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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-27945
ASCENDANT SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2900905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3737 Grader Street, Suite 110,
Garland, Texas 75041
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 214.348.7200
---------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. YES [ X ] NO [ ]
At October 31, 2000, there were 21,230,900 shares of common stock
outstanding.
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<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASCENDANT SOLUTIONS, INC.
Unaudited Balance Sheets as of September 30, 2000 and
December 31, 1999........................................... 2
Unaudited Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 .................. 3
Unaudited Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999........................... 4
Notes to Interim Financial Statements........................ 5
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<PAGE>
ASCENDANT SOLUTIONS, INC.
BALANCE SHEETS
(000's Omitted)
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
Assets
Current assets:
Cash and cash equivalents............. $ 20,157 $ 37,278
Accounts receivable, less allowance
for doubtful accounts of $37 at
September 30, 2000 and $100 at 2,299 2,379
December 31, 1999
Prepaid expenses..................... 211 63
--------- ---------
Total current assets........... 22,667 39,720
Property and equipment, net............ 6,265 4,680
Notes receivable....................... 178 --
Other assets........................... 64 53
Total assets........................... $ 29,174 $ 44,453
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................... $ 1,419 $ 1,648
Accrued liabilities.................. 1,982 737
Current portion of long-term debt.... 340 340
---------- ---------
Total current liabilities......... 3,741 2,725
Long term debt......................... 425 680
Stockholders' equity (deficit):
Preferred stock, $.0001 par value:
Authorized shares -- 7,500,000
Issued and outstanding shares - none -- --
Common stock, $.0001 par value:
Authorized shares -- 50,000,000
Issued and outstanding shares --
21,230,900 at September 30, 2000 and
21,097,400 at December 31, 1999..... 2 2
Additional paid-in capital............ 59,718 59,604
Accumulated deficit................... (34,712) (18,558)
---------- ---------
Total stockholders' equity.......... 25,008 41,048
---------- ---------
Total liabilities and stockholders'
equity........................... $ 29,174 $ 44,453
========== =========
See accompanying notes.
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ASCENDANT SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(000's Omitted, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2000 1999 2000 1999
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenues................... $ 1,964 $ 3,215 $ 5,037 $ 7,894
Cost of revenues........... 1,314 2,643 4,588 6,305
-------- --------- -------- ----------
Gross profit............... 650 572 449 1,589
Operating expenses:
Selling, general and
administrative expenses. 3,753 3,027 13,815 5,694
Depreciation and
amortization........... 631 440 1,627 1,014
Restructuring costs...... -- -- 2,460 --
-------- --------- -------- ----------
Total operating expenses 4,384 3,467 17,902 6,708
-------- --------- -------- ----------
Operating (loss)........ (3,734) (2,895) (17,453) (5,119)
Interest (income) expense,
net ..................... (330) 84 (1,299) 152
Interest expense related to
stock warrants........... -- 636 -- 636
-------- --------- -------- ----------
Net loss................... $ (3,404) $ (3,615) $(16,154) $ (5,907)
======== ========= ======== ==========
Basic and diluted net loss
per share ............... $ (0.16) $ (0.34) $ (0.76) $ (0.59)
======== ========= ======== ==========
Weighted average shares used
in computing basic and
diluted net loss per share 21,215 10,500 21,155 9,993
======== ========= ======== ==========
</TABLE>
See accompanying notes.
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ASCENDANT SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(000's Omitted)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
2000 1999
---------- -----------
Net cash used in operating activities....... $ (12,504) $ (3,958)
---------- ---------
Investing Activities
Purchases of property and equipment......... (4,476) (3,233)
---------- ---------
Net cash used in investing activities ...... (4,476) (3,233)
---------- ---------
Financing Activities
Borrowing on revolving line of credit....... -- 2,000
Payments on revolving line of credit........ -- (2,800)
Proceeds from issuances of Common Stock..... -- 4,164
Proceeds from issuance of Series A
Convertible Preferred Stock............... -- 5,745
Proceeds from issuance of Series B
Mandatorily Redeemable Preferred Stock ... -- 5,745
Proceeds from exercise of common stock
options................................... 134 --
Borrowings of long-term debt ............... -- 1,903
Payments of long-term debt.................. (255) (340)
Other....................................... (20) (29)
--------- ---------
Net cash provided by (used in) financing
activities ............................... (141) 16,388
--------- ---------
Net increase (decrease) in cash and cash
equivalents.............................. (17,120) 9,197
Cash and cash equivalents at beginning of
period .................................. 37,278 --
--------- ---------
Cash and cash equivalents at end of period $ 20,157 $ 9,197
========= =========
See accompanying notes.
