UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended
September 30, 2000.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from ______________ to ______________
Commission File Number: 000-26465
PURCHASEPRO.COM, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0385401
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3291 North Buffalo Drive, Suite 2,
Las Vegas, Nevada 89129
(Address of principal executive offices) (Zip Code)
(702) 316-7000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of outstanding
shares of the Registrant's Common Stock, $.01 par value, was 66,329,012 as of
October 31, 2000.
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PURCHASEPRO.COM, INC. AND SUBSIDIARY
FORM 10-Q
I N D E X
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999 and September 30, 2000
(unaudited).............................................................................. 1
Condensed Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 1999 (unaudited) and September 30, 2000 (unaudited)................... 2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1999 (unaudited) and September 30, 2000 (unaudited)................................... 3
Notes to Condensed Consolidated Financial Statements (unaudited).......................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................................................. 24
Item 6. Exhibits and Reports on Form 8-K.......................................................... 24
. SIGNATURES................................................................................ 27
EXHIBIT INDEX............................................................................. 28
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1999 2000
----------- -------------
(unaudited)
(In thousands, except share amounts)
<S> <C> <C>
Current assets
Cash and cash equivalents......................................... $ 30,356 $ 101,794
Trade accounts receivable, net.................................... 1,950 22,559
Other receivables................................................. 205 808
Other current assets.............................................. 551 3,922
---------- ----------
Total current assets............................................ 33,062 129,083
Property and equipment
Computer equipment................................................ 8,650 28,855
Furniture and fixtures............................................ 890 1,208
Leasehold improvements............................................ 58 6,281
---------- ----------
9,598 36,344
Less--accumulated depreciation and amortization................... (1,262) (5,293)
---------- ----------
Net property and equipment...................................... 8,336 31,051
Other assets
Intangibles, net.................................................. 11,260 139,438
Investment in other companies..................................... 12,587 12,222
Deposits and other................................................ 1,232 1,518
---------- ----------
Total other assets, net......................................... 25,079 153,178
---------- ----------
Total assets.................................................... $ 66,477 $ 313,312
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................. $ 2,847 $ 1,619
Accrued salaries and benefits..................................... 757 1,322
Deferred revenues................................................. 250 6,168
Obligation under marketing and technology development agreement,
current portion................................................... -- 27,876
Notes payable..................................................... 25 --
Other accrued liabilities......................................... 744 1,721
---------- ----------
Total current liabilities....................................... 4,623 38,706
Obligation under marketing and technology development agreement,
net of current portion.......................................... -- 15,943
---------- ----------
Total liabilities...................................................... 4,623 54,649
Stockholders' equity
Common stock: 190,000,000 shares authorized, 56,367,360 and
66,000,510 shares issued and outstanding, respectively.......... 564 660
Additional paid-in capital........................................ 137,488 377,907
Deferred stock-based compensation................................. (3,941) (7,227)
Accumulated deficit............................................... (78,741) (114,794)
Accumulated other comprehensive income............................ 6,484 2,117
---------- ----------
Total stockholders' equity...................................... 61,854 258,663
---------- ----------
Total liabilities and stockholders' equity...................... $ 66,477 $ 313,312
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended, Nine Months Ended,
September 30, September 30
1999 2000 1999 2000
---------- ---------- ---------- ----------
(In thousands except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues
Network access fees........................ $ 1,158 $ 5,090 $ 2,501 $ 13,352
Software license fees...................... -- 11,330 -- 12,815
Advertising................................ 254 648 254 2,102
Other...................................... 258 269 595 3,132
---------- ---------- ---------- ----------
Total revenues........................... 1,670 17,337 3,350 31,401
Cost of revenues................................ 218 1,490 568 2,503
---------- ---------- ---------- ----------
Gross profit.................................... 1,452 15,847 2,782 28,898
Operating expenses
Sales and marketing........................ 2,338 12,496 5,405 29,676
General and administrative................. 2,111 7,357 4,638 17,830
Programming and development................ 752 2,747 1,531 5,963
Amortization of stock-based compensation... 3,857 2,590 4,946 15,027
---------- ---------- ---------- ----------
Total operating expenses................. 9,058 25,190 16,520 68,496
---------- ---------- ---------- ----------
Operating loss.................................. (7,606) (9,343) (13,738) (39,598)
Other income (expense)
Interest income (expense), net.................. 80 1,112 (80) 3,545
Other...................................... -- -- (279) --
---------- ---------- ---------- ----------
Total other income (expense).................... 80 1,112 (359) 3,545
---------- ---------- ---------- ----------
Net loss before benefit for income taxes........ (7,526) (8,231) (14,097) (36,053)
---------- ---------- ---------- ----------
Benefit for income taxes -- -- -- --
---------- ---------- ---------- ----------
Net loss........................................ (7,526) (8,231) (14,097) (36,053)
Preferred stock dividends....................... (224) -- (511) --
Accretion of preferred stock to redemption value (36) -- (131) --
Value of preferred stock beneficial conversion
feature....................................... -- -- (9,400) --
---------- ---------- ---------- ----------
Net loss applicable to common stockholders...... $ (7,786) $ (8,231) $ (24,139) $ (36,053)
========== ========== ========== ==========
Net loss per share applicable to common
stockholders
Basic......................................... $ (0.25) $ (0.13) $ (0.93) $ (0.61)
========== ========== ========== ==========
Diluted....................................... $ (0.25) $ (0.13) $ (0.90) $ (0.61)
========== ========== ========== ==========
Weighted average number of common shares
outstanding
Basic......................................... 30,985,992 64,741,706 26,005,791 59,179,166
========== ========== ========== ==========
Diluted....................................... 31,166,280 64,741,706 26,876,658 59,179,166
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1999 2000
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net loss........................................................................ $ (14,097) $ (36,053)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 403 5,711
Amortization of stock-based compensation................................... 4,946 15,027
Imputed interest........................................................... -- 1,044
Amortization of debt discount.............................................. 355 --
Provision for doubtful accounts............................................ 351 1,977
Non-cash sales and marketing expenses...................................... 800 895
(Increase) decrease in:
Trade accounts receivable.................................................. (1,736) (22,586)
Other receivables.......................................................... (28) (603)
Other current assets....................................................... (383) (3,371)
Increase (decrease) in:
Accounts payable........................................................... 355 (1,228)
Accrued liabilities........................................................ 514 1,542
Deferred revenues.......................................................... 117 5,918
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Net cash used in operating activities.................................... (8,403) (31,727)
Cash flows from investing activities
Purchase of property and equipment......................................... (1,986) (18,411)
Investment in other companies and marketable securities.................... -- (4,002)
Marketing and technology development....................................... -- (25,000)
Other assets............................................................... (319) (1,958)
---------- ----------
Net cash used in investing activities.................................... (2,305) (49,371)
Cash flows from financing activities
Proceeds from notes payable and advances................................... 200 --
Repayment of notes payable and advances.................................... (1,350) (25)
Issuance of common stock, net.............................................. 50,621 158,232
Issuance of preferred stock and warrants, net.............................. 8,026 400
Payments under marketing and technology agreements......................... -- (6,071)
---------- ----------
Net cash provided by financing activities................................ 57,497 152,536
---------- ----------
Increase in cash and cash equivalents........................................... 46,789 71,438
---------- ----------
Cash and cash equivalents
Beginning of period........................................................ 1,689 30,356
---------- ----------
End of period.............................................................. $ 48,478 $ 101,794
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Non-cash investing and financing activities
Other assets acquired with preferred stock................................. $ 674 $ --
========== ==========
Conversion of notes payable to equity...................................... $ 700 $ --
========== ==========
Conversion of preferred shares to common stock............................. $ 16,381 $ --
========== ==========
Obligations under marketing and technology development agreements.......... $ -- $ 47,997
========== ==========
Warrants issued under marketing and technology development agreements...... $ -- $ 64,000
========== ==========
Capitalized interest....................................................... $ -- $ 849
========== ==========
Cash paid for interest.......................................................... $ 124 $ 1,893
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited condensed interim consolidated financial statements of
PurchasePro.com, Inc. and its subsidiary, Hospitality Purchasing Systems
(collectively, the Company) for the three months and nine months ended September
30, 1999 and 2000, included herein, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the SEC. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the results of the
Company's operations and its cash flows for the three months and nine months
ended September 30, 1999 and 2000. The accompanying unaudited condensed
consolidated financial statements are not necessarily indicative of full year
results. Certain reclassifications have been made to prior period financial
statements to conform to the 2000 presentation, which have no effect on
previously reported revenue or net income.
Stock Split
On September 21, 2000, the Company's board of directors authorized a
2-for-1 stock split effected in the form of a stock dividend payable October 12,
2000 to stockholders of record on September 29, 2000. All share and per share
amounts in the accompanying unaudited financial statements have been restated to
give effect to the stock split.
(2) Revenue Recognition
The Company's revenues consist of network access fees that include fees
charged to subscribers for accessing the PurchasePro global e-marketplace,
application service provider and transaction fees charged to private
e-marketplace sponsors for hosting and maintaining their e-marketplaces,
month-to-month hosting fees charged those companies that license software and
elect to have the Company host their private e-marketplaces rather than host the
e-marketplace on their hardware networks, and service fees charged software
licensees for setting up their e-marketplaces; software license and maintenance
fees; advertising fees; and other fees.
In December 1999, the SEC issued its Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition in Financial Statements." The Company adopted the
provisions of SAB 101 in fiscal year 2000, which did not have a material impact
on the Company's revenue recognition policies.
