and cash flows for the six months
ended June 30, 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 June 8, 2000.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. This summarizes certain areas of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company believes that its
current revenue recognition principles comply with SAB 101.
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.
8
<PAGE> 9
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 and six months ended June 30, 2000,
options to purchase 2,940,800 shares of common stock, preferred stock
convertible into 9,250,000 shares of common stock, warrants to purchase
3,591,000 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 for the
three months and six months ended June 30, 2000, includes net loss of
$8,650,940 and $16,737,046, respectively and other comprehensive loss of
$102,240 and $116,885, respectively. 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
and six months ended June 30, 1999 equaled the net loss of $1,762,093 and
$2,448,342, respectively. There were no items of other comprehensive
income or loss for the three months or six months ended June 30, 1999.
5. STOCK OPTION PLAN:
The World Commerce Online, Inc. 1999 Stock Option Plan (the "Plan") was
adopted by the Company's stockholders in October 1999. In June 2000, the
Company's Board of Directors approved an amendment to the Plan to increase
the number of shares of common stock available for grant to 4 million from
3 million. This amendment is subject to stockholder approval at the next
stockholder meeting. As amended, the Plan 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 June 30, 2000, the grants that
had been made under the Plan were NSOs and ISOs.
For the three months and six months ended June 30, 2000, the Company
recognized $546,726 and $992,375, respectively, of stock-based
compensation expense related to options and expects to recognize
$3,805,387 over the remaining vesting period of the options.
6. EQUITY TRANSACTIONS:
In April 2000, the Company entered into a software license agreement
("Agreement") with i2 Technologies, Inc., ("i2") a provider of supply
chain management and logistics software. As consideration for acquiring
the software license the Company granted to i2 a warrant representing the
right to purchase 1,250,000 shares of common stock at an exercise price of
$7.00 a share. The warrant vests immediately and has a fair value of
$8,019,824 based on a Black Scholes option pricing model. The value of the
warrant was capitalized as the cost of acquiring the licensed software and
will be amortized over three years, the initial term of the license,
beginning July 1, 2000.
In June 2000, the Company modified an existing warrant granted to a
consultant by changing the exercise price from $18 to $7. This
modification resulted in additional consulting expense of $317,901 of
which $257,499 was recognized in the three months ended June 30, 2000. The
remaining $60,401 will be recognized over the remaining vesting period of
the warrant.
9
<PAGE> 10
7. SUBSEQUENT EVENTS:
On August 4, 2000, the Company acquired the entire equity interest in
ProduceOnline.com, Inc. ("POL"). The consideration included 423,592 shares
of common stock, 91,802 shares of Series C redeemable, convertible,
preferred stock, convertible into 918,021 shares of Company common stock,
and assumption of liabilities. In addition, the Company issued 372,955
shares of common stock to the founding stockholders of POL that are
subject to a repurchase option that expires over the next 27 months. The
transaction will be accounted for as a purchase and the estimated excess
of the purchase price over the fair value of the net assets acquired will
be recorded as goodwill and amortized over 36 months. The results of the
acquired operations will be included in the Company's consolidated
financial statements as of the acquisition date.
On August 14, 2000, the Company entered into a secured loan agreement with
Interprise Technology Partners, L.P., a stockholder of the Company, in the
amount of $5,000,000. The loan matures on February 28, 2001, and bears
interest at a rate of 10% per annum. In addition, the Company granted a
warrant representing the right to purchase up to 225,000 shares of common
stock. The fair value of the warrants will be calculated based on a Black
Scholes option-pricing model and recorded as interest expense.
8. COMMITMENTS AND CONTINGENCIES:
As part of the Agreement with i2, the Company agreed to pay i2 a royalty
fee equal to 5% of gross revenues with minimum royalty payments of
$500,000, $750,000 and $1,000,000, 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, the Company has
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 the Company.
The finder's fee is equal to 50% of the fees received from a customer for
use of our solutions, less specific deductions as outlined in the
Agreement.
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 June 30, 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 that
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.
9. 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 perishable products industries. During the three months
and six months ended June 30, 2000, the Company derived approximately
$18,000 and $29,000, respectively, in revenues in the United States and
approximately $29,000 and $69,000, respectively, in revenues in Holland.
For the three months and six months ended June 30, 2000, the Company had
one customer that exceeded 10% of total revenues. The Company did not
generate revenues in the three months and six months ended June 30, 1999.
10
<PAGE> 11
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 June 8, 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.