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ASCENDANT SOLUTIONS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation:
The unaudited financial statements included herein reflect
all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management are necessary to fairly state
the company's financial position, results of operations and cash
flows for the periods presented. These financial statements
should be read in conjunction with the company's audited
financial statements included in the company's Form 10-K for the
year ended December 31, 1999 as filed with the Securities and
Exchange Commission. The results of operations for the period
ended September 30, 2000 are not necessarily indicative of the
results to be expected for any subsequent quarter or for the
entire fiscal year ending December 31, 2000. The December 31,
1999 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally
accepted accounting principles.
2. Computation of Basic and Diluted Net Loss Per Common Share
(000's omitted except for share and per share amounts)
<TABLE>
Three months ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net loss.............. $ 3,404 $ 3,615 $ 16,154 $ 5,907
Weighted average
number of shares
outstanding......... 21,215,000 10,500,000 21,155,000 9,993,000
Basic and diluted net
loss per Share...... $ (0.16) $ (0.34) $ (0.76) $ (0.59)
</TABLE>
3. Contingent Liability
On April 21, 2000, the Original Honey Baked Ham Company of
Georgia, Inc. ("HBH") filed suit against the company to recover
damages for an alleged breach of contract related to services
performed by the company for HBH in 1999. The lawsuit seeks
compensatory damages, incidental and consequential damages and
other costs, fees and expenses including attorneys' fees and
legal expenses in excess of $10.0 million. The company filed a
claim for trade receivables due from HBH, and is actively
exploring a number of additional claims against HBH. Management
denies plaintiff's allegations and intends to vigorously defend
the lawsuit. Since this claim is at a very early stage, the
company is unable to predict with any certainty what the outcome
with respect to any claim might be, and therefore the company has
not provided a reserve for potential claims, nor has it provided
a reserve against its receivable from HBH.
4. Restructuring Costs
In May 2000, the company terminated the development of its
browser based software platform and eliminated related software
development positions. In addition, the company completed a
thorough reorganization and eliminated positions. The writeoff of
the internal software development, plus the severance and other
costs related to these events, resulted in restructuring costs of
$2.4 million for the nine months ended September 30, 2000.
5. Recent Event
On September 28, 2000, the company announced that it would
transition out of its fulfillment and call center operations and
concentrate on providing systems solutions. The company is
currently in discussions with prospective buyers of the
fulfillment and call center assets; however, no definitive
agreements concerning such sales have been reached. The assets
comprising these operations aggregated approximately 27% of net
property and equipment and six percent of total assets at
September 30, 2000. No write-down of the fulfillment and call
center assets
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has been taken since the company expects net proceeds from the
sales to at least equal the respective carrying costs.
On October 19, 2000, shareholders of the company approved a
corporate name change and redomestication effected by merging ASD
Systems, Inc., a Texas corporation, into Ascendant Solutions,
Inc., a Delaware corporation and wholly-owned subsidiary of ASD
Systems, Inc. The redomestication merger became effective
October 20, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the
matters discussed below contain forward-looking statements which
involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements
of the company, or industry results, to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. The company
expressly disclaims any obligation to update this information or
publicly release any revision or reflect events or circumstances
after the date of this report. Such factors include, among
others: our ability to achieve or sustain profitability; our
limited operating history; the risks associated with the failure
of our solutions to achieve widespread market acceptance or meet
specific client needs; significant client concentration; the fact
that our client contracts are either short-term or terminable
with minimal notice; systems risks and uncertainties, including
rapid technological change and those related to the integration
and implementation of our solutions platform; the risks related
to the possible inability of our system to connect to and manage
a larger number of clients; business conditions in the software
industry generally; the impact of market competitors and their
product and service offerings; and such other factors that are
more fully described in the company's Form 10-K for the year
ended December 31, 1999.
