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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] 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: 0-26811
VENTRO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0465496
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1500 PLYMOUTH STREET, MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 567-8900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.0002 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At January 31, 2001, the aggregate market value of the Common Stock held by
non-affiliates of the registrant was approximately $76,500,000.
At January 31, 2001, the number of shares of Common Stock outstanding was
46,105,147.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders -- Part III of this Form 10-K.
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VENTRO CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Consolidated Financial Data........................ 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Result of Operations.................................... 19
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 35
Item 8. Financial Statements and Supplementary Data................. 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 59
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 59
Item 11. Executive Compensation...................................... 59
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 59
Item 13. Certain Relationships and Related Transactions.............. 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 59
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PART I
ITEM 1. BUSINESS
OVERVIEW
We initiated a major restructuring in 2000 that will substantially change
our business. In December 2000, the Board of Directors decided to shut down our
Chemdex and Promedix marketplaces, laid off 235 employees and restructured
certain Ventro operations. For the year ended December 31, 2000, the loss from
discontinued Chemdex and Promedix operations aggregated $524.6 million, and we
recorded additional charges of $37.2 million related to Ventro restructuring and
write-off of certain Ventro investments. The Chemdex and Promedix marketplaces
were the source of substantially all of our revenues since inception. In the
future, we will seek to provide technology and services to marketplaces that are
owned by others. To date, we have not finalized our product offering or pricing
or begun providing services to any marketplace in which we are not an equity
owner.
We began operations in 1997 as Chemdex Corporation, an electronic
marketplace for life sciences research products. In February 2000, we acquired
Promedix, an electronic marketplace for specialty medical products, and
Specialty MD, a provider of interactive search and content functions. Later in
February 2000, we were renamed Ventro and announced our intention to create a
number of marketplaces in a variety of industries in which we would own a
significant minority interest. The table below summarizes the marketplaces in
which we have an investment as of February 16, 2001:
VENTRO PCT.
OWNERSHIP
OF
DATE PRIMARY OUTSTANDING
NAME OF MARKETPLACE ESTABLISHED PARTNERS SHARES INDUSTRY
------------------- ----------- ----------------- -------------- --------
Broadlane............ Dec 1999 Tenet Healthcare 19% High volume medical supplies
Industria Solutions.. Jan 2000 DuPont, IBM 49% Fluid processing equipment and parts
Amphire Solutions.... April 2000 Gordon Foods 37% Food services
MarketMile........... Aug 2000 American Express 30% Business products and services
During 2000, we recognized that our concept of creating and owning
marketplaces would not permit us to achieve profitability with our existing
cash. It became clear that the major market participants desired to establish
their own electronic marketplaces to link participants. Accordingly, our Board
of Directors decided to close Ventro's wholly owned marketplaces, Chemdex and
Promedix, and to focus in the future on providing technology and services to
marketplaces in partnership with leading industrial players. It is anticipated
that we will not acquire equity in future marketplaces, but will seek to charge
fees for providing technology and services.
Our existing minority-owned marketplaces have not produced revenues. In
light of our substantial investment in each of the marketplaces and the terms of
the technology licenses and services agreements with them, it is unlikely that
Ventro will recognize revenues in the future from our activities related to
these marketplaces. At December 31, 2000, because of deteriorating financial
conditions at Amphire and contractual disputes with Broadlane, we reserved or
wrote off amounts related to Amphire and Broadlane aggregating approximately
$9.5 million. At December 31, 2000 the Company had net balances due of $2.1
million from Industria, and $2.2 million from MarketMile, which management
believes to be fully collectible. There can be no assurance that we will be
successful in obtaining new marketplace customers on terms that will permit us
to achieve profitability in the future.
On February 20, 2001, we announced our intention to tender for the
repurchase of our outstanding convertible subordinated notes at a price of $270
per $1,000 principal amount. The purpose of the tender offer is to retire all of
the outstanding notes in order to reduce our annual interest expense and
eliminate the need to repay or refinance the notes at maturity in 2007. We are
unable to predict whether we will be successful in retiring the notes.
