<PAGE>
The following items were the
subject of a Form 126-25 and
are included herein: Part I
================================================================================
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q/A
---------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000.
[_] 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. [X] 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 32,198,794 as of
July 31, 2000.
================================================================================
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
FORM 10-Q
I N D E X
<TABLE>
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999
and June 30, 2000 (unaudited).................................................................... 1
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1999 (unaudited) and June 30, 2000 (unaudited)........ 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 (unaudited) and June 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........................................................................ 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................................ 20
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 20
Item 6. Exhibits and Reports on Form 8-K................................................................. 20
SIGNATURES....................................................................................... 22
EXHIBIT INDEX.................................................................................... 23
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
---------------- --------------------
(unaudited)
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $ 30,356 $ 120,731
Trade accounts receivable, net.................................... 1,950 9,371
Other receivables................................................. 205 799
Other current assets.............................................. 551 1,501
-------- ---------
Total current assets............................................. 33,062 132,402
Property and equipment
Computer equipment................................................ 8,585 16,575
Communication equipment........................................... 65 65
Furniture and fixtures............................................ 890 1,353
Leasehold improvements............................................ 58 6,088
-------- ---------
9,598 24,081
Less--accumulated depreciation and amortization................... (1,262) (3,394)
-------- ---------
Net property and equipment....................................... 8,336 20,687
Other assets
Intangibles, net.................................................. 10,747 102,498
Marketable securities............................................. 12,587 13,645
Deposits and other................................................ 1,745 2,090
-------- ---------
Total other assets, net.......................................... 25,079 118,233
-------- ---------
Total assets..................................................... $ 66,477 $ 271,322
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................. $ 2,847 $ 60
Accrued salaries and benefits..................................... 757 989
Deferred revenues................................................. 250 972
Obligation under marketing and technology development agreement,
current portion.................................................. --- 27,857
Other accrued liabilities......................................... 744 1,507
Notes payable..................................................... 25 25
-------- ---------
Total current liabilities........................................ 4,623 31,410
Obligation under marketing and technology development agreement,
net of current portion........................................... --- 13,655
Stockholders' equity
Common stock: 28,183,680 and 31,939,279 shares issued and
outstanding, respectively........................................ 282 320
Additional paid-in capital........................................ 137,770 336,776
Deferred stock-based compensation................................. (3,941) (9,816)
Accumulated deficit............................................... (78,741) (106,563)
Accumulated other comprehensive income............................ 6,484 5,540
-------- ---------
Total stockholders' equity....................................... 61,854 226,257
-------- ---------
Total liabilities and stockholders' equity....................... $ 66,477 $ 271,322
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended,
June 30 June 30
-------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
1999 2000 1999 2000
----------- ----------- ----------- -----------
(In thousands except share and per share amounts)
Revenues
Network access fees.............................. $ 807 $ 7,169 $ 1,343 $ 10,590
Software license fees............................ --- 1,485 --- 1,485
Advertising...................................... --- 704 --- 1,454
Other............................................ 199 156 337 535
----------- ----------- ----------- -----------
Total revenues.................................. 1,006 9,514 1,680 14,064
Cost of revenues.................................. 187 700 350 1,013
----------- ----------- ----------- -----------
Gross profit...................................... 819 8,814 1,330 13,051
Operating expenses
Sales and marketing.............................. 1,282 9,705 2,171 17,180
Programming and development...................... 467 1,756 779 3,216
General and administrative....................... 2,484 5,699 3,423 10,474
Amortization of stock-based compensation......... 800 5,050 1,089 12,437
----------- ----------- ----------- -----------
Total operating expenses........................ 5,033 22,210 7,462 43,307
Operating loss.................................... (4,214) (13,396) (6,132) (30,256)