The Company
Ascendant Solutions, Inc. (formerly ASD Systems, Inc.) is a
Delaware corporation with principal executive offices located at
3737 Grader Street, Suite 110, Garland, Texas 75041. The
company's telephone number is 214.348.7200.
Overview
We offer comprehensive software and service solutions that
enable online and traditional retailers, direct marketing
businesses, catalogers and manufacturers to outsource their
customer care, order-management and order-fulfillment -
management functionsoperations. Our systems automate and
integrate information received from real-time Web sites, call
centers, fulfillment centers and vendors. Through September 30,
2000, we derived our revenues from systems services, call center
services, fulfillment services and, to a much lesser extent,
other services. Other services consist of client-management
services, Web site related services and consulting services. For
the three and nine months ended September 30, 2000, the
percentage of total revenue by service category was as follows:
% of Total Revenue % of Total Revenue
for for
Three Months Ended Nine Months Ended
Service Category September 30, 2000 September 30, 2000
----------------- -------------------- ------------------
Systems services 49% 39%
Call center services 33% 37%
Fulfillment services 17% 23%
Other services 1% 1%
----------------- ------------------
TOTAL 100% 100%
================= ==================
Historically, we have charged on a per-transaction basis for
systems processing, on a per-minute basis for call center
services and on a per-item basis for fulfillment services. We
have traditionally billed additional fees for other services. We
historically priced our services based on a variety of factors,
including the depth and complexity of the services provided, the
amount of required systems customization, length of contract and
other factors. Our revenues are recognized as our services are
rendered and the majority of our clients are billed on a weekly
basis. Our client contracts can be cancelled with 180 or fewer
days notice. We will stop providing call center and fulfillment
services by the end of the first quarter of 2001. See "- Recent
Events."
Our expenses have been comprised of:
* cost of revenues, which consisted primarily of compensation
and related expenses of our call center, fulfillment center,
and technical services employees and the variable costs of
third-party call center and fulfillment center services;
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* selling, general and administrative, which consisted
primarily of compensation and related expenses for our
executive group; our sales and marketing staff; our
client service and administrative personnel and
software technicians; occupancy costs; software costs;
marketing programs; other administrative personnel; and
* depreciation and amortization expense.
On September 28, 2000, we announced that we would transition
out of our fulfillment and call center operations and concentrate
on providing systems solutions. The assets comprising these
operations aggregated approximately 27% of net property and
equipment and six percent of total assets at September 30, 2000.
No write-down of the fulfillment and call center assets has been
taken, since we expect net proceeds from the sales to at least
equal the respective carrying costs. See "- Recent Events."
Upon successfully transitioning out of our fulfillment and/or
call center operations, our revenues will be derived from
software licensing, and implementation fees, and, to a much
lesser extent, fees for professional services. To date, our fees
for providing software systems have been generated on a
transaction basis. We are considering alternatives to this per-
transaction pricing model, such as monthly service fees, although
we have not currently concluded on a pricing model, nor have we
entered into any contract.currently evaluating alternative
pricing models.
Results of Operations
Comparison of the Three Months Ended September 30, 2000 to
the Three Months Ended September 30, 1999
Revenues. Our revenues decreased 39% to $2.0 million for
the three months ended September 30, 2000, from $3.2 million for
the three months ended September 30, 1999. Our transaction
revenue from Sears, our largest customer, decreased by $500,000
as a result of lower transaction volume, partially offset by the
implementation of a monthly service charge in September 2000.
Sears accounted for 63% of total revenues for the three months
ended September 30, 2000, and 42% of total revenues for the three
months ended September 30, 1999, which is indicative of the fewer
number of full three months' equivalent clients at September 30,
2000.