Network access fees, including hosting and service fees, are recognized
over the term of the executed contracts. Hosting services are generally
terminable at any time by the customers with 30 days notice. Service for setting
up e-marketplaces for software licensees are generally completed within 45 days
of contract execution. Software license revenues consist of sales of software
licenses which are recognized in accordance with the American Institute of
Certified Public Accountants' Statement of Position (SOP) 97-2, "Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition with Respect to Certain Transactions." Under SOP 97-2 and SOP 98-9,
software license revenues are recognized upon execution of a contract and
delivery of the software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management.
Maintenance revenues are derived from customer support agreements, which are
sold separately from the initial software license, and are recognized ratably
over the term of the maintenance period. Advertising and other revenues are
recognized over the period the services are provided.
Recognition of certain revenue is defered until later quarters. In the
third quarter of fiscal year 2000, the Company began selling software licenses
through resellers. At present, the Company has adopted the method of deferring
revenue recognition until the time the reseller delivers the software to the end
user. For those customers that acquire the software from the Company through a
license and concurrently enter into a service contract with the Company, the
software license fees are deferred and recognized at the time of completion of
the related services.
(3) Intangible Assets
As of December 31, 1999 and September 30, 2000, intangible assets consisted
of the following:
December 31, September 30,
1999 2000
------------- -------------
(unaudited)
AOL marketing and technology agreements... $ -- $ 92,161
Gateway marketing agreement................ -- 38,160
Editorial content................ ......... 10,747 10,747
Acquired Technology agreement.............. 215 215
Non-Compete agreement...................... 385 385
---------- ----------
11,347 141,668
Less - Accumulated Amortization............ (87) (2,230)
---------- ----------
Net Intangible Assets...................... $ 11,260 $ 139,438
========== ==========
(4) Marketable Securities
Marketable securities consist of investments in other companies in the form
of equity securities. The Company has classified all investments as
available-for-sale. Available-for-sale securities are recorded at market value.
Unrealized holding gains and losses, net of the related income tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of comprehensive income (loss) until realized. Dividend and
interest income is recognized when earned. Realized gains and losses for
securities classified as available-for-sale are included in earnings and are
derived using the specific identification method for determining the cost of
securities sold.
For the three and nine months ended September 30, 2000, the Company
recognized comprehensive losses of $3.4 and $4.4 million, respectively.
Subsequent to September 30, 2000, the Company sold an investment for a realized
gain of $2.7 million.
(5) Stockholders' Equity
Common Stock and Stock Options
During the three months and nine months ended September 30, 2000, the
Company issued 1,363,052 and 4,466,618 shares, respectively, of common stock
exercised through stock option plans. The Company applies the provisions of APB
No. 25 and its related interpretations in accounting for its stock option plans.
On August 14, 2000, the Board of Directors authorized the issuance of options to
purchase 2,245,500 shares of common stock to certain executive officers at a
price equal to fair market value.
Common Stock Warrants
In May 2000, a warrant to purchase 767,116 shares of common stock
previously issued to a customer expired. In June 2000, the Company issued a new
warrant to the customer to purchase 767,116 shares of common stock for $13.50
per share. The total value of the warrants, using the Black Scholes model, of
$400,000, was offset against revenue of $2.8 million earned from the customer
during the three months ended June 30, 2000. On September 25, 2000, the customer
exercised its warrant rights and purchased 536,620 shares of common stock, by
surrendering warrants to purchase 230,496 shares through a cashless exercise. As
of September 30, 2000, there were no more warrants outstanding with this
customer.
In March, 2000, the Company issued America Online, Inc. (AOL) warrants to
purchase up to 4,000,000 shares of company common stock at $63.26 (adjusted
after one year, as to any unvested warrants, to the then-current market price of
the Company's common stock). The warrants are exercisable from the time they
vest until March 2003 as follows: (i) 1,000,000 warrants vest immediately; and
(ii) 3,000,000 warrants vest as revenue is earned by the Company (see Note 9).
In September 2000, the Company entered into an agreement with Gateway
Companies, Inc. (Gateway) whereby Gateway can earn warrants to purchase up to
3,000,000 shares of common stock at a price of $29.75 per share. Of these
warrants, 1,000,000 vested immediately upon issuance, an additional 1,000,000
warrants vest on October 31, 2000, and the remaining 1,000,000 warrants can be
earned by Gateway based on the terms of the agreement (see Note 9).
(6) Deferred Stock-Based Compensation
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through September 30, 2000, the Company recorded deferred stock-based
compensation of $28 million for the difference at the grant date between the
exercise price and the fair value of the common stock underlying the options.
This amount is being amortized over the vesting period of the individual
options, which is generally two to five years.
(7) Earnings Per Share
The computations of basic and diluted earnings per share (EPS) for each
period were as follows:
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Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
---------- ---------- ---------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Loss (Numerator)
Net loss............................................. $ (7,526) $ (8,231) $ (14,097) $ (36,053)
Preferred stock dividends............................ (224) -- (511) --
Accretion of preferred stock to redemption value..... (36) -- (131) --
Value of preferred stock beneficial conversion feature -- -- (9,400) --
---------- ---------- ---------- ----------
Basic EPS
Net loss applicable to common stockholders........... $ (7,786) $ (8,231) $ (24,139) $ (36,053)
========== ========== ========== ==========
Diluted EPS
Net loss applicable to common stockholders after
assumed conversions.............................. $ (7,786) $ (8,231) $ (24,139) $ (36,053)
========== ========== ========== ==========
Shares (Denominator)
Basic EPS
Net loss applicable to common stockholders: shares
outstanding...................................... 30,985,992 64,741,706 26,005,791 59,179,166
Effect of Securities Issued for Nominal Consideration
Warrants............................................. 1,679,997 -- 1,679,997 --
Exercise of Warrants................................. (1,499,709) -- (809,130) --
---------- ---------- ---------- ----------
Diluted EPS
Net loss applicable to common stockholders after
assumed conversions: shares outstanding.......... 31,166,280 64,741,706 26,876,658 59,179,166
========== ========== ========== ==========
Per Share Amount
Basic EPS............................................ $ (.25) $ (0.13) $ (0.93) $ (0.61)
========== ========== ========== ==========
Diluted EPS.......................................... $ (.25) $ (0.13) $ (0.90) $ (0.61)
========== ========== ========== ==========
</TABLE>
Options to purchase 9,844,380 and 15,002,279 shares of common stock were
outstanding as of September 30, 1999 and 2000, respectively, but were not
included in the computation of diluted earnings per share because the Company
incurred a loss in each of the periods presented and the effect would have been
anti- dilutive.
(8) Related Party Transaction
The Company entered into a strategic sales and marketing agreement with
Office Depot, Inc. in February 2000. Office Depot is a significant stockholder
and its former CEO is a former director of the Company. Pursuant to the sales
and marketing agreement, Office Depot purchased subscriptions for network access
for its customers that represented 25% of net revenues for the nine months ended
September 30, 2000.
(9) Strategic Agreements
America Online
On March 16, 2000, the Company entered into a series of agreements with AOL
to co-develop a new generation of the Company's marketplace technology and to
co-develop and market a co-branded marketplace. The Company and AOL will each
contribute technology to the development alliance and co-manage the development
of the new marketplace technology. The Company will pay AOL $20 million in eight
equal quarterly installments beginning August 1, 2000 and AOL will make AOL
programmers available to the development alliance.
The parties also agreed to market the co-branded marketplace across the AOL
properties. The Company agreed to pay AOL $50 million for marketing support in
the form of advertising impressions. The Company paid $25 million to AOL in
March 2000 and the $25 million balance is to be paid in seven equal quarterly
installments beginning June 30, 2000. Approximately $6.1 million of this
obligation was paid in the three months ended September 30, 2000.
The Company and AOL have agreed to a revenue sharing arrangement, under
which each will share revenue generated by the co-branded marketplace, including
network access fees, transaction fees and advertising revenue. The marketplace
was launched on August 13, 2000. In addition, the Company and AOL will share
revenue resulting from the marketing of marketplaces utilizing the co-developed
technology to AOL's trading partners.
The Company imputed interest at 10% on the total $45 million of payments
due to AOL. The discounted value of the payments have been included in the
accompanying condensed consolidated balance sheets as a liability called
"Obligation Under Marketing and Technology Development Agreement."
The Company also issued AOL warrants to purchase up to 4,000,000 shares of
the Company's common stock at an exercise price of $63.26 (adjusted after one
year, as to any unvested warrants, to the then-current market price of the
Company's common stock). The warrants are exercisable from the time they vest
until March 2003 as follows: (i) 1,000,000 warrants vest immediately; and (ii)
3,000,000 warrants vest as revenue is earned by the Company under the terms of
the agreement. Vesting begins when annualized revenues equal $25 million and
vest one share per $40 of revenue thereafter. The value of the warrants was
determined to be $25.8 million using the Black Scholes model, and is recorded as
additional paid-in capital.
The total amount of payments and warrants given to AOL have been recorded
as an intangible long-term asset based on their relative fair values. The
marketing expense will be charged to sales and marketing expense as impressions
are delivered. The technology development costs will be amortized to programming
and development expense over five years (the estimated useful life of such costs
and the agreement term, including expected renewals).
At certain revenue thresholds and at certain times during the agreement
term, AOL has the option to (i) receive a share of the revenue from the decision
point forward, or (ii) receive a cash payment of $25 million in exchange for
providing additional future advertising. The contingent payment will be accrued
as revenue is earned, and a corresponding prepaid marketing expense will be
recorded. Should AOL elect the revenue share, the asset and liability will be
eliminated at that time.