Other income (expense)
Interest income (expense), net................... (43) 1,242 (160) 2,434
Other............................................ (278) --- (279) ---
----------- ----------- ----------- -----------
Total other income (expense) (321) 1,242 (439) 2,434
----------- ----------- ----------- -----------
Net loss before benefit for income taxes.......... (4,535) (12,154) (6,571) (27,822)
Benefit for income taxes.......................... --- --- --- ---
----------- ----------- ----------- -----------
Net loss.......................................... (4,535) (12,154) (6,571) (27,822)
Preferred stock dividends......................... (182) --- (287) ---
Accretion of preferred stock to redemption value.. (49) --- (95) ---
Value of preferred stock beneficial conversion
feature.......................................... (8,877) --- (9,400) ---
----------- ----------- ----------- -----------
Net loss applicable to common stockholders........ $ (13,643) $ (12,154) $ (16,353) $ (27,822)
=========== =========== =========== ===========
Net loss per share applicable to common
stockholders
Basic............................................ $(1.14) $(0.38) $(1.39) $(0.93)
=========== =========== =========== ===========
Diluted.......................................... $(1.10) $(0.38) $(1.32) $( 0.93)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding
Basic............................................ 11,983,850 31,707,160 11,740,000 29,945,437
=========== =========== =========== ===========
Diluted.......................................... 12,455,100 31,707,160 12,352,500 29,945,437
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 2000
--------- ----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net loss..................................................................... $ (6,571) $(27,822)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................... 188 2,458
Amortization of stock-based compensation.................................... 1,089 12,437
Imputed Interest............................................................ -- 559
Amortization of imputed interest............................................ 355 --
Provision for doubtful accounts............................................. 155 630
Non-cash service............................................................ 800 --
(Increase) decrease in:
Trade accounts receivable................................................... (690) (8,098)
Other receivables........................................................... 8 (595)
Prepaid expenses and other.................................................. (55) (1,108)
Increase (decrease) in:
Accounts payable............................................................ 107 (2,786)
Accrued liabilities......................................................... 348 1,043
Deferred revenues........................................................... 13 722
------- --------
Net cash used in operating activities...................................... (4,253) (22,560)
Cash flows from investing activities
Purchase of property and equipment........................................... (683) (14,484)
Purchase of marketable securities............................................ -- (2,001)
Payments under marketing and technology development agreement................ -- (25,000)
Other assets................................................................. (619) (945)
------- --------
Net cash used in investing activities...................................... (1,302) (42,430)
Cash flows from financing activities
Proceeds from notes payable and advances..................................... 200 --
Repayment of notes payable and advances...................................... (1,350) --
Issuance of common stock, net................................................ 5 154,965
Issuance of preferred stock and warrants, net................................ 8,026 400
------- --------
Net cash provided by financing activities.................................. 6,881 155,365
------- --------
Increase in cash and cash equivalents......................................... 1,326 90,375
------- --------
Cash and cash equivalents
Beginning of period.......................................................... 1,689 30,356
------- --------
End of period................................................................ $ 3,015 $120,731
======= ========
Non-cash investing and financing activities
Obligations under marketing and technology development agreement............. $ -- $ 40,512
======= ========
Warrants issued under marketing and technology development agreement......... $ -- $ 25,800
======= ========
Cash paid for interest........................................................ $ 118 $ --
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<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 six months ended June 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 six months
ended June 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.
(2) Revenue Recognition
In the second quarter of 2000, the Company began recognizing revenue from the
sale of software licenses. Software license revenues 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, software license revenues 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.
(3) Stockholders' Equity
Common Stock
During the three months ended June 30, 2000, the Company issued 791,850 shares
of common stock exercised through stock option plans.
Stock Options
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 1,172,500
shares of common stock to certain executive officers at a price equal to fair
market value.
Common Stock Warrants
During the six months ended June 30, 2000, one warrant holder exercised
400,000 warrants at $.01 per share.
(4) 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 June 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.