RECENT DEVELOPMENTS
On August 4, 2000, we acquired the entire equity interest in
ProduceOnline.com, Inc. ("POL") for consideration including 423,592 shares of
common stock, 91,802 shares of our Series C redeemable convertible preferred
stock, convertible into 918,021 shares of our common stock, and assumption of
liabilities. In addition, we issued 372,955 shares of our common stock to the
founding stockholders of POL that are subject to a repurchase option that
expires over the next 27 months. The transaction will be accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired will be recorded as goodwill and amortized over 36
months. The results of the acquired operations will be included in our
consolidated financial statements as of the acquisition date.
On July 14, 2000, we filed an application for listing on the NASDAQ
national market.
We completed the execution of lock-up agreements with holders of more
than 90% of our outstanding shares of common stock that are eligible for public
resale under Rule 144 of the Securities Act of 1933, as amended, after July 13,
2000. The lock-up agreements expire on June 30, 2001, or the effective date of a
public offering of our common stock, whichever occurs first.
On August 14, 2000, we entered into a secured loan agreement with
Interprise Technology Partners, L.P., a stockholder of the Company, in the
amount of $5 million. The loan matures on February 28, 2001, and bears interest
at a rate of 10% per annum. In addition, we granted a warrant representing the
right to purchase up to 225,000 shares of common stock.
RESULTS OF OPERATIONS
The following is derived from our condensed consolidated financial
statements as of and for the three months ended June 30, 2000 and 1999.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 TO THREE MONTHS ENDED JUNE
30, 1999
REVENUES. Revenue for the three months ended June 30, 2000 was
approximately $47,000. There was no revenue generated in the three months ended
June 30, 1999. For the three months ended June 30, 2000, revenue was generated
primarily from three sources: approximately $32,000, or 68% of total revenue, in
transaction fees, approximately $7,000, or 15% of total revenue, in advertising
fees, and approximately $8,000, or 17% of total revenue, in subscription fees.
11
<PAGE> 12
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 June 30, 2000 were $2.4 million compared to $0.6 million for
the three months ended June 30, 1999, an increase of approximately $1.8 million.
The primary reasons for this increase were an increase in third party consulting
expense of approximately $1.2 million of which approximately $0.7 related to a
non-cash charge for amortization of warrants and an increase in employee
headcount from 10 as of June 30, 1999 to 31 as of June 30, 2000 which resulted
in an increase of approximately $0.5 million of which approximately $0.04
million related to a non-cash charge for stock based compensation.
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 June 30, 2000 were $3.6 million compared to $0.5 million for the
three months ended June 30, 1999, an increase of approximately $3.1 million. The
primary reasons for this increase were a non-cash charge of approximately $1.0
million related to the amortization of 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 $0.2 million related
to our participation in and travel to trade shows worldwide. Additionally, our
sales and marketing department increased from 15 employees as of June 30, 1999
to 53 employees as of June 30, 2000 which resulted in an increase of
approximately $1.1 million in salaries and wages which includes a non-cash
charge of approximately $0.4 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 June 30, 2000
were $1.6 million compared to $0.6 million for the three months ended June 30,
1999, an increase of approximately $1.0 million. The primary reasons for this
increase were the hiring of personnel in all support departments and the
increase in professional services costs. Our headcount increased from 6 as of
June 30, 1999 to 25 as of June 30, 2000. This resulted in an increase of
approximately $0.5 million in salaries and wages which includes a non-cash
charge of approximately $0.08 million in stock-based compensation. Management
consulting fees increased approximately $0.1 million and professional costs
increased approximately $0.1 million for personnel recruitment fees and
approximately $0.1 million for legal and accounting costs associated with filing
our registration statement on Form 10, as amended, filed on June 8, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation of property and equipment and amortization of
goodwill relating to acquisitions. Depreciation and amortization expenses for
the three months ended June 30, 2000 were $1.2 million compared to $0.03 million
for the three months ended June 30, 1999, an increase of approximately $1.2
million due to the amortization of goodwill recognized in connection with our
acquisition of Fresh Products Network B.V. in August 1999 and covenant not to
compete of approximately $0.1 million and depreciation for additions in property
and equipment and capitalized software development costs of approximately $0.5
million. Also included is the acceleration of depreciation of approximately $0.6
million related to internally developed logistics software that was replaced by
licensed supply chain management software.