Gateway
In September 2000, the Company entered into agreements with Gateway
pursuant to which (i) the Company agreed to acquire approximately $500,000 of
computer hardware from Gateway, (ii) Gateway agreed to acquire three marketplace
software licenses from the Company for approximately $3.3 million, and (iii)
Gateway agreed to provide the Company with certain training services for
customers using the Company's global e-commerce marketplace, including the
Gateway marketplaces to be powered by the Company (the "Gateway Marketplaces"),
and certain marketing services in connection with the Gateway Marketplaces and
the Company's global marketplace. The services shall be rendered during a
two-year period, and the aggregate value of the services shall not be less than
$40 million nor more than $56.7 million.
In consideration of the training and marketing services to be rendered, the
Company issued three separate warrants to purchase an aggregate of 3,000,000
shares of Company common stock at an exercise price of $29.75 per share. Of the
warrants, 1,000,000 vested and are exercisable immediately and another 1,000,000
vest and become exercisable on October 31, 2000. The remaining 1,000,000
warrants may vest and become exercisable over a period of eighteen months, with
one share vesting for each $40 in revenue generated from transaction fees
charged for transactions executed over the Gateway Marketplaces. The value of
these warrants, using the Black Scholes model, totaled $38.2 million. The
minimum value of the training and marketing services to be received has been
determined to be at least equal to the value of the warrants. The training
services were valued based upon the estimated number of training units to be
offered and the estimated fair value of each unit using information obtained
from other companies that provide similar training services. The marketing
services were valued based primarily upon the estimated number of icons to be
placed on computers sold by Gateway to their small- and medium-sized business
customers, based on third party quotes. The value of these marketing and
training services has been deferred and will be amortized over the life of the
contract on the faster of the straight-line basis or as the services are used.
The license fees payable to the Company under these agreements represented 11%
of net revenues for the nine months ended September 30, 2000.
(10) Subsequent Events
On October 29, 2000, the Company entered into a definitive purchase
agreement to acquire all of the outstanding shares of capital stock of
Stratton-Warren Software, Inc. for approximately $14.0 million in cash and
marketable securities. This transaction will be accounted for as a purchase, and
is expected to close in the fourth quarter of fiscal year 2000 subject to
customary conditions and due diligence.
On November 3, 2000, the Company entered into an agreement with
E-Marketpro, LLC, a company majority, owned by Bradley D. Redmon, a former
director of the Company, whereby the Company agreed to acquire certain marketing
and other intangible rights back from E-Marketpro for 100,000 shares of common
stock. The Company also agreed to issue E-Marketpro up to 100,000 additional
shares of Company common stock if it generates a minimum level of revenue in the
next 12 months.
(11) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. The FASB recently issued SFAS Nos. 137 and 138, which defer the
effective date and amend portions of SFAS No. 133. SFAS No. 133 will be
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company currently does not engage in, nor does management expect the Company
to engage in, derivative or hedging activities; therefore, management does not
believe that the adoption of SFAS No. 133 will have a material impact on the
Company's results of operations or financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations as of September 30, 2000, and for the three and nine
months ended September 30, 1999 and 2000, should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto set
forth in Item 1 of this report and the Company's December 31, 1999 Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
In addition to the historical information contained herein, the discussion
in this Form 10-Q may contain certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; future customer
benefits attributable to our products; developments in our markets and strategic
focus; new products and product enhancements; potential acquisitions and the
integration of acquired businesses; products and technologies; strategic
relationships; recognition of deferred revenue; and future economic, business
and regulatory conditions. Such forward-looking statements are generally
accompanied by words such as "plan," "estimate," "expect," "believe," "should,"
"would," "could," "anticipate," "may" or other words that convey uncertainty of
future events or outcomes. The cautionary statements made in this Form 10-Q
should be read as being applicable to all related forward-looking statements
whenever they appear in this Form 10- Q. Our actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed under the section captioned "Risk Factors" included in Item
2 of this Form 10-Q as well as those cautionary statements and other factors set
forth elsewhere herein. You are urged to consider such factors.
Overview
We are a leading provider of business-to-business electronic marketplace
solutions. We license our software products to businesses that own and operate
their own private labeled e-marketplaces. We operate a global e-marketplace that
provides businesses of all sizes with a low-cost and efficient e-commerce
solution for buying and selling a wide range of products and services over the
internet. We also develop, host and maintain private labeled e-marketplaces that
can connect to our public global e-marketplace.
Our predecessor company was incorporated in October 1996. In January 1998,
we incorporated PurchasePro.com, Inc., and acquired all of the assets and
assumed all of the liabilities of our predecessor. In August 1998, we acquired
our subsidiary company, Hospitality Purchasing Systems (HPS). From October 1996
to the commercial release of our service in April 1997, we were primarily
engaged in raising capital and developing our global e-marketplace and software
infrastructure.
In April 1997, we released PurchasePro 1.0, enabling our members to
transact e-commerce in our global e-marketplace. Our next release in July 1997
provided this capability over the Internet. In September 1998, we released
PurchasePro 3.0, our e-marketplace enabling software. In February 1999, we
released PurchasePro 4.0, which allows members the additional capability of
building private labeled e-marketplaces. On December 15, 1999, the Company
released PurchasePro 5.0, a browser-based version that allows members to access
the global e-marketplace and private labeled e-marketplaces with a user
identification and password over the Internet. In May 2000, we launched a new
suite of private-labeled e-marketplace software solutions.
From inception through June 30, 1999, substantially all of our revenues
were derived from monthly membership subscription fees for access to our global
e-marketplace and from application service fees for private-labeled
e-marketplaces. Our strategy is to generate multiple recurring revenue streams
and beginning in 1999, we began to recognize revenues from other sources,
including transaction fees and advertising fees. In 1999, with the release of
version 4.0, we began contracting with business customers to set up private
labeled e-marketplaces tailored to the needs of our customers. We began charging
these customers an application service provider fee for a fully operational
e-marketplace solution hosted and maintained by us during the period of service.
In general, we recognize revenues as an application service provider over the
period of service. In August 1998, our purchasing aggregator subsidiary, HPS,
began generating transaction fees and participation fees from groups buying
services provided to the hospitality industry.
In June 2000, we launched a suite of private e-marketplace solutions
designed for three large classes of businesses and began licensing our software.
We recognize revenue from these software license agreements in accordance with
SOPs 97-2 and 98-9. Software license fees are recognized upon execution of a
contract and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management. In
connection with these private labeled e-marketplace software sales, we often
generate additional recurring revenue streams from customers who purchase
maintenance and other professional services, including month-to-month hosting
services to those software licensees who elect to have us host their
e-marketplaces rather than host the e-marketplace on their hardware networks.
In September 2000, we began selling software licenses for these private
labeled e-marketplace solutions through value added resellers. At present, we
have adopted the method of deferring revenue recognition until the time the
reseller delivers the software to the end user. We cannot be assured when the
resellers will actually deliver the software.
In September 1999, we began generating transaction fee revenues from
transactions consummated by members of our global e-marketplace with value added
merchandise and service providers. Also, we began generating advertising fees,
which we believe will continue to generate both transaction fees and advertising
revenues in the future, and that these revenue streams will become a more
significant portion of our total revenues.
Since our inception on October 8, 1996, we have incurred significant net
losses. From inception through December 31, 1996, we had a net loss of $123,000.
For the years ended December 31, 1997, 1998 and 1999, our net losses applicable
to common stockholders were $3.0 million, $7.1 million and $82.0 million,
respectively. For the nine months ended September 30, 1999 and 2000, we had net
losses applicable to common stockholders of $24.1 million and $36.1 million,
respectively. Through September 30, 2000, our accumulated deficit totaled $114.8
million.
Results of Operations
The following table sets forth certain statements of operations data as a
percentage of revenues for the periods indicated. The data has been derived from
the unaudited condensed consolidated financial statements contained in this Form
10-Q which, in the opinion of management include all adjustments, consisting
only of normal recurring adjustments necessary to present fairly the financial
position and results of operations for the interim periods. The operating
results for any period should not be considered indicative of results for any
future period. This information should be read in conjunction with the financial
statements and notes thereto.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
---------- ---------- ---------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues
Network access fees............................. 69.4% 29.3% 74.6% 42.5%
Software license fees........................... -- 65.4 -- 40.8
Advertising..................................... 15.2 3.7 7.6 6.7
Other........................................... 15.4 1.6 17.8 10.0
---------- ---------- ---------- ----------
100.0 100.0 100.0 100.0
Cost of revenues..................................... 13.0 8.6 16.9 8.0
---------- ---------- ---------- ----------
Gross profit......................................... 87.0 91.4 83.1 92.0
Operating expenses
Sales and marketing............................. 140.0 72.1 161.3 94.4
General and administrative...................... 126.3 42.4 138.5 56.8
Programming and development..................... 45.1 15.9 45.7 19.0
Amortization of stock-based compensation........ 231.0 14.9 147.7 47.9
---------- ---------- ---------- ----------
Total operating expenses.................... 542.4 145.3 493.2 218.1
---------- ---------- ---------- ----------
Operating loss....................................... (455.4) (53.9) (410.1) (126.1)
Other income (expense)............................... 4.8 6.4 (10.7) 11.3
---------- ---------- ---------- ----------
Net loss............................................. (450.6) (47.5) (420.8) (114.8)
Preferred stock dividends, accretion of preferred
stock to redemption value and value of preferred
stockbbeneficial conversion feature.............. (15.6) -- (299.8) --
---------- ---------- ---------- ----------
Net loss applicable to common stockholders. (466.2)% (47.5)% (720.6)% (114.8)%
========== ========== ========== ==========
</TABLE>
Comparison of the Three Months Ended September 30, 1999 and September 30, 2000
Revenues. Our revenues consist primarily of (1) network access fees, that
include subscription fees and transaction fees charged to individual subscribers
for access to our global e-marketplace and application service fees for private
labeled e-marketplaces we power for our customers, hosting fees for those
private labeled e-marketplace customers who have licensed our software products,
and services for setting up e-marketplaces, and our share of subscription fees;
(2) software license and maintenance fees for private labeled e-marketplace
licenses sold by us; (3) advertising fees for advertising on our global
e-marketplace and through resellers, and (4) other revenues, which include fees
of our purchasing aggregator subsidiary, HPS, and other ancillary services.