4
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) Earnings Per Share
The computations of basic and diluted earnings per share (EPS) for each period
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Loss (Numerator)
Net loss.................................................. $ (4,535) $ (12,154) $ (6,571) $ (27,822)
Preferred stock dividends................................. (182) -- (287) --
Accretion of preferred stock to redemption value.......... (49) -- (95) --
Value of preferred stock beneficial conversion feature.... (8,877) -- (9,400) --
----------- ----------- ----------- -----------
Basic EPS
Net loss applicable to common stockholders................ $ (13,643) $ (12,154) $ (16,353) $ (27,822)
=========== =========== =========== ===========
Diluted EPS
Net loss applicable to common stockholders after assumed
conversions.............................................. $ (13,643) $ (12,154) $ (16,353) $ (27,822)
=========== =========== =========== ===========
Shares (Denominator)
Basic EPS
Net loss applicable to common stockholders: shares
outstanding.............................................. 11,983,850 31,707,160 11,740,000 29,945,437
Effect of Securities Issued for Nominal Consideration
Warrants.................................................. 839,999 -- 839,999 --
Exercise of Warrants...................................... (368,749) -- (227,499) --
----------- ----------- ----------- -----------
Diluted EPS
Net loss applicable to common stockholders after assumed
conversions: shares outstanding.......................... 12,455,100 31,707,160 12,352,500 29,945,437
=========== =========== =========== ===========
Per Share Amount
Basic EPS................................................. $ (1.14) $ (0.38) $ (1.39) $ (0.93)
=========== =========== =========== ===========
Diluted EPS............................................... $ (1.10) $ (0.38) $ (1.32) $ (0.93)
=========== =========== =========== ===========
</TABLE>
Options to purchase 3,150,401 and 5,094,777 shares of common stock were
outstanding as of June 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.
(6) 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 stockholders' equity (deficit) until realized. Dividend and
interest income is recognized when earned. Realized gains and losses for
5
<PAGE>
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.
Subsequent to June 30, 2000, one of the Company's investments suffered a
decline in market value, causing the amount of accumulated other comprehensive
income to decrease to $2.7 million at July 31, 2000, from $5.5 million at June
30, 2000.
(7) Related Party Transaction
The Company entered into a strategic sales and marketing agreement with Office
Depot, Inc in the first quarter of 2000. Office Depot is a significant
stockholder and its CEO is a Director of the Company. Pursuant to the sales and
marketing agreement, Office Depot purchased subscriptions for network access for
its customers that represented 39% of net revenues for the six months ended June
30, 2000.
(8) 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 No. 137 and 138, which defers the
effective date and amends 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.
In December, 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements, which summarized the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company has not fully assessed the impact of the
adoption of SAB No. 101, but believes that it will not have a material impact on
the Company's revenue recognition policies, operations or financial position.
(9) America Online Agreement
On March 16, 2000, the Company entered into a series of agreements with
America Online, Inc. (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.
The Company and AOL have agreed to a revenue sharing arrangement, under which
they will share revenue generated by the co-branded marketplace, including
network access fees, transaction fees and advertising revenue. 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 2,000,000 shares of the
Company's common stock at an exercise price of $126.51 (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) 500,000 immediately; and (ii) 1,500,000 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 $80 of revenue
thereafter. The value of the warrants was determined to be $25.8 million using
the Black Scholes model, and the value is recorded as additional paid-in
capital.
The total amount of payments and warrants given to AOL have been recorded as
prepaid marketing expense and technology development costs based on their
relative fair values. The prepaid 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
6
<PAGE>
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 (1) receive a share of the revenue from the decision point
forward, or (2) 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.
7
<PAGE>
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 June 30, 2000 and for the three and six months ended June
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 contains 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; 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 "Factors That May Affect Future Results" 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
PurchasePro.com, Inc. is a leading provider of business-to-business electronic
commerce services and software. We develop private-labeled e-marketplaces that
connect to our global public e-marketplace. Our e-marketplaces provide
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.
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 procurement network and software
infrastructure.
In April 1997, we released PurchasePro 1.0, enabling our members to transact
e-commerce over our procurement network. Our next release in July 1997 provided
this capability over the Internet. In September 1998, we released PurchasePro
3.0, our procurement network enabling software. In February 1999, we released
PurchasePro 4.0, which allows members the additional capability of building
private procurement networks. On December 15, 1999, the Company released a
browser-based version that allows members to access the network directly without
the use of software. In May 2000, we announced a new suite of private-labeled
e-marketplaces that are customized for each customer and can be launched as
quickly as 45 days.