Cost of Revenues. Cost of revenues decreased 50% to $1.3
million for the three months ended September 30, 2000, from $2.6
million for the three months ended September 30, 1999. The
decrease in the cost of revenue resulted primarily from the
decrease in call center, fulfillment center and technical service
personnel required to support existing client requirements. As a
percentage of revenues, cost of revenues was 67% for the three
months ended September 30, 2000, and 82% for the three months
ended September 30, 1999. This decrease in cost of revenues
percentage is largely attributable to our efforts to achieve more
efficient and cost effective operations by reductions in and more
efficient use of personnel.
Selling, General and Administrative Expense. For the three
months ended September 30, 2000, our selling, general and
administrative (SG&A) expense was $3.8 million compared to $3.0
million for the same period of 1999, an increase of 24%. Our
salaries and benefits increased approximately $700,000,
representing necessary personnel additions to respond to the
requirements of a public company and to provide the managerial
positions necessary to execute our business plan. Our
professional fees for legal, accounting and auditing, and
technical services increased by $300,000, but the increase was
offset by reductions in telephone ($83,000), advertising
($34,000), supplies ($55,000) and various other expenses. See
our discussion of restructuring costs (in the nine month
comparison section) for an explanation of how we have taken
actions to reduce our SG&A expense.
Depreciation and Amortization. For the three months ended
September 30, 2000, depreciation and amortization expense was
approximately $631,000 compared to $440,000 for the same period
of 1999, an increase of 30%. Depreciation and amortization
expense increased to 32% of revenues for the three months ended
September 30, 2000, from 14% for the three months ended September
30, 1999. The increase corresponds with the increase in computer
equipment purchased for internal use, particularly in our Data
Center, which is currently used to support our legacy system.
known as Lynks. In addition, we began amortizing certain
capitalized costs associated with our core services platform,
Omnigy, in September 2000 at the rate of $65,000 per month.
Interest income (expense), net. For the three months ended
September 30, 2000, interest income, net of expense, was
approximately $330,000 compared to approximately $84,000 in net
interest expense for the prior year.
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The interest income for the current year is attributed to
investment income on proceeds from our initial public offering
completed in the fourth quarter of 1999.
Comparison of the Nine Months Ended September 30, 2000 to the
Nine Months Ended September 30, 1999
Revenues. Our revenues decreased 36% to $5.0 million for
the nine months ended September 30, 2000, from $7.9 million for
the nine months ended September 30, 1999. Our transaction
revenue from Sears decreased by $900,000 as a result of lower
transaction volume (partially offset by the implementation of a
monthly service charge in September 2000). Sears accounted for
75% of total revenues for the nine months ended September 30,
2000, and 53% of total revenues for the nine months ended
September 30, 1999, which is indicative of the lower number of
full three months' equivalent clients at September 30, 2000.
Cost of Revenues. Cost of revenues decreased 27% to $4.6
million for the nine months ended September 30, 2000, from $6.3
million for the nine months ended September 30, 1999. As a
percentage of revenues, cost of revenues was 91% for the nine
months ended September 30, 2000, and 80% for the nine months
ended September 30, 1999. The increase in costs during first nine
months of 2000 was primarily the result of increased employee
levels (to match the anticipated activity) during the early
months of the nine month period.
Selling, General and Administrative Expense. For the nine
months ended September 30, 2000, our selling, general and
administrative, or SG&A, expense was $13.8 million compared to
$5.7 million for the same period of 1999, an increase of 143%.
Our salaries and benefits increased approximately $5.0 million,
representing necessary personnel additions to respond to the
requirements of a public company and to provide the managerial
positions necessary to execute our business plan. Our
professional fees for legal, accounting and auditing, and
technical services increased by $1.2 million as a result of
litigation costs, required legal professional services as a
public company, and services used to assist with the development
of Omnigy. We also experienced increases in the costs of travel
($200,000), advertising ($800,000), supplies ($200,000) and
contract labor ($200,000) as we began executing our business plan
while operating as a new public company. Additionally, we
accrued approximately $400,000 for employment agreement
provisionsseverance payments pursuant to employment agreements
payable in the future. See our discussion of restructuring costs
for an explanation of how we have taken actions to reduce our
SG&A expenses.