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DISCONTINUED MARKETPLACES
In December 2000, we announced a plan to restructure the Company's business
and discontinue operations of its wholly owned marketplaces, Chemdex and
Promedix. Revenues for Chemdex and Promedix for the year ended December 31, 2000
were $97.9 million and $1.4 million, respectively, and are now included in
results from discontinued operations. Our loss from discontinued operations for
the year ended December 31, 2000 was $524.6 million, and we recorded additional
charges of $37.2 million related to restructuring of our operations and
write-off of certain Ventro investments. In connection with our restructuring we
reduced our operating expenses by reducing marketing efforts, terminating or
restructuring existing marketing arrangements and reducing current employee and
contractor staffing levels. There can be no assurances that we will be
successful in reducing operating expenses in the future. Our inability to
successfully implement the restructuring and cost reduction measures would have
a material adverse effect upon our ability to successfully transition to our new
business plan and to remain in business.
Chemdex
Chemdex was the first Ventro marketplace company and was 100% owned and
operated by us. The Chemdex Marketplace utilized a database of over 1.0 million
life sciences research stock keeping units, or SKUs, from over 1,600 suppliers.
In December 2000 when Ventro announced that it would discontinue operations of
Chemdex, Chemdex had agreements to provide its purchasing solution to
approximately 144 enterprise customers and had over 37,000 registered users.
The Chemdex Marketplace consists of a database of life sciences research
SKU's and advanced search engine and transaction software that enabled users to
easily identify, locate and purchase the products they needed. Chemdex provided
applications that enabled its customers and suppliers to interface and automate
their information exchange with the Chemdex Marketplace. Additionally, Chemdex
provided professional and implementation services to enable its customers to
take full advantage of the capabilities of the Chemdex Marketplace. The
customer's interface with the Chemdex Marketplace varied based upon the
customer's information technology systems. Our applications and services were
implemented in some cases as a fully hosted stand-alone solution, or were
integrated with existing systems or other commercially available purchasing
solutions. Access to the Chemdex Marketplace was also provided to smaller
customers, or independent registered users, through the Chemdex website.
Key customers utilizing the Chemdex Marketplace included Amgen, Biogen,
Bristol Meyers Squibb, DuPont, Elan Pharmaceutical, Genentech and Rhone Poulenc
Rorer. Key suppliers selling products through the Chemdex Marketplace included
Calbiochem, Clontech Laboratories, ICN Biomedicals, Molecular Probes and Pierce
Chemicals.
In December 2000 the Board of Directors concluded that the Chemdex
Marketplace would be discontinued. This decision was based, in part, upon an
analysis of operating expenses required to support the marketplace, revenue and
gross margin growth below expectations, and expectations of the need to continue
investing significant cash in support of the operations. As a result, Chemdex
developed customer specific plans to facilitate an orderly shutdown of
marketplace operations, with all customer shutdowns to be completed by March 31,
2001. The shutdown results in the severing of electronic ties to the marketplace
and thereby prevents customers from placing electronic orders for products
offered by Chemdex suppliers. As part of the customer plan, Chemdex is working
with other industry partners, including VWR Scientific Products and Fisher
Scientific, to minimize disruption to customers' operations. Chemdex
responsibilities during these customer transitions include transferring
appropriate historical records, summarizing in some cases data regarding past
purchases, and working with industry partners to transition user purchasing
activities to new processes that do not include the Chemdex Marketplace.
At December 31, 2000 approximately 70 enterprise customers were still using
the marketplace and are scheduled to be shutdown by March 31, 2001. Costs of the
customer shutdowns, and shutdown costs yet to be incurred, including salaries of
Chemdex personnel, costs of outside contractors, and other expenses, have been
included in the costs of discontinued operations included in the December 31,
2000 results of operations.
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Contracts with Chemdex customers, industry partners and suppliers provide,
in some cases, for cancellation notification periods that are longer than those
that we have provided. In some cases, shorter notification periods have caused
inconvenience to marketplace participants, and we have been notified by several
marketplace participants that discontinuing the marketplace represents a breach
of Chemdex contractual obligations. Through February 16, 2001 we have had
discussions or correspondence with a limited number of customers, suppliers and
industry partners regarding possible breaches of contractual obligations, but
have received no threats of litigation or formal complaints. Management believes
that liabilities recorded for discontinued operations at December 31, 2000 are
adequate to provide for any potential claims or damages from Chemdex customers,
suppliers or industry partners as a result of the shut down of the Chemdex
marketplace.