From inception through June 30, 1999, substantially all of our revenues were
derived from monthly membership subscription fees for access to our public
procurement network and private-labeled e-marketplaces. Beginning in 1999, we
began to earn revenues from other sources, including transaction fees, license
fees and advertising. Generally, our subscription and license fee contracts are
entered into on a month-to-month basis. Although we have executed contracts of a
longer duration, generally these contracts may be terminated at any time on 30
to 60 days' notice. Some of our agreements with members are verbal and as such
may be terminated at any time. In August 1998, HPS began generating transaction
fees from group buying services provided to the hospitality industry. In 1999,
with the release of version 4.0, we began contracting with larger corporate
customers to create customized, private procurement networks. Typically, we
charge these companies licensing and maintenance fees for this service. The
licensing and maintenance fees are initially deferred and recognized ratably
over the period of service. We also provide Web site development and hosting
services and fees for catalog building services. We also charge our members a
fee for processing their subscription payments by invoice. In June 2000, we
began to recognize revenue from software license fees in accordance with
SOP 97-2. These 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 September 1999, we began generating transaction fee revenues from
transactions consummated by our members 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. As of June 30, 2000, we believe that there are
approximately 35,000 users that have been provided with the capability
8
<PAGE>
to access and use our e-marketplaces.
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 six months ended June 30, 1999 and 2000, we had net losses
applicable to common stockholders of $16.4 million and $27.8 million,
respectively. Through June 30, 2000, our accumulated deficit totaled $106.6
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 Six Months Ended
June 30 June 30
------------------- -----------------
1999 2000 1999 2000
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Network access fees.................................................... 67.1 % 75.4 % 72.1 % 75.3 %
Software license fees.................................................. -- 15.6 10.6
Advertising............................................................ -- 7.4 -- 10.3
Other.................................................................. 32.9 1.6 27.9 3.8
--------- ------- ------- -------
100.0 100.0 100.0 100.0
Cost of revenues....................................................... 18.6 7.4 20.8 7.2
--------- ------- ------- -------
Gross profit........................................................... 81.4 92.6 79.2 92.8
Operating expenses
Sales and marketing................................................... 127.4 102.0 129.2 122.2
Programming and development........................................... 46.4 18.5 46.4 22.9
General and administrative............................................ 246.9 59.9 203.8 74.5
Amortization of stock-based compensation.............................. 79.5 53.1 64.8 88.4
--------- ------- ------- -------
Total operating expenses.......................................... 500.2 233.5 444.2 308.0
--------- ------- ------- -------
Operating loss......................................................... (418.8) (140.9) (365.0) (215.2)
Other income (expense)................................................. ( 31.9) 13.1 (26.1) 17.3
--------- ------- ------- -------
Net loss............................................................... (450.7) (127.8) (391.1) (197.9)
Preferred stock dividends, accretion of preferred stock to redemption
value and value of preferred stock beneficial conversion feature...... (905.4) -- (582.3) --
--------- ------- ------- -------
Net loss applicable to common stockholders............................. (1,356.1)% (127.8)% (973.4)% (197.9)%
========= ======= ======= =======
</TABLE>
Comparison of the Three Months Ended June 30, 1999 and June 30, 2000
Revenues. Our revenues consist primarily of (1) network access fees for access
to our public and private networks, (2) software license fees, (3) advertising
on our networks and (4) other revenues associated with our networks and our HPS
subsidiary, including software license revenues, service revenues, maintenance
revenues, transaction fees, web-site development and hosting, and catalog
development. Network access fees include subscriptions to our public networks
generally paid by vendors. Network access fees also include fees paid by larger
buyer companies for developing, hosting and maintaining private procurement
networks, as well as providing customer support. Our net revenues increased from
$1 million for the three months ended June 30, 1999, to $9.5 million for the
three months ended June 30, 2000. Substantially all of this increase resulted
from growth in our membership, new network access, advertising and software
license fees. Our network access revenue increased from $807,000 for the three
months ended June 30, 1999 to $7.2 million for the three months ended June 30,
2000. Of the increase, $3 million relates to the Office Depot sales agreement,
whereby Office Depot pays the network access fees for their customers.