Our net revenues increased from $1.7 million for the three months ended
September 30, 1999, to $17.3 million for the three months ended September 30,
2000. Substantially all of this increase resulted from growth in our software
license fees, new network access and advertising fees. Our network access
revenue increased from $1.2 million for the three months ended September 30,
1999, to $5.1 million for the three months ended September 30, 2000. Of the
increase, $3.0 million relates to the Office Depot sales agreement, whereby
Office Depot pays the network access fees for 2.1 million subscribers. Software
license revenue increased from $0 to $11.3 million for the three months ended
September 30, 1999 and September 30, 2000, respectively. Software license
revenues consist of sales of software licenses which are recognized in
accordance with the American Institute of Certified Public Accountants'
Statement of Position (SOP) 97-2, "Software Revenue Recognition." Under SOP 97-2
and SOP 98-9, software license revenues are recognized upon execution of a
contract and delivery of the software, provided that the license fee is fixed
and determinable, no significant production, modification or customization of
the software is required and collection is considered probable by management.
At present, we have adopted the method of deferring revenue recognition
until the time the reseller delivers the software to the end user. Under our
standard reseller program, we have no obligation of future performance under
licenses sold to resellers. For those customers that acquire the software
through a license and also enter into a 45-day service contract, the license
fees are deferred and recognized at the time of completion of services.
Maintenance revenues are derived from customer support agreements generally
entered into in connection with the initial license sales and are recognized
ratably over the term of the maintenance period, generally for terms of two to
four years. Advertising revenues increased from $254,000 to $648,000 for the
three months ended September 30, 1999 and 2000, respectively. Other revenues,
which include transaction fees and participation fees of our purchasing
aggregator subsidiary, HPS, and other ancillary services, increased from
$258,000 for the three months ended September 30, 1999, to $269,000 for the
three months ended September 30, 2000.
Cost of Revenues. Our cost of revenues consists primarily of costs for
operating the public and private marketplace network and private e-marketplace
development, including fees for independent contractors and compensation for our
personnel. Our cost of revenue increased from $218,000 for the three months
ended September 30, 1999, to $1.5 million for the three months ended September
30, 2000. The increase was primarily the result of the increase in personnel in
our network and project development departments. Expenses related to personnel
costs of our network and web site operations departments increased from $179,000
for the three months ended September 30, 1999, to $734,000 for the three months
ended September 30, 2000. Expenses related to personnel costs of our
e-marketplace development department increased from $0 to $275,000 over the same
period. We expect that our cost of revenues will increase in absolute dollars,
but will remain relatively constant as a percentage of revenues in future
periods. This reflects the increased efficiency of our network department to
provide service to our customers. Our gross profit increased from $1.5 million
for the three months ended September 30, 1999, to $15.8 million for the three
months ended September 30, 2000.
Sales and Marketing Expenses. Our sales and marketing expenses are
comprised primarily of compensation for our sales and marketing personnel,
travel and related costs, and costs associated with our marketing activities
such as advertising and other promotional activities. Our sales and marketing
expenses increased from $2.3 million for the three months ended September 30,
1999, to $12.5 million for the three months ended September 30, 2000. This
increase is primarily attributable to an increase in our marketing, promotional
and branding efforts. Costs associated with our marketing activities increased
from $495,000 for the three months ended September 30, 1999, to $5.9 million for
the three months ended September 30, 2000. Included in sales and marketing
expenses for the three months ended September 30, 2000, is a charge for $3.9
million related to our advertising efforts with Office Depot, Inc. Sales and
marketing expenses for the three months ended September 30, 2000, included a
$895,000 non-cash charge related to the amortization of editorial content which
is being amortized over three years. Expenses related to our sales and marketing
personnel increased from $1.5 million for the three months ended September 30,
1999, to $4.9 million for the three months ended September 30, 2000. Travel and
related costs increased from $308,000 for the three months ended September 30,
1999, to $459,000 for the three months ended September 30, 2000. We expect that
our sales and marketing expenditures will continue to increase, both in absolute
dollars and as a percentage of net revenues, a result of the anticipated
expenditures under the AOL agreement and other increased marketing efforts.
General and Administrative Expenses. Our general and administrative
expenses consist primarily of compensation for personnel and, to a lesser
extent, fees for professional services, facility and communications costs. Our
general and administrative expenses increased from $2.1 million for the three
months ended September 30, 1999, to $7.4 million for the three months ended
September 30, 2000. The increase is primarily attributable to the increased size
of our executive and administrative staff, operating facilities and increased
depreciation. Expenses related to our general and administrative staff increased
from $853,000 for the three months ended September 30, 1999, to $1.3 million for
the three months ended September 30, 2000. Facilities costs increased from
$351,000 for the three months ended September 30, 1999, to $1.2 million for the
three months ended September 30, 2000, as the result of the expansion of our
corporate location. Other general and administrative expenses increased
primarily as a result of a larger amount charged to our reserve for doubtful
accounts. The charge for doubtful accounts totaled $195,000 for the three months
ended September 30, 1999, as compared to $1.3 million for the three months ended
September 30, 2000. The increase corresponds primarily to the increase in our
revenues. Depreciation and amortization also increased over the same periods
from $239,000 to $2.1 million, respectively. The increase is mainly related to
the addition of computer equipment and leasehold improvements. We expect that
our general and administrative expenses will increase in absolute dollars but
remain relatively constant as a percentage of net revenues, as we anticipate
continuing to expand our operations.
Programming and Development Expenses. Programming and development expenses
consist primarily of compensation for our programming and development staff and
payments to outside contractors. Our programming and development expenses
increased from $752,000 for the three months ended September 30, 1999, to $2.7
million for the three months ended September 30, 2000. The increase is primarily
attributable to an increase in our programming staff. Expenses related to
program and development personnel increased from $675,000 for the three months
ended September 30, 1999, to $1.1 million for the three months ended September
30, 2000. We expect that our programming and development expenses will increase
in absolute dollars but remain relatively constant as a percentage of net
revenues as we anticipate continuing to develop and enhance our network
capabilities.
Deferred Stock-Based Compensation. During the three months ended September
30, 1999 and 2000, we charged an additional $965,000 and $0, respectively, of
deferred stock-based compensation to stockholder's equity in connection with
certain stock options granted to employees. The deferred stock-based
compensation is being amortized over the vesting periods of the related options.
For the same periods, amortization of deferred stock-based compensation totaled
$3.9 million and $2.6 million, respectively.
Other Income (Expense). Interest income increased from $82,000 to $1.6
million for the three months ended September 30, 1999 and 2000, respectively.
The increase relates to interest earned on public offering proceeds that were
invested in short- and long-term investments. Our interest expense increased
from $2,000 for the three months ended September 30, 1999, to $519,000 for the
three months ended September 30, 2000. The increase resulted primarily from
imputed interest on the AOL agreement liability. Interest expense in 1999
primarily related to borrowings from our Chairman and Chief Executive Officer on
notes payable outstanding since September 1998 and December 1998.
Comparison of the Nine Months Ended September 30, 1999 and September 30, 2000
Revenues. Our net revenues increased from $3.4 million for the nine months
ended September 30, 1999, to $31.4 million for the nine months ended September
30, 2000. Substantially all of this increase resulted from growth in our
membership, new network access, software license fees and advertising fees. Our
network access revenue increased from $2.5 million for the nine months ended
September 30, 1999, to $13.4 million for the nine months ended September 30,
2000. Of the increase, $8.0 million relates to the Office Depot sales agreement,
whereby Office Depot pays the network access fees for their customers. Software
license revenue increased from $0 to $12.8 million for the nine months ended
September 30, 1999 and September 30, 2000, respectively. Advertising revenue
increased from $254,000 for the nine months ended September 30, 1999, to $2.1
million for the nine months ended September 30, 2000. Other revenues, including
web site development and hosting fees, catalog fees, and finance charges,
increased from $595,000 for the nine months ended September 30, 1999, to $3.1
million for the nine months ended September 30, 2000.
Cost of Revenues. Our cost of revenue increased from $568,000 for the nine
months ended September 30, 1999, to $2.5 million for the nine months ended
September 30, 2000. The increase was primarily the result of the increase in
personnel in our network and project development departments. Expenses related
to personnel costs of our network and web site operations departments increased
from $476,000 for the nine months ended September 30, 1999, to $1.4 million for
the nine months ended September 30, 2000. Expenses related to personnel costs of
our e-marketplace development department increased from $0 to $374,000 over the
same period. We expect that our cost of revenues will increase in absolute
dollars, but will remain relatively constant as a percentage of revenues in
future periods. This reflects the increased efficiency of our network department
to provide service to our customers. Our gross profit increased from $2.8
million for the nine months ended September 30, 1999, to $28.9 million for the
nine months ended September 30, 2000.