Promedix and SpecialtyMD
The Company acquired Promedix in February 2000 in a stock purchase
transaction effected by the issuance of 12.1 million shares of Ventro common
stock for all of the outstanding preferred and common stock of Promedix. The
transaction was valued at approximately $325.3 million, including approximately
$318 million of goodwill, and was accounted for as a purchase transaction. The
Promedix Marketplace provided customers with the ability to purchase products
from multiple specialty medical product manufacturers with a single purchase
order and offered integration capability with most of the major legacy systems
currently in use by healthcare institutions. The Company did not record
significant revenues from the Promedix Marketplace prior to the decision to
discontinue its operations in December 2000.
The Company acquired SpecialtyMD in February 2000 in a stock purchase
transaction effected by the issuance of 1.1 million shares of Ventro common
stock for all of the outstanding common stock of SpecialtyMD. The transaction
was valued at approximately $107.7 million, including approximately $89 million
of goodwill, and was accounted for as a purchase transaction. SpecialtyMD was a
provider of a range of comprehensive search and content functions that added an
interactive component to Ventro's e-commerce procurement solution, primarily
related to Promedix customers. The Company did not record significant revenues
from SpecialtyMD prior to the decision to discontinue its operations in December
2000.
In December 2000 the Board of Directors concluded that the Promedix
Marketplace and SpecialtyMD operations would be discontinued. This decision was
based, in part, upon an analysis of operating expenses required to support the
marketplace, revenue and gross margin growth below expectations, competition in
the market and expectations of the need to continue investing significant cash
in support of the operations. Promedix had limited customer installations and at
December 31, 2000 all customer operations had ceased.
Contracts with Promedix customers and suppliers provide, in some cases, for
cancellation notification periods that are longer than those that we have
provided. In some cases, shorter notification periods have caused inconvenience
to customers and suppliers, and we have been notified by several suppliers that
discontinuing the marketplace represents a breach of Promedix contractual
obligations. Through February 16, 2001 we have had discussions or correspondence
with a limited number of suppliers regarding possible breaches of contractual
obligations, but have received no threats of litigation or formal complaints.
Management believes that liabilities recorded for discontinued operations at
December 31, 2000 are adequate to provide for any potential claims or damages
from Promedix suppliers as a result of the shut down of the Promedix
marketplace.
CURRENT MARKETPLACE CUSTOMERS
We have generated no revenues from our marketplace service operations to
date. In addition, services provided to our existing minority-owned marketplace
customers have been provided at cost and amounts billed and collected have been
reflected as reductions of related operating expenses. Therefore, it is unlikely
that we will recognize any significant revenues in the future related to these
marketplaces. It is anticipated that contracts with new marketplace customers
will provide for billings and revenues in accordance with the terms of the
contracts, although there is no assurance that we will be successful in
identifying new customers or negotiating commercially acceptable contractual
provisions that will allow recording of revenues.
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Our ability to deliver services to our existing marketplace customers, bill
for these services and collect amounts billed is, in part, dependent upon
interpretation of existing contractual language. We have experienced disputes
with existing marketplace customers, and anticipate future contractual disputes,
primarily related to billings for, and delivery of, technologies or services not
specifically defined or priced under existing contractual language. For example,
Broadlane has stated its belief that we have failed to provide the services and
technology required to operate the Broadlane marketplace in the manner and
within the time frame established in their technology and services agreement. We
are currently disputing their withholding of amounts billed of approximately
$4.4 million of balances owed at December 31, 2000. Effective February 16, 2001
the Company stopped providing marketplace services to Broadlane and is in
discussions regarding potential settlement of this dispute. Any such settlement
is likely to involve termination of all of our agreements with Broadlane and may
also involve the transfer or purchase of our interest in its common stock. Due
to the competitive marketplace for our services, size of potential marketplace
customers, and early stage of our product and the market, contractual
negotiations will be difficult with potential new marketplace customers and we
may be required to enter into contracts similar to those with our current
customers and we may experience contractual disputes with new customers. There
can be no assurance that we will be successful in negotiating contracts with new
marketplace customers that will allow us to profitably deliver services under
the contract, bill for such services, ultimately collect amounts that are
billed, and record revenues.
Our agreements with MarketMile provide certain uptime and performance
guarantees regarding the quality of our services. Our scheduled uptime guarantee
assures MarketMile that, except during scheduled maintenance windows or during
service outages or degradations caused by MarketMile, outages to its Internet
operations will be repaired within specified time limits. Our performance
guarantee assures MarketMile that if the responsiveness of Internet operations
falls below mutually agreeable levels, we will restore the site to the
appropriate levels within specified time limits. If we fail to meet these
guarantees, we may be required to credit a percentage of the fees paid for our
services, generally up to a maximum of 100% of all service fees accrued in the
month of the outage. In addition, our contract with MarketMile provides a
minimum pool of $5.0 million in damages in the event we fail to achieve certain
defined contractual performance milestones. As of December 31, 2000 we had not
issued any credits to MarketMile, or other marketplace customers, in connection
with system uptime or performance. At December 31, 2000, we had recorded
approximately $5.0 million of billings to MarketMile as a customer advance.