Advertising revenue increased from $0 for the three months
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ended June 30, 1999 to $704,000 for the three months ended June 30, 2000.
Software license revenue increased from $0 to $1.5 million for the three months
ended June 30, 1999 and June 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, software license
revenues 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. Service revenues primarily are
derived from fees for implementation, consulting and training services and are
recognized as the services are performed. Maintenance revenues are derived from
customer support agreements generally entered into in connection with initial
license sales and subsequent renewals. Maintenance revenues are recognized
ratably over the term of the maintenance period. Payments for maintenance fees
are generally made in advance. Other revenues, including web site development
and hosting fees, catalog fees and finance charges, increased from $199,000 for
the three months ended June 30, 1999, to $156,000 for the three months ended
June 30, 2000.
Cost of Revenues. Our cost of revenues consists primarily of costs for
member support and Web site operations, including fees for independent
contractors, compensation for our member support and site operations personnel.
Our cost of revenue increased from $187,000 for the three months ended June 30,
1999, to $700,000 for the three months ended June 30, 2000. The increase was
primarily the result of the increase in personnel in our member service
department. Expenses related to personnel costs of our member service and web
site operations departments increased from $159,000 for the three months ended
June 30, 1999 to $559,000 for the three months ended June 30, 2000. 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 member service department to provide
service to our customers and the decrease in the number of member service calls
per member as our members gain experience using the network. Our gross profit
increased from $819,000 for the three months ended June 30, 1999 to $8.8
million for the three months ended June 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 $1.3 million for the three months ended June 30, 1999, to $9.7
million for the three months ended June 30, 2000. This increase is primarily
attributable to an increase in the size of our sales force. Expenses related to
personnel costs of sales and marketing personnel increased from $855,000 for the
three months ended June 30, 1999, to $5.2 million for the three months ended
June 30, 2000. Travel and related costs increased from $208,000 for the three
months ended June 30, 1999, to $441,000 for the three months ended June 30,
2000. Costs associated with our marketing activities increased from $174,000 for
the three months ended June 30, 1999, to $3.9 million for the three months ended
June 30, 2000. Included in sales and marketing expense for the three months
ended June 30, 2000, is a change for approximately $1.7 million related to our
advertising efforts for Office Depot, Inc. 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.
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 $467,000 for the three months ended June 30, 1999, to $1.8
million for the three months ended June 30, 2000. The increase is primarily
attributable to an increase in our programming staff. Expenses related to
program and development personnel increased from $420,000 for the three months
ended June 30, 1999, to $1.6 million for the three months ended June 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.
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 costs and communications costs. Our general
and administrative expenses increased from $2.5 million for the three months
ended June 30, 1999, to $5.7 million for the three months ended June 30, 2000.
The increase is primarily attributable to the increased size of our executive
and administrative staff. Expenses related to personnel costs of our general and
administrative personnel increased from $564,000 for the three months ended June
30, 1999 to $1.4 million for the three months ended June 30, 2000. Facilities
costs increased from $282,000 for the three months ended June 30, 1999, to $1.1
million for the three months ended June 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 $105,000 for the three months
ended June 30, 1999, as compared to $445,000 for the three months ended June 30,
2000. The increase corresponds primarily to the increase in our revenues.
Depreciation and amortization also increased over the same periods from $107,000
to $1.3 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.
Deferred Stock-Based Compensation. During the three months ended June 30,
1999 and 2000, we charged an additional $6.8 million 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
$800,000 and $5.0 million, respectively.