Sales and Marketing Expenses. Our sales and marketing expenses increased
from $5.4 million for the nine months ended September 30, 1999, to $29.7 million
for the nine months ended September 30, 2000. This increase is primarily
attributable to an increase in our marketing, promotional and branding efforts.
Costs associated with our marketing activities increased from $757,000 for the
nine months ended September 30, 1999, to $11.5 million for the nine months ended
September 30, 2000. Included in sales and marketing expense for the nine months
ended September 30, 2000, is a charge for $3.9 million related to our
advertising efforts with Office Depot, Inc. Sales and marketing expense for the
nine months ended September 30, 2000, included an $895,000 non-cash charge
related to the amortization of editorial content, which is being amortized over
three years. Expenses related to our sales and marketing personnel increased
from $3.2 million for the nine months ended September 30, 1999, to $14.8 million
for the nine months ended September 30, 2000. Travel and related costs increased
from $621,000 for the nine months ended September 30, 1999, to $1.8 million for
the nine months ended September 30, 2000. We expect that our sales and marketing
expenditures will continue to increase, both in absolute dollars and as a
percentage of net revenues, as a result of the anticipated expenditures under
the AOL agreement and other increased marketing efforts.
General and Administrative Expenses. Our general and administrative
expenses increased from $4.6 million for the nine months ended September 30,
1999, to $17.8 million for the nine months ended September 30, 2000. The
increase is primarily attributable to the increased size of our executive and
administrative staff, operating facilities and increased depreciation. Expenses
related to our costs for general and administrative personnel increased from
$1.9 million for the nine months ended September 30, 1999, to $4.1 million for
the nine months ended September 30, 2000. Facilities costs increased from
$822,000 for the nine months ended September 30, 1999, to $3.1 million for the
nine months ended September 30, 2000, as a result of the expansion of our
corporate location. Other general and administrative expenses increased
primarily as a result of a larger amount charged to our reserve for doubtful
accounts. The charge for doubtful accounts totaled $321,000 for the nine months
ended September 30, 1999, as compared to $2.0 million for the nine months ended
September 30, 2000. Depreciation and amortization increased from $428,000 to
$4.5 million for the nine months ended September 30, 1999 and September 30,
2000, respectively. The increase is mainly related to the addition of computer
equipment and leasehold improvements. We expect that our general and
administrative expenses will increase in absolute dollars but remain relatively
constant as a percentage of net revenues, as we anticipate continuing to expand
our operations.
Programming and Development Expenses. Our programming and development
expenses increased from $1.5 million for the nine months ended September 30,
1999, to $6.0 million for the nine months ended September 30, 2000. The increase
is primarily attributable to an increase in our programming staff. Expenses
related to program and development personnel increased from $1.4 million for the
nine months ended September 30, 1999, to $4.2 million for the nine months ended
September 30, 2000. We expect that our programming and development expenses will
increase in absolute dollars but remain relatively constant as a percentage of
net revenues as we anticipate continuing to develop and enhance our network
capabilities.
Deferred Stock-Based Compensation. During the nine months ended September
30, 1999 and 2000, we charged an additional $9.7 million and $18.3 million,
respectively, of deferred stock-based compensation to stockholder's equity in
connection with certain stock options granted to employees. The deferred
stock-based compensation is being amortized over the vesting periods of the
related options. For the same periods, amortization of deferred stock-based
compensation totaled $4.9 million and $15.0 million, respectively.
Other Income (Expense). Interest income increased from $107,000 to $4.6
million for the nine months ended September 30, 1999 and 2000, respectively. The
increase relates to interest earned on public offering proceeds that were
invested in short- and long-term investments. Our interest expense increased
from $187,000 for the nine months ended September 30, 1999, to $1.1 million for
the nine months ended September 30, 2000. The increase resulted primarily from
the imputed interest on the AOL agreement liability.
Liquidity and Capital Resources
Since our inception on October 8, 1996, we have had significant negative
cash flows from our operations. For the nine months ended September 30, 1999 and
2000, we used a total of $8.4 million and $31.7 million of cash, respectively,
in our operating activities. Cash used in operating activities in each period
resulted primarily from a net loss in those periods. For the nine months ended
September 30, 1999 and 2000, our cash used in operating activities included
increases in our trade accounts receivable of $1.7 million and $22.6 million,
respectively. The increase is primarily attributable to billings for larger
network access contracts, software licenses and advertising revenues.
For the nine months ended September 30, 1999 and 2000, we used cash
totaling $2.3 million and $49.4 million, respectively, in our investing
activities, which have consisted primarily of expenditures for computer and
related equipment, leasehold improvements, investments in other companies and
payment for long-term strategic marketing opportunities. The increase also
includes $25.0 million paid to AOL under our marketing and technology
development agreement (see Note 9).
Net cash provided by financing activities for the nine months ended
September 30, 1999 and 2000, was $57.5 million and $152.5 million, respectively.
This increase includes the net proceeds of our secondary public offering on
February 10, 2000.
As of September 30, 2000, our principal source of liquidity was
approximately $102 million of cash and cash equivalents. As of September 30,
2000, we had trade accounts receivable, net of our estimated reserve for
uncollectable accounts, of $22.6 million. A significant portion of this
receivable balance related to software licenses sold in the latter part of the
quarter ended September 30, 2000. Generally, our software license agreements
have 30-day payment terms. At September 30, 2000, we had deferred revenues
totaling $6.2 million, including deferred reseller revenues. Deferred reseller
revenues will be recognized at the time the reseller delivers the software to
the end user.
As of September 30, 2000, we had material commitments for capital
expenditures of $10.2 million. We expect such expenditures will primarily be for
leasehold improvements to our new technical facility and computer equipment to
expand and enhance our network. As described in Note 9 of Notes to the Condensed
Consolidated Financial Statements, we have commitments to pay AOL $38.9 million
over the next two years under our marketing and technology development
agreement. We have also entered into several non-cancelable lease commitments
that will require payments of approximately $15.5 million over the next five
years.
We believe that we have sufficient cash and cash equivalents, including the
proceeds from our public offerings, to fund our operating and investing
activities through the fiscal year 2001. However, we may need to raise
additional funds in future periods through public or private financing, or other
arrangements. Any additional financing, if needed, might not be available on
reasonable terms or at all. Failure to raise capital when needed could harm our
business, financial condition and results of operations.
Risk Factors
You should carefully consider the following risk factors, in addition to
the other information in this report. Each of these risk factors could adversely
affect our business, financial condition and results of operations as well as
adversely affect the value of an investment in our common stock.
We are an early stage company. Our limited operating history makes it difficult
to evaluate our future prospects.
We only began offering access to our e-marketplace in April 1997. We have
entered into the majority of our contracts and significant relationships only
within the last 24 months. Our limited operating history makes it difficult to
evaluate our future prospects. Our prospects are subject to risks and
uncertainties frequently encountered by start-up companies in new and rapidly
evolving markets such as the business-to-business e-commerce market. Many of
these risks are unknown, but include both the lack of widespread acceptance of
the Internet as a means of purchasing products and services and the ability to
manage our growth. Our failure to identify the challenges and risks in this new
market and successfully address these risks would harm our business.
We have a history of losses and anticipate continued losses, and we may be
unable to achieve profitability.
We have never been profitable. We may be unable to achieve profitability in
the future. We have incurred net losses in each accounting period since our
organization in October 1996. As of September 30, 2000, we had an accumulated
deficit of $114.8 million. For a detailed discussion of our losses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview." We expect to continue to make significant expenditures
for sales and marketing, programming and development and general and
administrative functions. As a result, we will need to generate significant
revenues to achieve profitability. We cannot assure you that revenues will grow
in the future or that we will achieve sufficient revenues for profitability. If
revenues grow more slowly than we anticipate, or if operating expenses exceed
our expectations, our business would be severely harmed.
The revenue and profit potential of our business model is unproven. Our success
is dependent on our ability to expand our membership base and expand into new
markets and industries.
Our business model is to generate revenues from the development of both
public and private on-line e-marketplaces for business-to-business e-commerce
and selling licenses for our software to companies developing their own
e-marketplaces. Our business model is new and our ability to generate revenue or
profits is unproven. Furthermore, our success is dependent on our ability to
expand our membership base, both in new markets and industries and within those
markets and industries in which we currently operate, including through sales of
our recently launched new suite of e-marketplace products. Sales of these new
products may not grow as rapidly as we forecast or may not grow at all, and we
may not otherwise be successful
We depend on sales and marketing strategic relationships for growth. These
relationships may not contribute to increased use of our services, help us add
new members, or increase our revenue. We may not be able to enter into new
relationships or maintain our existing relationships.
We have used and plan to continue to establish sales and marketing
strategic relationships with large organizations as part of our growth strategy.
These arrangements may not generate significant additional sales of our products
or services or add any new members or otherwise increase revenues and as a
result, we may not achieve the anticipated member or revenue growth. We may not
be able to enter into new relationships or renew existing relationships on
favorable terms, if at all. In addition, we may not be able to recover our costs
and expenses associated with these efforts which could severely harm our
business.
A number of statements in our press releases and interviews are based on
internal estimates and projections that may not be achieved by us, our partners
or our customers.