These billings will not be reflected as reductions of operating expense until
such time as all contractual milestones with MarketMile have been successfully
achieved, and uncertainty regarding potential penalty provisions has been
eliminated.
For the year ended December 31, 2000, Ventro billed its affiliated
marketplace companies an aggregate amount of approximately $26.6 million. The
billings were for services Ventro had provided, or for charges such as rent,
hardware costs, and software costs, that Ventro passed through to the
marketplace companies. As of December 31, 2000, Ventro had collected $12.7
million of the amounts billed. The Company wrote off $5.1 million due from
Amphire and reserved $4.4 million related to Broadlane and $270,000 related to
Industria. The $4.3 million net receivable is due from Industria ($2.1 million)
and MarketMile ($2.2 million). Ventro management believes that collectibility of
all amounts due from Industria and MarketMile is probable. All amounts billed to
Amphire and Broadlane were either reserved as potentially uncollectible or
written off at December 31, 2000. The net amount of receivables from related
parties is included in the accompanying balance sheet at December 31, 2000.
Approximately $3.3 million of the amounts billed and collected from marketplace
companies were offset against Ventro's gross operating expenses during 2000. An
additional $5.0 million of amounts billed and collected were not offset but were
deferred pursuant to our agreement with MarketMile.
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The following table summarizes the status of each of our minority owned
marketplaces at December 31, 2000 (in thousands):
INITIAL EQUITY LOSS AMORTIZATION WRITE-DOWN CARRYING NET ACCOUNTS
INVESTMENT OF INVESTEE OF GOODWILL OF GOODWILL VALUE RECEIVABLE INITIAL TRANSACTION
($) ($) ($) ($) ($) ($) PROCESSED
---------- ----------- ------------ ----------- -------- ------------ -------------------
Industria............ 5,000 5,000 -- -- -- 2,100 Yes
Amphire.............. 35,000 4,426 8,306 22,268 -- -- Yes
MarketMile........... 9,000 2,897 -- -- 6,103 2,200 No
Broadlane............ -- -- -- -- -- -- Yes
For all current marketplaces, technology developed has allowed the
processing of limited transactions. However, in no case to date has an
individual marketplace succeeded in achieving large scale processing of
transactions utilizing the Company's technology and services. Achieving large
scale processing to meet our customers' needs is dependent upon a variety of
factors including, but not limited to, enhancing the speed of transaction
processing, reducing our substantial human intervention in processing
transactions, improved participation by system users and suppliers, enhanced
system functionality, successful system integrations with users and suppliers,
and successful training of marketplace participants. There are no assurances
that we will be successful in identifying all of the changes required to
successfully allow large scale processing of transactions for current customers,
or that, once identified, we will be successful in implementing the changes that
will be required.
NEW MARKETPLACE CUSTOMERS
Ventro's strategy in the future is to identify existing e-commerce
marketplaces and marketplaces in formation that can benefit from the
technologies and services provided by Ventro. Target customers will include
industry consortia (coalitions of players in a given industry sector), private
marketplaces (internal supply chains between select trading partners) and
independent public marketplaces. To date, Ventro has not entered into any
contracts with new marketplace customers, has not finalized its marketplace
product offerings and has not priced technology and services it expects to
deliver to non-affiliated marketplace customers. We are currently engaged in
developing a prospective technology and service offering, clarifying competitive
positioning, identifying target customers and determining appropriate market
pricing for services to be offered. We expect that our offering will include
consulting services, marketplace development services and marketplace hosting
services. These services are designed to assist the customer through the various
stages of marketplace development -- initial discovery, design, development and
deployment. Technology and services provided include hosted enterprise
procurement, catalog management, business process management and trading partner
integration.