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Other Income (Expense). Interest income increased from $19,000 to $1.8
million for the three months ended June 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 $62,000 for the three months ended June 30, 1999, to $559,000 for the three
months ended June 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 Six Months Ended June 30, 1999 and June 30, 2000
Revenues. Our revenues consist primarily of (1) network access fees for access
to our public and private networks, (2) software license fees, (3) advertising
on our networks and (4) other revenues associated with our networks and our HPS
subsidiary, including transaction fees, web-site development and hosting, and
catalog development. Network access fees include subscriptions to our public
networks generally paid by vendors. Network access fees also include fees paid
by larger buyer companies for developing, hosting and maintaining private
procurement networks, as well as providing customer support. Our net revenues
increased from $1.7 million for the six months ended June 30, 1999, to $14.1
million for the six months ended June 30, 2000. Substantially all of this
increase resulted from growth in our membership, new network access, software
license fees and advertising. Our network access revenue increased from $1.3
million for the six months ended June 30, 1999, to $10.6 million for the six
months ended June 30, 2000. Of the increase, $5 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 $1.5 million for
the six months ended June 30, 1999 and June 30, 2000, respectively. Advertising
revenue increased from $0 for the six months ended June 30, 1999, to $1.5
million for the six months ended June 30, 2000. Other revenues, including web
site development and hosting fees, catalog fees, and finance charges, increased
from $337,000 for the six months ended June 30, 1999, to $535,000 for the six
months ended June 30, 2000.
Cost of Revenues. Our cost of revenues consists primarily of costs for
member support and Web site operations, including fees for independent
contractors, compensation for our member support and site operations personnel.
Our cost of revenue increased from $350,000 for the six months ended June 30,
1999, to $1.0 million for the six months ended June 30, 2000. The increase was
primarily the result of the increase in personnel in our member service
department. Expenses related to personnel costs of our member service and web
site operations departments increased from $297,000 for the six months ended
June 30, 1999, to $763,000 for the six months ended June 30, 2000. 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 member service department to provide
service to our customers and the decrease in the number of member service calls
per member as our members gain experience using the network. Our gross profit
increased from $1.3 million for the six months ended June 30, 1999, to $13.1
million for the six months ended June 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, trade show and other promotional activities. Our sales and
marketing expenses increased from $2.2 million for the six months ended June 30,
1999, to $17.2 million for the six months ended June 30, 2000. This increase is
primarily attributable to an increase in the size of our sales force. Expenses
related to personnel costs of sales and marketing personnel increased from $1.4
million for the six months ended June 30, 1999, to $10.0 million for the six
months ended June 30, 2000. Travel and related costs increased from $313,000 for
the six months ended June 30, 1999, to $1.3 million for the six months ended
June 30, 2000. Costs associated with our marketing activities increased from
$262,000 for the six months ended June 30, 1999, to $5.6 million for the six
months ended June 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.
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 $779,000 for the six months ended June 30, 1999, to $3.2 million
for the six months ended June 30, 2000. The increase is primarily attributable
to an increase in our programming staff. Expenses related to program and
development personnel increased from $700,000 for the six months ended June 30,
1999, to $3.1 million for the six months ended June 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.
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 costs and communications costs. Our general
and administrative expenses increased from $3.4 million for the six months ended
June 30, 1999, to $10.5 million for the six months ended June 30, 2000. The
increase is primarily attributable to the increased size of our executive and
administrative staff. Expenses related to personnel costs of our general and
administrative personnel increased from $999,000 for the six months ended June
30, 1999, to $2.8 million for the six months ended June 30, 2000. Facilities
costs increased from $471,000 for the six months ended June 30, 1999, to $1.8
million for the six months ended June 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 $126,000 for the six months
ended June 30, 1999, as compared to $630,000 for the six months ended June 30,
2000. The
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increase corresponds primarily to the increase in our revenues. Depreciation and
amortization also increased over the same periods from $189,000 to $2.2 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.
Deferred Stock-Based Compensation. During the six months ended June 30, 1999
and 2000, we charged an additional $8.8 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
$1.1 million and $12.4 million, respectively.