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 June 30, 2000, deferred stock compensation,
which is a component of stockholders' equity, was $3.8 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 $0.5 million in stock-based
compensation related to options for the three months ended June 30, 2000. We
expect to incur stock-based compensation expense of at least $1.0 million for
the remainder of 2000, $1.4 million in 2001 $1.3 million in 2002 and $0.1
million in 2003.
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<PAGE> 13
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO SIX MONTHS ENDED JUNE 30, 1999
REVENUES. Revenue for the six months ended June 30, 2000 was
approximately $98,000. There was no revenue generated in the six months ended
June 30, 1999. For the six months ended June 30, 2000, revenue was generated
primarily from three sources: approximately $74,000, or 76% of total revenue, in
transaction fees, approximately $9,000, or 9% of total revenue, in advertising
fees, and approximately $15,000, or 15% 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
six months ended June 30, 2000 were $5.1 million compared to $0.7 million for
the six months ended June 30, 1999, an increase of approximately $4.4 million.
The primary reasons for this increase were an increase in third party consulting
expense of approximately $3.1 million of which approximately $2.2 related to a
non-cash charge for the issuance of warrants and an increase in employee
headcount from 10 as of June 30, 1999 to 31 as of June 30, 2000 which resulted
in an increase of approximately $0.9 million in salaries expense which includes
a non-cash charge of approximately $0.1 million related to stock based
compensation. The increase in head count also resulted in an increase of
approximately $0.1 million in travel related expenses.
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 six months
ended June 30, 2000 were $7.1 million compared to $0.7 million for the six
months ended June 30, 1999, an increase of approximately $6.4 million. The
primary reasons for this increase were a non-cash charge of approximately $2.0
million related to the amortization of warrants issued to third party
consultants and a customer, an increase in our global marketing efforts of
approximately $ 1.0 million and an increase of approximately $0.6 million
related to our participation in and travel to trade shows worldwide.
Additionally, our sales and marketing department increased from 15 employees as
of June 30, 1999 to 53 employees as of June 30, 2000 which resulted in an
increase of approximately $2.4 million which includes a non-cash charge of
approximately $0.9 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 six months ended June 30, 2000 were
$3.0 million compared to $1.0 million for the six months ended June 30, 1999, an
increase of approximately $2.0 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 6 as of June 30, 1999 to 25 as
of June 30, 2000. This resulted in an increase of approximately $0.9 million in
salaries and wages, which includes a non-cash charge of approximately $0.2
million in stock-based compensation, and $0.4 million in related personnel costs
and other operating costs as mentioned above. Management consulting fees
increased approximately $0.1 million and professional costs increased
approximately $0.2 million for personnel recruitment fees and approximately $0.3
million for legal and accounting costs associated with filing our registration
statement on Form 10, as amended, filed on June 8, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation of property and equipment and amortization of
goodwill relating to our acquisition. Depreciation and amortization expenses for
the six months ended June 30, 2000 were $1.8 million compared to $.03 million
for the six months ended June 30, 1999, an increase of approximately $1.8
million due to the amortization of goodwill recognized in connection with our
acquisition of Fresh Products Network B.V. in August 1999 and covenant not to
compete of approximately $0.2 million and depreciation for additions in property
and equipment and capitalized software development costs of approximately $1.0
million. Also included is the acceleration of depreciation of approximately $0.6
million related to internally developed logistics software that was replaced by
licensed supply chain management software.
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<PAGE> 14
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. We have recognized approximately $1.0 million in
stock-based compensation related to options during the six months ended June 30,
2000. We expect to incur stock-based compensation expense of at least $1.0
million for the remainder of 2000, $1.4 million in 2001, $1.3 million in 2002,
and $0.1 million in 2003.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. This summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition principles comply with SAB 101.
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.
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 $8.0 million
for the six months ended June 30, 2000 and $1.8 million for the six months ended
June 30, 1999. This use of cash was primarily due to our net losses in each of
those periods. For the six months ended June 30, 2000, the net loss was offset
by an increase in accounts payable and accrued liabilities, a non-cash
stock-based compensation charge of $1.2 million, a non-cash charge of $4.0
million for the issuance and amortization of warrants for professional services,
an increase in depreciation and amortization expense of $1.8 million.
Net cash used in investing activities was approximately $2.9 million
for the six months ended June 30, 2000 and $0.8 million for the six months ended
June 30, 1999. The increase for the six months ended June 30, 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 $4.2
million for the six months ended June 30, 2000 and $3.6 million for the six
months ended June 30, 1999. The increase for the six months ended June 30, 2000,
was due to the receipt of proceeds from investor receivables from the sale of
our Series B redeemable, convertible, preferred stock.