MARKETING, SALES AND SUPPORT
Our current marketing, sales and support activities are related to building
of Ventro's brand identity and product marketing to position us as a marketplace
service provider. As of February 1, 2001, we employed 62 individuals in our
marketing, sales and support group at Ventro headquarters in Mountain View, CA
and remote field locations. This headcount includes individuals in the Company's
professional services organization responsible for implementation, consulting
and other services in remote customer, user and supplier locations. In order to
successfully implement our marketplace service provider model, we will need to
hire new personnel. Specifically our services require a sophisticated sales
effort targeted at a limited number of key people within our prospective
customers' organizations. Because the market for our services is new, many
prospective customers are unfamiliar with the services we offer. As a result,
our sales effort requires highly trained sales personnel. We need to expand our
marketing and sales organization in order to increase market awareness of our
services to a greater number of organizations and, in turn, to generate
increased revenue. To meet this need we are in the process of developing our
direct sales force, and we require additional qualified sales personnel.
Competition for these individuals is intense, and we may not be able to hire the
type and number of sales personnel we need. Moreover, even after we hire these
individuals, they require extensive training in our infrastructure services. In
addition, we must continue to develop our marketing channels. If we
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are unable to continue to expand our sales operations, retain our current
employees and train new sales personnel as rapidly as necessary, we may not be
able to increase market awareness and sales of our services, which may prevent
us from generating revenue and achieving and maintaining profitability.
RESEARCH AND DEVELOPMENT
Our development organization is focused on developing and enhancing
applications for support of customer marketplaces, including enterprise
purchasing solutions, and maintaining and improving our technology,
infrastructure and database. As of February 1, 2001, our research and
development group was comprised of 150 employees responsible for software and
system development and quality assurance. We anticipate that we will be
expanding our research and development group to further develop our technology
architecture.
Research and development expenses were $35 million in 2000 for continuing
operations. To date, substantially all software development costs have been
expensed as incurred. We believe that continued significant investments in
research and development are required to remain competitive.
We cannot be sure that existing and future development efforts will be
completed within our anticipated schedules or that, if completed, they will have
the features or quality necessary to make them successful in the marketplace.
Further, despite testing by us and by current and potential customers, errors
could be found in our products. We may not be able to successfully correct these
errors in a timely and cost effective manner. If we are not able to develop new
products or enhancements to existing products or corrections in a timely and
cost-effective manner, or if these new products or enhancements do not have the
features or quality necessary to make them successful in the marketplace, our
business will be seriously harmed.
We currently license certain externally developed technologies and will
continue to evaluate externally developed technologies to integrate with our
solutions. These externally developed technologies, if suffering from defects,
quality issues or the lack of product functionality required to make our
solutions successful in the marketplace, may seriously impact and harm our
business.
TECHNOLOGY
We have developed marketplace solutions that can reside on our servers and
be accessible by standard browsers, requiring minimal software installation at
the customer site and enabling rapid deployment of applications, enhancements
and updates. We call this a "marketplace" for each applicable market.
We purchase, license or lease software, hardware and networking products
from third party commercial vendors. We purchase most of our components from
third parties. These products may not continue to be available on commercially
reasonable terms, or at all. The loss of these products could result in delays
in the sale of our services until equivalent technology, if available, is
identified, procured and integrated, and these delays could result in lost
revenues. Some of the key components of our services are available only from
sole or limited sources. For example, only hardware manufactured by two vendors
is compatible with the Solaris operating system, which is a key component of our
infrastructure. Further, to the extent that the vendors from whom we purchase
these products increase their prices, our gross margins could be negatively
affected. In order to successfully provide our services, we must maintain our
technology partnerships.
Our production data center is hosted at Exodus Communication in Sunnyvale,
California. This data center provides us with conditioned space and high
bandwidth Internet connectivity.
System Architecture. Our marketplace solutions include three layers of
technology:
- Process and Communication Layer. This layer integrates our system with
our customers' client applications using Internet technology protocols
that can pass through an enterprise's network security wall, such a http,
ftp and EDI, to provide a seamless operation of the marketplace and
purchasing solution. This layer is implemented using standard web servers
and supports standard Internet protocols such as http, ftp and XML.
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- Electronic Services Layer. This layer delivers all of our system's
functionality. The marketplace and purchasing solution uses existing and
proprietary software to deliver proprietary services including Internet
catalog development and maintenance tools, search functionality, workflow
integration, product pricing and estimated shipping, handling and freight
charges.
- Enterprise Services Layer. This layer delivers some of the services
required to run our system, including financial services, development
maintenance of the product master database, customer service system and
the data warehouse. To meet our unique scale requirements for product
information management, we developed a proprietary data warehouse system.