Other Income (Expense). Interest income increased from $25,000 to $1.2
million for the six months ended June 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 $185,000 for the six months ended June 30, 1999, to $559,000 for the six
months ended June 30, 2000. The increase resulted primarily from the 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.
Liquidity and Capital Resources
Since our inception on October 8, 1996, we have had significant negative cash
flows from our operations. For the six months ended June 30, 1999 and 2000, we
used a total of $4.3 million and $22.6 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 six months ended June 30,
1999 and 2000, our cash used in operating activities included increases in our
trade accounts receivable of $690,000 and $8.1 million, respectively. The
increase is primarily attributable to billings for larger network access
contracts, software licenses and advertising revenues. The increase for the
first six months ended June 30, 2000, includes $3.5 million due from Office
Depot under the terms of the arrangement discussed earlier, of which $3.0
million has been collected since June 30, 2000.
For the six months ended June 30, 1999 and 2000, we used cash totaling $1.3
million and $42.4 million, respectively in our investing activities, which have
consisted primarily of expenditures for computer and related equipment,
leasehold improvements, investment in other companies and payment for long-term
strategic marketing opportunities. The increase also includes a $25 million
payment made to AOL in March 2000 under our marketing and technology development
agreement (see note 8 to Notes to Condensed Consolidated Financial Statements).
Net cash provided by financing activities for the six months ended June 30,
1999 and 2000, was $6.9 million and $155.4 million, respectively. This increase
includes the net proceeds of our secondary public offering on February 10, 2000.
As of June 30, 2000, our principal source of liquidity was approximately $121
million of cash and cash equivalents. As of June 30, 2000, we had material
commitments for capital expenditures of $7 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 8
Notes to the Condensed Consolidated Financial Statements, we have commitments to
pay AOL $45 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 for at least the next 18 months. 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 18 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 the lack of widespread acceptance of the
Internet as a means of purchasing products and services and managing our growth.
Our failure to
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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 and expect to continue to incur operating losses
on both a quarterly and annual basis for at least the foreseeable future. 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 June 30,
2000, we had an accumulated deficit of $106.6 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. 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. We cannot assure you that we will be
successful. In addition, we recently launched a 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.
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 any new members or increase revenues and 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
competition from enterprise software purchasing systems providers such as Ariba
and Commerce One. 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
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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 480 employees as of June 30, 2000.
In addition, we plan to 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.
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:
. demand for and market acceptance of our products and services;
. inconsistent growth, if any, of our member base;
. loss of key customers or strategic partners;
. timing of the recognition of revenue for large contracts;
. variations in the dollar volume of transactions effected through our e-
marketplaces;
. intense and increased competition;
. introductions of new services or enhancements, or changes in pricing
policies, by us or by our competitors;
. our ability to control costs; and
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. 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 are verbal and 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
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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:
. the impact of recessions in economies outside the United States,
especially in Asia;
. changes in regulatory requirements;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences;
. difficulties and costs of staffing and managing foreign operations;
. political and economic instability;
. fluctuations in currency exchange rates;
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
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<PAGE>
. 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:
. e-commerce is at an early stage and buyers may be unwilling to shift their
traditional purchasing to online purchasing;
. businesses may not be able to implement e-commerce applications on these
e-marketplaces;
. increased government regulation or taxation may adversely affect the
viability of e-commerce;
. insufficient availability of telecommunication services or changes in
telecommunication services may result in slower response times; and
. 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 e-marketplace, 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 solution. 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. We must add and retain a substantial
number of smaller to medium sized businesses as members.
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 our members. Our computer systems and databases
must allow for expansion as a 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
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<PAGE>
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 services depend on complex software. Unknown defects in this software could
result in service and development delays.
Our e-marketplace services 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.
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<PAGE>
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:
. divide our board of directors into three classes;
. 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;
. prohibit stockholder action by written consent; and
. 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:
. establish a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest; and
. impose time restrictions or require additional approvals for an
acquisition of us by an interested stockholder.