Depreciation and Amortization. For the nine months ended
September 30, 2000, depreciation and amortization expense was
approximately $1.6 million compared to $1.4 million for the same
period of 1999, an increase of 60%. Depreciation and amortization
expense increased to 32% of revenues for the nine months ended
September 30, 2000, from 13% for the nine months ended September
30, 1999. The increase is consistent with the increase in
computer equipment purchased for internal use, particularly in
our Data Center, which is currently used to support our legacy
system known as Lynks.
Restructuring Costs. In May 2000, we began the process of
reviewing our overall business plan, beginning with major changes
to specific components of our operations. We decided to
terminate our internal software development, and replace it with
Omnigy, our new services platform that combines third party
technologies with proprietary integration and framework. We also
changed our business name to "Ascendant Solutions." In connection
with our restructuring, we terminated, and paid severance to 55
employees. The reductions were primarily in software development
and systems services groups, and certain executive positions. We
have identified our costs related to these changes and classified
them as restructuring costs in the accompanying statements of
operations so that our results will be more easily comparable to
future periods as we operate under our new direction.
Restructuring charges incurred to date have totaled $2,460,000
broken down into the following summary:
Write off of Mercury software...... $ 1,294,000
Employee severance and other
payroll and benefit charges....... 804,000
Professional services.............. 260,000
Other.............................. 102,000
------------
TOTAL......................... $ 2,460,000
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Restructuring charges in the amount of $237,000 remained unpaid
as of September 30, 2000.
Interest income (expense), net. For the nine months ended
September 30, 2000, interest income, net of expense, was
approximately $1,299,000 compared to approximately $152,000 in
net interest expense for the prior year. The interest income for
the current year is attributed to investment income on proceeds
from our initial public offering completed in the fourth quarter
of 1999.
Factors Affecting Operating Results
We have experienced significant fluctuations in our results
of operations from quarter to quarter. As a result of these
fluctuations, period-to-period comparisons of our operating
results is not necessarily meaningful and should not be relied
upon as an indicator of future performance. We expect our future
operating results to fluctuate. Factors that are likely to cause
these fluctuations include:
* loss of revenues and reduced cost of sales and other
expenses resulting from our transition out of our call
center and fulfillment operations;
* demand for and market acceptance of our order
management and fulfillment systems and services,
specifically our new Omnigy platform;
* client retention;
* fluctuations in third-party call center and fulfillment
center costs during the remaining time periods these
services are offered;
* timing and magnitude of capital expenditures;
* costs relating to the expansion of our operations and
the development and/or acquisition of additional
software applications;
* introduction of new systems and services or
enhancements by us or our competitors;
* the ability to meet the technological demands of our
clients;
* changes in our pricing policies or those of our
competitors;
* economic conditions specific to the order management
industry, as well as generally; and
* the effect of potential strategic acquisitions or
alliances.
As a result of these and other factors, our future operating
results may fall below the expectations of securities analysts
and investors.
Seasonality
Our business and revenue are seasonal. We expect to continue
to experience seasonal fluctuation of revenues and operating
results in the future that, we believe, will cause period-to-
period comparisons of our results of operations to be
inappropriate as indicators of future performance. Many retail
businesses, including Sears and other clients, sell more products
during the holiday season than in any other portion of the year.
For example, the Sears Wish Book catalog is mailed only twice per
year during the third and fourth calendar quarters. Accordingly,
because we currently generate the vast majority of our revenue on
a per-transaction basis, we recognize a disproportionate portion
of our annual revenue in the last three months of the year. As a
result of our seasonal business, we also have additional risks in
processing a large volume of transactions in short time periods.
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Liquidity and Capital Resources
Prior to our initial public offering, we financed our
operations principally through funds from the private placement
of equity securities. We completed our initial public offering of
5,750,000 shares of common stock in November 1999, which yielded
net proceeds of approximately $41.9 million. Prior to the initial
public offering, we also supplemented our capital needs with
short-term borrowings under a credit facility maintained with
Comerica Bank-Texas. As of September 30, 2000, we had working
capital of approximately $19.0 million.