Customer Integration. Our marketplace solutions can be configured and
integrated to meet an enterprise customer's needs, including:
- Customer View. The purchasing solution graphical user interface may be
tailored for each customer, allowing a buyer in a marketplace to select
specific suppliers from our supplier list and to customize the user's
view in accordance with business rules and policies implemented by the
purchasing department.
- Login and Authentication. The Ventro purchasing solution provides an
authoritative enterprise authentication and authorization list along the
user roles, credit limits and approval workflow.
- Purchasing Application Integration. The Ventro purchasing solution
integrates with commercial purchasing applications, such as Ariba, as
well as internally developed purchasing applications, through industry
standard protocols for Internet purchasing.
- Contract-Specific Pricing. Ventro has developed algorithms to support
contract-specific pricing. This pricing can be implemented either by (1)
pricing contract tables that list specific prices or (2) connecting
directly with the supplier's systems to extract real time pricing and
availability information.
- Search Services. The Ventro search software leverages a combination of
full-text search and relational technology to deliver a unique search
tool customized to a particular industry. Each of the product specific
search levels also includes parametric searching capabilities to search
for products with specific attributes, or ranges of attributes.
- Product Pricing Estimation. Ventro has developed algorithms to estimate
shipping, handling and freight charges associated with any customer
order. These algorithms integrate customer requirements for shipping
delivery time, product weight and product type, including requirements
for hazardous materials and product packaging such as blue ice. These
algorithms provide buyers and sellers of marketplaces with estimated
shipping, handling and freight cost, and the ability to make appropriate
decisions given their delivery timing requirements.
- Workflow. Ventro has developed simple workflow technology to implement
each marketplace's business rules and processes. These workflow rules
include credit limit checks, multi-level approval and email-based
notification of any order changes. This system streamlines the purchasing
process by automating approval routing, and enables real time customer
service through direct customer notification.
- Technical Support. We offer technical support to respond to any customer
service disruption. In addition to off-the-shelf site instrumentation and
monitoring software, we have developed custom monitoring agents that
measure key application parameters. This software enables us to provide
high quality technical support.
COMPETITION
The market for business-to-business e-commerce is new and rapidly evolving.
Competition is intense and is expected to increase significantly in the future.
Barriers to entry are not substantial. We believe that the critical success
factors for companies seeking to create Internet business-to-business e-commerce
solutions include the following:
- quality and reliability of the e-commerce solution;
- breadth and depth of product offerings;
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- brand recognition;
- installed base of customers;
- ease of use and convenience; and
- speed of installation and operability
We face competition from a diverse group of companies. Competition may come
from providers of co-location or website hosting and related services, and
providers of Internet systems integration and professional services such as CSC,
EDS, IBM Global Services, Accenture and PriceWaterhouseCoopers. In addition,
providers of various software products to our marketplace, such as Ariba,
Commerce One, Oracle and SAP may expand their existing product offerings to be
competitive with us in the future.
Our current and potential competitors may develop superior e-commerce
platforms that achieve greater market acceptance than our solution. Many of our
existing and potential competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. Such competitors can undertake
more extensive marketing campaigns for their brands, products and services,
adopt more aggressive pricing policies and make more attractive offers to
customers, potential employees, distribution partners, commerce companies and
third-party suppliers.
In addition, substantially all of our prospective customers have
established long-standing relationships with some of our competitors or
potential competitors. Accordingly, we cannot be certain that we will be able to
expand our customer list and user base, or retain our current customers. We may
not be able to compete successfully against our current or future competitors
and competition could have a material adverse effect on our business, results of
operations and financial condition.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete depends on our ability to develop and
maintain the proprietary aspects of our technology. Although we do not have any
registered trademarks, we rely on a combination of copyright, trademark and
trade secret laws and contractual restrictions to establish and protect the
proprietary aspects of our technology. We seek to protect our source code for
our software, documentation and other written materials under trade secret and
copyright laws. Finally, we seek to avoid disclosure of our intellectual
property by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements with us and by restricting
access to our source code. Although we have patent applications pending, no
patents have been issued to us, which may significantly limit our ability to
protect the proprietary aspects of some of our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our business involves the licensing of our technology to our customers and
joint venture partners. Most licenses to our partners are exclusive within such
partner's industry or business, thus limiting to some extent our ability to use
and license our technology in the future. Pursuant to our existing licenses, we
have made certain representations and warranties and agreed to indemnify our
licensees against claims of infringement by third parties. Thus, we may be
exposed to a significant risk of liability for intellectual property
infringement claims by others. Our success and ability to compete also depend on
our ability to operate without infringing upon the proprietary rights of others.