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<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
During the three months ended June 30, 2000, we granted options to purchase
181,000 shares of common stock to employees, and during the six months ended
June 30, 2000, we granted options to purchase 1,661,950 shares of common stock
to employees, under our 1999 Equity Incentive Plan. During the quarter ended
June 30, 2000, employees, consultants and other service providers of the Company
exercised options to purchase 791,850 shares of common stock and one warrant
holder exercised warrants to purchase 400,000 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.
Item 4. Submission of Matters to a Vote of Securities Holders
(a) Annual Meeting of Stockholders was held of July 21, 2000.
(b) Shareholders voted for the election of Ms. Martha Layne Collins and Mr.
David I. Fuente as Class I Directors. Messrs. John G. Chiles and Michael
D. O'Brien continued as Class II Directors. Messrs. Christopher P.
Carton and Charles E. Johnson, Jr. continued as Class III Directors.
(c) Proposal One to elect two Directors to the Company's Board of Directors
to serve until the 2003 Annual Meeting resulted in the election of Ms.
Collins with 23,889,454 (99.42%) votes for and 138,709 (0.58%) withheld,
and Mr. Fuente with 23,950,596 (99.68%) votes for and 77,567 (0.32%)
withheld.
Proposal Two to approve the Amendment to the Amended and Restated
Articles of Incorporation to increase the number of authorized shares of
common stock by 150,000,000 shares. The proposal was approved as
follows: 22,604,710 (94.1%) votes for, 1,397,554 (5.8%) against, and
25,889 (0.1%) abstaining. There were no broker non-votes.
Proposal three to approve the Amendment to the PurchasePro.com, Inc.
1999 Stock plan to reserve additional 4,500,000 shares for issuance
under the Plan. The proposal was approved as follows: 16,970,451 (94.0%)
votes for, 1,052,658 (5.8%) against, and 30,664 (0.29%) abstaining.
There were 5,974,390 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i).1 Amended and Restated Articles of Incorporation (filed as Exhibit
3(i).1 to our Quarterly Report on Form 10-Q (No. 000-26465), 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 (No. 000-26465), 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).
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<PAGE>
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) (filed as Exhibit 10.24 to
our Registration Statement on Form S-1 (No. 333-92303), and
incorporated herein by reference).
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<PAGE>
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 Mr. 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 Mr. 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 March 31, 2000 Form 10-Q
(No.000-26465), and incorporated herein by reference).
10.30 AOL Technology Development Agreement (filed as Exhibit 10.24 to
our March 31, 2000 Form 10-Q (No.000-26465), 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 March 31, 2000 Form 10-Q (No. 000-26465),
and incorporated herein by reference).
10.32 Advanstar Warrant Agreement Amendment No. 1.
10.33 Certificate of Amendment to the Amended and Restated Articles of
Incorporation.
27.1 Financial Data Schedule.
------------
* Indicates management contract or compensatory plan or agreement.
+ Confidential treatment has been granted 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 June 30, 2000.
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: August 14, 2000 By: /s/ James P. Clough
--------------------------------------
James P. Clough, Senior Executive Vice
President and Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<C> <S>
3(i).1 Amended and Restated Articles of Incorporation (filed as Exhibit
3(i).1 to our Quarterly Report on Form 10-Q (No. 000-26465), 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 (No. 000-26465), 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).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<C> <S>
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) (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 Mr. 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 Mr. 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 March 31, 2000 Form 10-Q
(No.000-26465), and incorporated herein by reference).
10.30 AOL Technology Development Agreement (filed as Exhibit 10.24 to
our March 31, 2000 Form 10-Q (No.000-26465), 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 March 31, 2000 Form 10-Q (No.000-26465), and
incorporated herein by reference).
.
10.32 Advanstar Warrant Agreement Amendment No. 1.
10.33 Certificate of Amendment to the Amended and Restated Articles of
Incorporation.
27.1 Financial Data Schedule.
</TABLE>
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* Indicates management contract or compensatory plan or agreement.
+ Confidential treatment has been granted with respect to certain portions
of these agreements.
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