For the nine months ended September 30, 2000, net cash used
in operating activities was approximately $12.5 million compared
to approximately $4.0 million for the nine months ended September
30, 1999. The increase in cash used resulted primarily from
operating losses, and approximately $970,000 related to the
restructuring costs.
During the second and third quarters of 2000, we have taken
actions to reduce our operating expenses. For example, we have
reduced our number of employees by 164 (approximately 4237%)
since February 29, 2000. Likewise, our cash used in operations
decreased by 42% in the third quarter of 2000 when compared to
cash used in operations in the first second quarter of 2000.
Our capital expenditures amounted to approximately $4.5
million for the nine months ended September 30, 2000, and
approximately $3.2 million for the nine months ended September
30, 1999. For the nine months ended September 30, 2000, capital
expenditures included software development costs of $505,000
related to our internally developed software platform (before it
was discontinued) and $2,352,000 related to the development of
our new Omnigy platform. The remainder of the additions related
primarily to the purchase of software, computers and other
technical equipment.
Historically, we maintained a $2.0 million revolving line of
credit with Comerica Bank which was secured by our assets. This
facility expired on May 13, 2000 and to date has not been
renewed. No assurances can be made that we will be able to
secure a new facility with terms and an amount acceptable to the
company if and when we desire to do so.
The termination of our fulfillment center and call center
operations will initially reduce our revenues by a substantial
amount. We also anticipate our cost of sales, general and
administrative, and depreciation and amortization expenses to be
reduced accordingly. However, these changes are not expected to
immediately eliminate our cash flow deficits.
We believe that the proceeds from our initial public
offering closed in November 1999 will be sufficient to meet our
working capital and capital expenditure requirements for at least
the next 12 months. However, the execution of our business plan
will require substantial additional capital to fund our operating
losses, working capital needs, sales and marketing expenses,
lease payments and capital expenditures thereafter. In the event
our plans or assumptions change or prove to be inaccurate, we may
be required to seek additional sources of capital. In addition,
although no significant business acquisitions were planned or
reasonably likely at the time of filing this report, we may need
to seek additional sources of capital to the extent any
materializes during that period. Sources of additional capital
may include public and private equity and debt financings, sales
of nonstrategic assets and other financing arrangements.
Recent Events
Discontinuance of Call Center/Data Center
On September 28, 2000, we announced that we would
transition out of our fulfillment and call center operations and
concentrate on providing systems solutions. We are currently in
discussions with prospective buyers of the fulfillment and call
center assets; however, no definitive agreements concerning such
sales have been reached. No assurances can be given that we will
be able to effect the sale of either our call center operations
or our fulfillment operations on terms favorable to us, if at
all. We expect to complete our sale of these assets, if at all,
before the end of the first quarter in of 2001. To the extent we
are unable to sell the assets comprising either our call center
operations or our fulfillment operations, we intend to
discontinue these operations entirely on or about such
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date. Upon the sale or discontinuance of the call center and/or
fulfillment center, we expect our revenue will be derived
primarily from software licensing, and implementation fees and,
to a much lesser extent, fees from professional services.
In connection with this transition, we expect to pay
certain severance and other costs. However, we do not expect
these costs to be material to our financial position and results
of operations.
Modification of Sears Relationship
On September 15, 2000, our contracts with Sears, Roebuck
and Co. and Sears Wishbook, Inc. (collectively, "Sears") were
modified to include the following provisions:
* The contracts will expire on July 1, 20002001.
* An incremental service fee price increase was made
effective September 1, 2000. The existing
transaction based pricing arrangement between the
parties was not modified.
* Sears will transition its fulfillment service needs
to a third-party provider, and we, or our assignee,
shall no longer have any obligation to provide
fulfillment services after December 31, 2000.
* Sears will transition its call center services needs
to a third-party provider and we, or our assignee,
shall no longer have any obligation to provide call
center services to Sears after February 28, 2001.