We from time to time issue press releases and give press interviews
concerning our products, business and strategic relationships. Some of our
recent press releases and interviews have contained statements about the
potential revenue that may be achieved as a result of our strategic
relationships, including press releases and interviews pertaining to out
relationship with Sprint. These statements are often based on our reasonable
internal estimates and projections and based on assumptions specific to the
events discussed in these press releases and interviews. These statements are
forward-looking statements subject to risks and uncertainties, and actual
results could vary significantly from the projected results contained in our
press releases and interviews. In addition, many of the risks described
elsewhere in this risk factors section apply to these statements. You should
only consider such forward-looking statements after carefully evaluating these
factors and all the other information in this report, including the risks
described in this section and throughout this report.
We face intense competition in the business-to-business e-commerce market, and
we cannot assure you that we will be able to compete successfully.
The business-to-business e-commerce market is new, rapidly evolving and
intensely competitive, and we expect competition to intensify in the future. In
addition to competition from several e-commerce trade communities, we also
compete with enterprise software purchasing systems providers such as Ariba and
Commerce One, especially as it relates to sales of our recently launched suite
of e-marketplace products. Although there currently is no dominant provider in
our market, a single provider may establish dominance in the market. Further, we
expect that additional companies will offer competing e-commerce solutions in
the future. Barriers to entry are minimal, and competitors may develop and begin
offering similar services. In the future, we may encounter competition from
enterprise software developers such as Peoplesoft, Oracle and SAP, as well as
from our current members and partners. Many of our current and potential
competitors have longer operating histories, larger customer bases and greater
brand recognition in business and Internet markets and significantly greater
financial, marketing, technical and other resources. As a result, our
competitors may be able to devote significantly greater resources to marketing
and promotional campaigns, may adopt more aggressive pricing policies or may try
to attract users by offering services for free and may devote substantially more
resources to product development. Our business could be severely harmed if we
are not able to compete successfully against current or future competitors.
Furthermore, increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could harm our
business.
We will need to improve and implement new systems, procedures and controls in
order to effectively manage our growth and expansion.
Continued implementation of our business plan requires an effective
planning and management process. Our business will suffer dramatically if we do
not effectively manage our growth. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and we will need to continue to expand, train and manage our
workforce. We continue to increase the scope of our operations both domestically
and internationally, and we have grown our workforce substantially. Our growth
has placed, and our anticipated future growth in our operations will continue to
place, a significant strain on our management systems and resources. We have
grown from eight employees in January 1997 to 496 employees as of September 30,
2000, and we may continue to add to our sales and marketing, customer support
and product development personnel. Our future performance may also depend on the
effective integration of acquired businesses. This integration, even if
successful, may take a significant period of time and expense, and may place a
significant strain on our resources.
We may pursue the acquisition of new and complementary businesses, products and
technologies to grow our business. Unsuccessful acquisitions could harm our
operating results, business and growth.
We may acquire businesses, products and technologies that complement or
augment our existing businesses, services and technologies. The inability to
integrate any newly acquired entities or technologies effectively could harm our
operating results, business and growth. Integrating any newly acquired
businesses or technologies may be expensive and time consuming. To finance any
acquisitions, we may need to raise additional funds through public or private
financing. Any equity or debt financing, if available at all, may be on terms
that are not favorable to us and, in the case of equity financing, may result in
dilution to our stockholders. We may not be able to operate any acquired
businesses profitably or otherwise implement our business strategy successfully.
Our long sales cycle for private label e-marketplaces could cause delays in
revenue growth.
Our sales cycle for private label e-marketplaces typically takes three to
six months to complete and varies from contract to contract, but has taken up to
12 months for some contracts. A large number of our members are introduced to
our e-marketplaces through such accounts. Our lengthy sales cycle for private
label e-marketplaces could cause delays in revenue growth, and result in
significant fluctuations in our quarterly operating results. The length of the
sales cycle may vary depending on a number of factors over which we may have
little or no control, including the internal decision-making process of the
potential customer and the level of competition that we encounter in our selling
activities. Additionally, since the market for business-to-business e-commerce
is relatively new, we often have to educate potential customers about the use
and benefits of our products and services, which can prolong the sales process.
In some cases, we provide access to our e-marketplaces on a trial basis for
customer evaluation, which can again prolong the sales process. Our sales cycle
can be further extended for product sales made through third parties, such as
our resellers.
Our quarterly results are subject to significant fluctuations, and our stock
price may decline if we do not meet expectations of investors and analysts.
We expect that our quarterly operating results will fluctuate significantly
due to many factors, many of which are outside our control, including:
o demand for and market acceptance of our products and services;
o inconsistent growth, if any, of our member base;
o loss of key customers or strategic partners;
o timing of the recognition of revenue for large contracts, or for sales
of licenses through resellers;
o variations in the dollar volume of transactions effected through our
e- marketplaces;
o intense and increased competition;
o introductions of new services or enhancements, or changes in pricing
policies, by us or by our competitors;
o our ability to control costs; and
o reliable continuity of service and e-marketplace availability.
We believe that quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons of
results of operations are not necessarily meaningful and that, as a result, such
comparisons should not be relied upon as indications of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Due to these and other factors, it is likely that our operating
results will be below market analysts' expectations in some future quarters,
which would cause the market price of our stock to decline.
Many of the agreements we have with our customers for our services allow
termination by the customer on short notice. In the event many of our customers
elect to terminate these agreements, our business could be adversely affected.
Although most of the agreements we enter with our customers continue for at
least one year, some of our agreements are on a month-to-month basis or have
shorter terms and some may be terminated at any time. In addition, the
agreements we enter with our customers customarily allow termination by the
customer on short-term notice. We have expended significant financial and
personnel resources and have expanded our operations on the assumption that
relationships established by these agreements will be long-term. If these become
contracts of short-term duration because of an early termination or non-renewal
by the member, we may be unable to recover the costs we incurred and our
business could suffer dramatically.
Our success depends on our ability to continuously enhance our products and
services.
Our future success will depend on our ability to enhance our e-marketplace
software, and to continue to develop and introduce new products and services
that keep pace with competitive introductions and technological developments,
satisfy diverse and evolving member requirements, and otherwise achieve market
acceptance. Any failure by us to anticipate or respond adequately to changes in
technology and member preferences, or any significant delays in our development
efforts, could make our products and services unmarketable or obsolete. We may
not be successful in developing and marketing quickly and effectively future
versions or upgrades of our e-marketplace software and browser system, or offer
new products or services that respond to technological advances or new market
requirements.
We depend upon our key personnel and they would be difficult to replace.
We believe that our success will depend on the continued employment of our
senior management team and key sales and technical personnel. If one or more
members of our senior management team were unable or unwilling to continue in
their present positions, our business would suffer.
We plan to expand our employee base to manage our anticipated growth.
Competition for personnel, particularly for senior management personnel and
employees with technical and sales expertise, is intense. The success of our
business is dependent upon hiring and retaining suitable personnel.
If our intellectual property protection is inadequate, competitors may gain
access to our technology and undermine our competitive position, causing us to
lose members. Infringement by us on the intellectual property rights of others
could expose us to substantial liabilities that would severely harm our
business.
We regard our copyrights, service marks, trademarks, patents, trade secrets
and similar intellectual property as important to our success, and rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers and business partners to
protect our proprietary rights. Despite our precautions, unauthorized third
parties may copy certain portions of our services or reverse engineer or obtain
and use information that we regard as proprietary. End-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. The status of United States patent protection in the
software industry is not well defined and will evolve as the U.S. Patent and
Trademark Office grants additional patents. We have been granted one patent in
the United States and we may seek additional patents in the future. We do not
know if any future patent application will be issued with the scope of the
claims we seek, if at all, or whether any patents we receive will be challenged
or invalidated. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States. Our
means of protecting our proprietary rights in the United States or abroad may
not be adequate and competitors may independently develop similar technology.
Third parties may infringe or misappropriate our copyrights, trademarks,
patents and similar proprietary rights. In addition, other parties may assert
infringement claims against us. We cannot be certain that our services do not
infringe patents or other intellectual property rights that may relate to our
services. In addition, because patent applications in the United States are not
publicly disclosed until the patent is issued, applications may have been filed
which relate to our services. We may be subject to legal proceedings and claims
from time to time in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties. If our services violate third-party proprietary rights, we cannot
assure you that we would be able to obtain licenses to continue offering such
services on commercially reasonable terms, or at all. Any claims against us
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing us from distributing these
services.
Our inability to continue licensing third-party technologies could delay product
development, which could result in a loss of members or slow our growth.
We intend to continue to license technology from third parties, including
our Web server and encryption technology. Our inability to obtain any of these
licenses could delay product development until equivalent technology could be
identified, licensed and integrated. Any such delays in services could result in
a loss of members, and slow our growth and severely harm our business. The
market is evolving and we may need to license additional technologies to remain
competitive. We may not be able to license these technologies on commercially
reasonable terms or at all. In addition, we may fail to successfully integrate
any licensed technology into our services. These third-party licenses may expose
us to increased risks, including risks associated with the integration of new
technology, the diversion of resources from the development of our own
proprietary technology and our ability to generate revenues from new technology
sufficient to offset associated acquisition and maintenance costs.
Our agreements with affiliates may not have been the result of arm's-length
negotiations, and may be less favorable to us than those we could obtain from
unaffiliated third parties. Entering into agreements on less than the most
favorable terms available could harm our business or limit our revenue growth.