On August 14, 2000, we entered into a secured loan agreement with
Interprise Technology Partners, L.P., a stockholder of the Company, in the
amount of $5 million. The loan matures on February 28, 2001, and bears interest
at a rate of 10% per annum. In addition, we granted a warrant representing the
right to purchase up to 225,000 shares of common 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, expected cash from operations and borrowings should be
sufficient to meet our anticipated requirements for our operations for
the next six months. We expect that we will need to raise additional funds,
including through equity offerings, in order to fully implement our 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
14
<PAGE> 15
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.
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 62% and 70%, respectively, of our revenues generated in
the three and six months ended June 30, 2000, were denominated in Dutch
guilders. We estimate that a 10% change in the Dutch guilder as compared to the
U.S. dollar would have changed the reported loss by approximately $0.1 million
and $0.2 million, respectively, for the three months and six months ended June
30, 2000. This quantitative measure has inherent limitations because it does not
take into account the changes in customer purchasing patterns or any adjustment
to our financing or operating strategies in response to such a change in rates.
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.
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<PAGE> 16
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 April 11, 2000, we sold 50,000 shares of Series A redeemable
convertible preferred stock, at a purchase price of $2 per share, to
Interprise Technology Partners, L.P. for $100,000 pursuant to
Interprise's exercise of an option. The preferred shares are
convertible on a one-to-one basis into common stock subject to certain
antidilution provisions.
On April 29, 2000, we granted to i2 Technologies, Inc. a warrant
representing the right to purchase 1,250,000 shares of our common
stock, subject to certain antidilution provisions, at an exercise price
of $7 per share, as consideration for a software license acquisition.
The warrant had a fair market value (based on the closing 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 approximately $8,000,000. The
warrant expires on April 29, 2005.
On May 18, 2000, we sold 20,000 shares of common stock, at a purchase
price of $2 per share, pursuant to the exercise of an option to
purchase such shares by Robert Russoniello.
In our opinion, the sale or issuance of the above securities was deemed
to be exempt from registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with
any distribution thereof, and appropriate legends were fixed to the
share certificates issued in such transactions. All recipients had an
opportunity to ask questions about us and had adequate access to
information about us. No sales of securities involved the use of an
underwriter and no commissions were paid in connection with the sale or
issuance of any securities.
(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.
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<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Registration Rights Agreement for
Series A and Series B Preferred Stock, dated April 29, 2000.
4.1 First Amendment to Warrant in favor of AnswerThink
Consulting Group, Inc., dated June 20, 2000.
4.2 First Amendment to Warrant in favor of AnswerThink
Consulting Group, Inc., dated June 20, 2000.
4.3 Warrant Purchase Agreement with i2 Technologies, Inc.,
dated April 29, 2000 (filed as an exhibit to our Form 10
Registration Statement, as amended, filed on June 8, 2000
No. 0-29495).
4.4 Warrant Agreement in favor of i2 Technologies, Inc.,
dated April 29, 2000 (filed as an exhibit to our Form
10 Registration Statement, as amended, filed on June
8, 2000 No. 0-29495).
10.1 Software License Agreement with i2 Technologies, Inc.,
dated April 29, 2000 (filed as an exhibit to our Form 10
Registration Statement, as amended, filed on June 8, 2000
No. 0-29495).
27.1 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2000.
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<PAGE> 18
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: August 14, 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)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
--------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Registration Rights Agreement for Series
A and Series B Preferred Stock, dated April 29, 2000.
4.1 First Amendment to Warrant in favor of AnswerThink Consulting
Group, Inc., dated June 20, 2000.
4.2 First Amendment to Warrant in favor of AnswerThink Consulting
Group, Inc., dated June 20, 2000.
4.3 Warrant Purchase Agreement with i2 Technologies, Inc., dated
April 29, 2000 (filed as an exhibit to our Form 10 Registration
Statement, as amended, filed on June 8, 2000 No. 0-29495).
4.4 Warrant Agreement in favor of i2 Technologies, Inc., dated
April 29, 2000 (filed as an exhibit to our Form 10
Registration Statement, as amended, filed on June 8, 2000 No.
0-29495).
10.1 Software License Agreement with i2 Technologies, Inc., dated
April 29, 2000 (filed as an exhibit to our Form 10
Registration Statement, as amended, filed on June 8, 2000 No.
0-29495).
27.1 Financial Data Schedule
</TABLE>
19