In the event of a successful claim of infringement against us and our failure or
inability to license the infringed technology, our business and operating
results would be significantly harmed.
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GOVERNMENT REGULATION
In addition to regulations applicable to businesses generally, we are or
may be subject to direct regulation by governmental agencies, including those
listed in the bullet points below, which includes numerous laws and regulations
generally applicable to the chemical, pharmaceutical, controlled substances,
human and biological reagents, medical and in vitro devices, nuclear chemical
businesses and environmental spills, as well as U.S. import and export controls
and import controls of other countries. As described above, we initiated a major
restructuring in 2000 that will substantially change the Company's business. In
December 2000 our Board of Directors decided to shut down its Chemdex and
Promedix marketplaces, Chemdex effective March 31, 2001, and Promedix effective
December 31, 2000. In addition, purchaser access to VWR, via the Chemdex
Marketplace, will end on March 31, 2001. Finally, access to the SpecialtyMD
website will be terminated on April 30, 2001; all other SpecialtyMD operations
ceased by December 31, 2000. While this restructuring may limit future
regulatory and product liability risks, until all statutes of limitation have
expired, certain legal risks will remain.
We receive orders from purchasers for our products that we then
electronically transmit to the appropriate suppliers. The suppliers then
package, label and ship products directly to these purchasers. We take legal
title to the products, but do not take physical possession of a shipment during
any part of the transaction. Legal title generally passes to the purchaser at
the time of product shipment; however, if the chemicals or other products are
returned, we also have legal title during the shipment of the returned products.
We have been and intend to continue relying upon our suppliers to
appropriately package and label and maintain all records on the products, as
required in accordance with local, state and federal laws. We have been, and
intend to continue, relying upon suppliers and purchasers, if necessary, to
acquire and maintain all appropriate licenses and approvals, as well as maintain
all required records. Our various legal arrangements with suppliers may not have
successfully transferred all liabilities concerning these responsibilities, but
those legal arrangements are under continuing review and are being revised. We
rely on the suppliers' regulatory staff to confirm that the purchasers also have
all appropriate governmental licenses and permits and expertise needed to order,
receive and use any regulated products they have purchased. We are unable to
verify the accuracy of our suppliers' regulatory staff determinations and their
decisions whether or not to ship a product to a purchaser.
Our reliance on suppliers to perform adequate regulatory due diligence
assessments of purchasers and the compliance by suppliers and purchasers with
applicable governmental regulations may not be sufficient if we are held to need
our own licenses or otherwise separately comply on our own with governmental
regulatory requirements. For example, if we are held by governmental agencies to
be a seller or a distributor of regulated products because we did take legal
title, we may have inadvertently violated governmental regulations by not having
the appropriate license or permit, not maintaining appropriate records required
by regulations or otherwise not complying with governmental requirements, and we
may be subject to potentially severe civil or criminal penalties and fines for
each offense or violation. A review of these sales in May through July 1999,
excluding sales relating to Promedix and SpecialtyMD, which were acquired later
and are discussed separately below, found that sales through our Chemdex
Marketplace were generally made to academic or commercial purchasers and not to
individuals. As described below, those suppliers indicated to us that they
regularly perform due diligence by checking whether purchasers have the
requisite licenses and qualifications. These facts could minimize the potential
severity of any civil or criminal penalties and fines that could be imposed on
us for each of these sales.
We cannot assure you that any civil or criminal penalties or fines will not
seriously harm our business, results of operations or financial condition. In
addition, we may discover that we inadvertently sold other regulated products
without a requisite license or permit or failed to fully comply with other
local, state or federal laws governing these sales.
In addition to reviewing our past sales, during the period from May through
July 1999, we conducted interviews with those suppliers that accounted for
approximately 75% of prior sales. We chose to interview these suppliers because
they are a representative cross-section of our suppliers that we believe may
sell regulated products. Beginning in February of 2000, we updated and expanded
those interviews by conducting
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additional discussions with our six suppliers in Canada. In both the domestic
and foreign supplier interviews, we asked if they verify that the purchasers
have the necessary federal licenses before making shipments and if they comply
with applicable labeling and packaging requirements. We also asked the suppliers
whether they were aware of any diversions or chemical spills, or of any past,
pending or threatened fines, violations, penalties, litigation, complaints or
investigations regarding their shipment of products to our customers. In the
course of these discussions, the suppliers informed us that they have all of the
appropriate governmental licenses and permits, and they routinely, as a matter
of practice, verify whether the purchasers have the relevant licenses or
permits, and comply with the labeling, packaging and intended use requirements.