Our agreements with some of our sales and marketing partners may not have
been the result of arm's-length negotiations. To the extent our agreements with
our affiliates, such as E-MarketPro, were not negotiated at arm's-length, they
may contain terms and conditions less favorable to us than we could have
obtained from unaffiliated third parties. Any future agreements or relationships
with affiliates may not necessarily result from arm's-length negotiations and
may not be on terms that are most favorable to us, which could severely harm our
business or limit our revenue growth.
If we expand our international sales and marketing activities, our business will
be exposed to the numerous risks associated with international operations.
We intend to have operations in a number of international markets. To date,
we have limited experience in developing localized versions of our e-marketplace
enabling software and in marketing, selling and distributing our solutions
internationally.
International operations are subject to many risks, including:
o the impact of recessions in economies outside the United States,
especially in Asia;
o changes in regulatory requirements;
o reduced protection for intellectual property rights in some countries;
o potentially adverse tax consequences;
o difficulties and costs of staffing and managing foreign operations;
o political and economic instability;
o fluctuations in currency exchange rates;
o seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
o tariffs, export controls and other trade barriers.
We have historically received a substantial portion of our revenue from
companies serving the hospitality industry. A serious downturn in the
hospitality industry could adversely affect us.
Our dependence on members associated with the hospitality industry makes us
vulnerable to downturns in this industry. Such a downturn could lead our members
associated with this industry to reduce their level of activity on our
procurement network and cause some to cancel their membership.
Our success depends on the Internet's ability to accommodate growth in e-
commerce.
The use of the Internet for retrieving, sharing and transferring
information among businesses, buyers, suppliers and partners has only recently
begun to develop. If the Internet is not able to accommodate growth in
e-commerce, our business would suffer. The recent growth in the use of the
Internet has caused frequent periods of performance degradation. Our ability to
sustain and improve our services is limited, in part, by the speed and
reliability of the e- marketplaces operated by third parties. Consequently, the
emergence and growth of the market for our services is dependent on improvements
being made to the Internet infrastructure to alleviate overloading and
congestion.
We are dependent upon the growth of the Internet as a means of commerce.
If the e-commerce market does not grow or grows more slowly than expected,
our business will suffer. The possible slow adoption of the Internet as a means
of commerce by businesses may harm our prospects. A number of factors could
prevent the acceptance and growth of e-commerce, including the following:
o e-commerce is at an early stage and buyers may be unwilling to shift
their traditional purchasing to online purchasing; o businesses may
not be able to implement e-commerce applications on these
e-marketplaces;
o increased government regulation or taxation may adversely affect the
viability of e-commerce;
o insufficient availability of telecommunication services or changes in
telecommunication services may result in slower response times; and
o adverse publicity and consumer concern about the reliability, cost,
ease of access, quality of services, capacity, performance and
security of e- commerce transactions could discourage its acceptance
and growth.
Even if the Internet is widely adopted as a means of commerce, the adoption
of our products and service, particularly by companies that have relied on
traditional means of procurement, will require broad acceptance of the new
approach. In addition, companies that have already invested substantial
resources in traditional methods of procurement, or in-house e-commerce
solutions, may be reluctant to adopt our e-commerce solutions. Furthermore, our
public e- marketplace operates as an open bidding process allowing buyers to
instantaneously compare the prices of suppliers. In some instances, suppliers
have been reluctant to join or continue as a member of our e-marketplaces and
participate in an open bidding process because of the increased competition and
comparisons this environment creates.
Security risks of electronic commerce may deter use of our products and
services.
A fundamental requirement to conduct business-to-business e-commerce is the
secure transmission of information over public e-marketplaces. If members are
not confident in the security of e-commerce, they may not effect transactions on
our e-marketplaces or renew their memberships, which would severely harm our
business. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in the compromise or breach of the algorithms we use to protect content and
transactions on our procurement networks or proprietary information in our
databases. Anyone who is able to circumvent our security measures could
misappropriate proprietary, confidential member information, place false orders
or cause interruptions in our operations. We may be required to incur
significant costs to protect against security breaches or to alleviate problems
caused by breaches. Further, a well-publicized compromise of security could
deter people from using the Internet to conduct transactions that involve
transmitting confidential information. Our failure to prevent security breaches,
or well-publicized security breaches affecting the Internet in general could
adversely affect our business.
Failure to maintain accurate databases could seriously harm our business and
reputation.
We update and maintain extensive databases of the products, services and e-
marketplace transactions for owners of private label e-marketplaces and our
members. Our computer systems and databases must allow for expansion as a
marketplace owner's or member's business grows without losing performance.
Database capacity constraints may result in data maintenance and accuracy
problems, which could cause a disruption in our service and our ability to
provide accurate information to our members. These problems may result in a loss
of members, which could severely harm our business. Some of our customer
contracts provide for service level guarantees for the accuracy of data. Our
failure to satisfy these service level guarantees could result in liability or
termination of the contract and a loss of business, and our business and our
reputation would suffer.
We may not be able to accurately predict the rate of increase in the usage of
our e-marketplaces, which may affect our timing and ability to expand and
upgrade our systems.
Traffic in our e-marketplaces continues to increase which will require us
to expand and upgrade some of our transaction processing systems and
e-marketplace hardware and software. We may not be able to accurately predict
the rate of increase in the usage of our e-marketplace. This may affect our
timing and ability to expand and upgrade our systems and e- marketplace hardware
and software capabilities to accommodate increased use of our e-marketplace. If
we do not upgrade our systems and e-marketplace hardware and software
appropriately, we may experience downgraded service, which could damage our
business reputation, relationship with members and our operating results.
If we encounter system failure, service to our customers could be delayed or
interrupted, which could severely harm our business and result in a loss of
customers.
Our ability to successfully maintain an e-commerce marketplace and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and e-
marketplace systems. Any interruptions could severely harm our business and
result in a loss of customers. Our computer and communications systems are
located in Las Vegas, Nevada. Although we periodically back up our databases to
tapes and store the backup tapes offsite, we do not maintain a redundant site.
Our systems and operations are vulnerable to damage or interruption from human
error, sabotage, fire, flood, earthquake, power loss, telecommunications failure
and similar events. Although we have taken steps to prevent a system failure, we
cannot assure you that our measures will be successful and that we will not
experience system failures in the future. Moreover, we have experienced delays
and interruptions in our telephone and Internet access, which have prevented
members from accessing our e-marketplaces and customer service department.
Furthermore, we do not have a formal disaster recovery plan and do not carry
sufficient business interruption insurance to compensate us for losses that may
occur as a result of any system failure. The occurrence of any system failure or
similar event could harm our business dramatically. In addition, we may move to
third-party hosting of our servers. We cannot assure you that this transition,
if undertaken, would be effected without interruptions. Further, any such third-
party host could be subject to the same risks of system failure as our current
site.
Our products and services depend on complex software. Unknown defects in this
software could result in service and product development delays.
Our e-marketplace services and e-marketplace software products depend on
complex software developed internally and by third parties. Software often
contains defects, particularly when first introduced or when new versions are
released. Our testing procedures may not discover software defects that affect
our new or current services or enhancements until after they are deployed. These
defects could cause service interruptions, which could damage our reputation or
increase our service costs, cause us to lose revenue, delay market acceptance or
divert our development resources, any of which could severely harm our business.
In the past, we have missed internal software development and enhancement
deadlines. Some of our contracts contain software enhancement and development
milestones. If we are unable to meet these milestones, whether or not the
failure is attributable to us or a third party, we may be in breach of our
contractual obligations. Such a breach could damage our reputation, lead to
termination of the contract, and adversely affect our business.
Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for our services and increase our cost of doing
business.
The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or modification
of laws or regulations relating to the Internet could increase our costs and
administrative burdens. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel, consumer
protection and taxation apply to the Internet.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. We must comply with new regulations in
the United States and other countries where we conduct business. The growth and
development of the business-to-business e-commerce market may prompt calls for
more stringent laws governing consumer protection and the taxation of e-
commerce. The cost of compliance with any newly adopted laws and regulations
could severely harm our business and the failure to comply could expose us to
significant liabilities.
The inability to acquire or maintain effective Web domain names could create
confusion and direct traffic away from our e-marketplaces.
We currently hold various Internet Web addresses relating to our
procurement network. If we are not able to prevent third parties from acquiring
Web addresses that are similar to our addresses, third parties could acquire
similar domain names, which could create confusion that diverts traffic to other
web- sites away from our procurement networks, thereby adversely affecting our
business. The acquisition and maintenance of Web addresses generally is
regulated by governmental agencies and their designees. The regulation of Web
addresses in the United States and in foreign countries is subject to change. As
a result, we may not be able to acquire or maintain relevant Web addresses in
all countries where we conduct business. Furthermore, the relationship between
regulations governing such addresses and laws protecting proprietary rights is
unclear.
We may be subject to legal liability for communication on our e-marketplace.
We may be subject to legal claims relating to the content in our e-
marketplace, or the downloading and distribution of such content. Claims could
involve matters such as fraud, defamation, invasion of privacy and copyright
infringement. Providers of Internet products and services have been sued in the
past, sometimes successfully, based on the content of material. Our insurance
may not cover claims of this type, or may not provide sufficient coverage. Even
if we are ultimately successful in our defense of these claims, any such
litigation is costly and these claims could harm our reputation and our
business.
Our articles of incorporation and bylaws and Nevada law contain provisions which
could delay or prevent a change in control and could also limit the market price
of our stock.