Upon the termination of the services as mentioned
above, the monthly incremental service fee payable by Sears will
be reduced by a significant amountas a result of the elimination
of our fulfillment and call center services beyond December 31,
2000 and February 28, 2001, respectively. Sears will continue to
pay us a majority of the monthly incremental service fee plus our
transaction-based fees previously in effect.However, Sears will
be responsible for payment of transaction-based pricing through
the remainder of the contract.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We currently do not engage in commodity futures trading or
hedging activities and do not enter into derivative financial
instrument transactions for trading or other speculative
purposes. We also do not currently engage in transactions in
foreign currencies or in interest rate swap transactions that
could expose us to market risk.
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<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 21, 2000, the Original Honey Baked Ham Company of
Georgia, Inc. ("HBH") filed suit against the company to recover
damages for an alleged breach of contract related to services
performed by the company for HBH in 1999. The lawsuit seeks
compensatory damages, incidental and consequential damages and
other costs, fees and expenses including attorneys' fees and
legal expenses in excess of $10.0 million. We filed a claim for
receivables due from HBH, and are actively exploring a number of
additional claims against HBH. Management denies plaintiff's
allegations and intends to vigorously defend the lawsuit. Since
this claim is at a very early stage, the company is unable to
predict with any certainty what the outcome with respect to any
claim might be, and therefore the company has not provided a
reserve for potential claims, nor has it provided a reserve
against its receivable from HBH.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of Proceeds
(1) On November 10, 1999, the Securities and Exchange
Commission declared effective the Registration Statement on Form
S-1 (File No. 333-85983) relating to our initial public offering.
Net offering proceeds to us from this offering were approximately
$41,880,000.
(2) Unchanged since originally reported in our Annual
Report on Form 10-K for the year ended December 31, 1999.
(3) Unchanged since originally reported in our Annual
Report on Form 10-K for the year ended December 31, 1999.
(4)(i)-(vi) Unchanged since originally reported in our
Annual Report on Form 10-K for the year ended December 31, 1999.
(vii) From November 10, 1999 (the effective date of the
Registration Statement) to September 30, 2000 (the ending date of
this report), we expended net offering proceeds for the following
uses:
. Construction of plant, building and
facilities ............................... $ 0
. Purchase and installation of machinery
and equipment ............................ $ 4,976,000
. Purchase of real estate.................... $ 0
. Acquisition of other businesses............ $ 0
. Repayment of indebtedness.................. $ 3,655,000
. Working capital............................ $ 13,230,000
. Temporary investments...................... $ 20,019,000*
All of the payments referenced above were direct or indirect
payments to others.
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<PAGE>
________________
* Pending final application of the net proceeds of the
offering, we have invested such proceeds primarily in cash and
cash equivalents.
(viii) Material change in the use of proceeds: Not
applicable.
We have not yet determined the actual use of net proceeds
remaining from the offering, and thus cannot estimate the amounts
to be used for each purpose discussed above. The amounts and
timing of these expenditures will vary significantly depending on
a number of factors, including such factors as the amount, if
any, of cash generated by our operations and the market response
to our service offerings. Accordingly, our management will have
broad discretion in the application of the net proceeds. Our
stockholders will not have the opportunity to evaluate the
economic, financial or other information on which we base our
decisions on how to use the proceeds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.22 Letter Agreement, dated September 15,
2000, by and between the Registrant, Sears
Roebuck and Co. and Sears Wishbook, Inc.+
27.1 Financial Data Schedule
+ Confidential treatment has been requested with respect to
certain provisions of this agreement.
(b) Reports on Form 8-K
The Registrant filed the following Current Reports on
Form 8-K during the quarter ended September 30, 2000:
* Current Report on 8-K, dated September 20, 2000,
reporting the extension and modification of the
Sears contracts under Item 5 thereof; and
* Current Report on 8-K, dated September 29, 2000,
reporting decision to transition out of certain
ancillary businesses under Item 5 thereof.
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<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: November 13, 2000 ASCENDANT SOLUTIONS, INC.
By: /s/ David E. Bowe
-----------------------------
David E. Bowe
Chief Executive Officer,
President, and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
No. Description
------- -----------
10.22 Letter Agreement, dated September 15, 2000,
by and between the Registrant, Sears Roebuck and
Co. and Sears Wishbook, Inc.+
27.1 Financial Data Schedule
+ Confidential treatment has been requested with respect to
certain provisions of this agreement.
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