Our articles of incorporation and bylaws contain provisions that could
delay or prevent a change in control. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. Some of these provisions:
o divide our board of directors into three classes;
o authorize the issuance of preferred stock that can be created and
issued by the board of directors without prior stockholder approval,
commonly referred to as "blank check" preferred stock, with rights
senior to those of common stock;
o prohibit stockholder action by written consent; and
o establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can
be acted upon by stockholders at a meeting.
Further, certain provisions of Nevada law make it more difficult for a
third party to acquire us. Some of these provisions:
o establish a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest; and
o impose time restrictions or require additional approvals for an
acquisition of us by an interested stockholder.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
During the three months ended September 30, 2000, we granted options to
purchase 6,311,050 shares of common stock to employees, and during the nine
months ended September 30, 2000, we granted options to purchase 9,983,880 shares
of common stock to employees, under our Equity Incentive Plan. During the
quarter ended September 30, 2000, employees, consultants and other service
providers of the Company exercised options to purchase 1,363,052 shares of
common stock. The sale of the above securities was registered on a Registration
Statement on Form S-8 (No. 333-91533) under the Securities Act of 1933.
During the quarter ended September 30, 2000, one warrant holder exercised
warrants to purchase 536,620 shares of common stock.
Use of Proceeds
A Registration Statement on Form S-1 (File No. 333-80165) registering
4,600,000 shares of common stock filed in connection with our initial public
offering for an aggregate offering of $55.2 million was declared effective by
the SEC on September 13, 1999. A Registration Statement on Form S-1 (File No.
333-92303) registering 3,000,000 shares of common stock filed in connection with
a public offering for an aggregate offering of $160 million was declared
effective by the SEC on February 10, 2000. As of September 30, 2000, the Company
had used approximately $96.1 million of the aggregate net offering proceeds from
both offerings to fund its operations, as follows (in thousands):
Working capital.................................. $ 35,900
Marketing agreement.............................. 25,000
Purchase or property and equipment............... 19,100
Investments...................................... 10,100
Construction of facilities....................... 5,900
Repayment of indebtedness........................ 100
----------
$ 96,100
==========
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i).1 Amended and Restated Articles of Incorporation (filed as
Exhibit 10.33 to our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, and incorporated herein by
reference).
3(ii).1 Bylaws of the Registrant, as amended (filed as Exhibit
3(ii).1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, and incorporated herein by
reference).
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to
our Registration Statement on Form S-1 (no. 333-01865), and
incorporated herein by reference).
10.1* Form of Indemnification Agreement between the Registrant and
each of its directors and officers (filed as Exhibit 10.1 to
our Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.2* 1998 Stock Option and Incentive Plan and forms of agreements
thereunder (filed as Exhibit 10.2 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated
herein by reference).
10.3* 1999 Stock Plan (filed as Exhibit 10.3 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated
herein by reference).
10.4 Securities Purchase Agreement dated as of June 1, 1998
between Registrant and the purchasers of its Series A
Preferred Stock (filed as Exhibit 10.4 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated
herein by reference).
10.5 Securities Purchase Agreement dated as of April 30, 1999
between Registrant and the purchasers of its Series B
Preferred Stock (filed as Exhibit 10.5 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated
herein by reference).
10.6 First Amended and Restated Stockholders Agreement dated as
of April 30, 1999 between the Registrant and the holders of
Series A Preferred Stock and Series B Preferred Stock (filed
as Exhibit 10.6 to our Registration Statement on Form S-1
(No. 333-01865), and incorporated herein by reference).
10.7+ Agreement dated as of January 4, 1999 between Registrant and
the Greater Phoenix Chamber of Commerce (filed as Exhibit
10.7 to our Registration Statement on Form S-1 (No.
333-01865), and incorporated herein by reference).
10.8+ Software Agency and Services Agreement dated as of May 3,
1999 among Registrant, ZoomTown.com, Inc. and Bradley D.
Redmon (filed as Exhibit 10.8 to our Registration Statement
on Form S-1 (No. 333-01865), and incorporated herein by
reference).
10.9+ Agreement dated as of May 1, 1999, between Registrant and
HospitalityCity pte ltd (filed as Exhibit 10.9 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.10 Agreement dated as of January 1999 between Registrant and E-
Marketpro, LLC (filed as Exhibit 10.10 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated
herein by reference).
10.11* Letter of Employment between Registrant and Charles E.
Johnson, Jr. (filed as Exhibit 10.11 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated
herein by reference).
10.12* Letter of Employment between Registrant and Christopher P.
Carton (filed as Exhibit 10.12 to our Registration Statement
on Form S-1 (No. 333-01865), and incorporated herein by
reference).
10.13* Employment Agreement between Registrant and Jeffrey A. Neppl
(filed as Exhibit 10.13 to our Registration Statement on
Form S-1 (No. 333-01865), and incorporated herein by
reference).
10.14* Letter of Employment between Registrant and Robert G. Layne
(filed as Exhibit 10.14 to our Registration Statement on
Form S-1 (No. 333-01865), and incorporated herein by
reference).
10.15 Warrant dated as of July 22, 1999, by and between Registrant
and Office Depot, Inc. (filed as Exhibit 10.15 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.16* Letter of Employment between Registrant and Richard C. St.
Peter (filed as Exhibit 10.16 to our Registration Statement
on Form S-1 (No. 333-01865), and incorporated herein by
reference).
10.17 Promissory Note dated September 2, 1999 between Registrant
and Charles E. Johnson, Jr. (filed as Exhibit 10.17 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.18 Loan Commitment dated September 3, 1999 between Registrant
and John G. Chiles (filed as Exhibit 10.18 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.19 Loan Commitment dated September 3, 1999 between Registrant
and Maurice J. Gallagher (filed as Exhibit 10.19 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.20 Loan Commitment dated September 3, 1999 between Registrant
and Charles E. Johnson, Jr. (filed as Exhibit 10.20 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.21 Loan Commitment dated September 3, 1999 between Registrant
and Bradley D. Redmon (filed as Exhibit 10.21 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).
10.22 Warrant Purchase Agreement dated November 29, 1999 by the
Company and Sprint Communications Company L.P. (filed as
Exhibit 10.22 to our Registration Statement on Form S-1 (No.
333-92303), and incorporated herein by reference).
10.23 Warrant to Purchase Common Stock of the Company dated
November 1999 (issued to Sprint Communications Company L.P.)
(filed as Exhibit 10.23 to our Registration Statement on
Form S-1 (No. 333-92303), and incorporated herein by
reference).
10.24 Amendment to Warrant to Purchase Common Stock of the Company
dated December 6, 1999 (by Sprint Communications L.P.)
(filed as Exhibit 10.24 to our Registration Statement on
Form S-1 (No. 333-92303), and incorporated herein by
reference).
10.25 Strategic e-Commerce Marketing Agreement dated December 8,
1999 between the Company and Sprint (filed as Exhibit 10.25
to our Registration Statement on Form S-1 (No. 333-92303),
and incorporated herein by reference).
10.26 Form of Warrant to Purchase Common Stock of the Company
dated as of November 1999 (issued to Advanstar Inc.) (filed
as Exhibit 10.26 to our Registration Statement on Form S-1
(No. 333-92303), and incorporated herein by reference).
10.27* Letter of Employment between Registrant and Richard Moskal
(filed as Exhibit 10.27 to our Registration Statement on
Form S-1 (No. 333-92303), and incorporated herein by
reference).
10.28* Letter of Employment between Registrant and Scott Miller
(filed as Exhibit 10.28 to our Registration Statement on
Form S-1 (No. 333-92303), and incorporated herein by
reference).
10.29 Office Depot Statement of Work and Network Access Agreement
(filed as Exhibit 10.23 to our quarterly report on Form 10-Q
for the quarter ended March 31, 2000, and incorporated
herein by reference).
10.30 AOL Technology Development Agreement (filed as Exhibit 10.24
to our quarterly report on Form 10-Q for the quarter ended
March 31, 2000, and incorporated herein by reference).
10.31 AOL Interactive Marketing Agreement (confidential treatment
has been requested for certain portions of this
exhibit)(filed as Exhibit 10.25 to our quarterly report on
Form 10-Q for the quarter ended March 31, and incorporated
herein by reference).
10.32 Advanstar Warrant Agreement Amendment No. 1.
10.34 Training and Management Services Agreement by and between
the Company and Gateway Companies, Inc.**++
10.35 Warrant Agreement by and between the Company and Gateway
Companies, Inc.**
10.36 Warrant Agreement by and between the Company and Gateway
Companies, Inc.**
10.37 Warrant Agreement by and between the Company and Gateway
Companies, Inc.**
27.1 Financial Data Schedule.
* Indicates management contract or compensatory plan or agreement.
** Incorporated by reference to the Company's Current Report on Form 8-K, filed
October 23, 2000.
+ Confidential treatment has been granted with respect to certain portions of
these agreements.
++ Confidential treatment has been requested with respect to certain portions
of these agreements.
(b) No reports on Form 8-K have been filed with the Securities and Exchange
Commission during the quarter ended September 30, 2000.
On October 23, 2000, we filed a Current Report on Form 8-K reporting
(i) our transaction with Gateway Companies, Inc., and (ii) the approval of
the issuance or amendment of warrants to purchase common stock of the
Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PURCHASEPRO.COM, INC.
Date: November 13 , 2000 By: /s/ James P. Clough
-----------------------------------------------
James P. Clough,
Senior Executive Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Document
27.1 Financial Data Schedule.