The suppliers also indicated that they are not aware of any diversions or past,
pending or threatened fines, violations, penalties, litigation, complaints,
proceedings or investigations regarding their shipment of products to our
customers. However, some suppliers have had small spills and been subject to
fines for these spills and for failure to provide information on hazards or
health risks presented by products, but they could not identify whether orders
to our customers were involved. Furthermore, we are unable to verify the
accuracy of suppliers' statements that they have in the past complied, or will
in the future comply, with laws applicable to these sales. In addition, we did
not conduct investigations of all suppliers in the Chemdex database, and we do
not have any current plans to do so. We could be significantly fined or exposed
to significant civil or criminal liability, or suffer negative publicity, if
these licensing, packaging, due diligence, labeling, informational and other
regulatory requirements have not been fully met by our suppliers or by us.
During the period from May through July 1999, we also reviewed the list of
products in our current database to identify any products for which we may need
a license or permit to sell. We identified approximately 14,000 of those
products that may be regulated, and we have evaluated their status. They have
either been removed from our database, or been flagged so that we will not in
the future sell them, but instead will refer the purchasers of these flagged
products directly to suppliers. In some instances, we have sought appropriate
licenses or registrations enabling us to return certain products to the
database. We cannot be sure that all regulated products requiring us to have a
license to sell have been removed from, or flagged in, the database. In
addition, new products that require us to obtain governmental licenses or
permits may be inadvertently added to our database. However, we have instituted
additional quality control procedures to routinely screen our growing database,
as well as increase the scrutiny of new products proposed to be added to the
database to eliminate those products for which we are required to have licenses
or permits in order to sell or distribute the products. A regulatory compliance
officer was hired in 1999 to oversee these matters, as well as the overall
compliance of our Chemdex Marketplace.
In February 2000, we acquired Promedix, which was not involved in the
earlier reviews discussed above. As noted above, the Promedix marketplace was
shut down on December 31, 2000, although some legal risks may endure, for
example, until the relevant statutes of limitation have expired. Regarding sales
by Promedix, we relied on suppliers to meet the various regulatory requirements
applicable to the sale of these products, including specialty medical products
regulated by the FDA. It is noteworthy that Promedix only conducted limited
sales and that those sales were primarily to large hospitals or medical centers,
which are qualified and knowledgeable with regard to the regulatory requirements
and the use of the products. We sought to rely upon our suppliers by passing all
regulatory responsibilities to them, and to obtain indemnification from
suppliers in our agreements with them. However, the transfer of the applicable
regulatory liabilities may have been inadequate, unclear or incomplete, the
scope of the indemnification is limited and some suppliers may be unable or
unwilling to indemnify or defend us in the future. We did not verify whether
those suppliers have met all applicable regulatory requirements or that their
compliance was adequate or sufficient to comply with all governmental
requirements. We did, however, conduct limited interviews with three of
Promedix's suppliers. While this survey was not exhaustive, it did indicate that
the suppliers interviewed were knowledgeable about the relevant FDA and other
regulatory requirements, and did, for example, file adverse event reports,
maintain appropriate complaint reports, consistent with current Good
Manufacturing Practice (GMP) regulations, as well as maintain other required
records relating to sale and use of devices and products purchased through
Promedix. If their compliance or ours is found by the FDA not to be sufficient
to cover our sales activities, we could be subject to significant penalties or
fines, significant civil or criminal liability as well as potential negative
publicity. We could also be subjected to regulatory enforcement actions, fines
and other liabilities, as well as product and revenue loss and recall costs, if
the products are improperly manufactured,
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described, advertised on our website, represented, labeled, used or otherwise do
not perform as expected. The events described above could seriously harm our
business, revenues, results of operations and financial condition.
The packaging, labeling, supply, sale and distribution of medical devices
for clinical use was subject to direct governmental agency regulation, which
included FDA laws and regulations generally applicable to medical supplies and
healthcare businesses, as well as U.S. export controls and import controls of
other countries, and included controls on the use and distribution of some
specialty medical products. FDA laws and regulations included requirements that
distributors of medical devices establish and maintain device complaint records
and adverse event or incident reports for any written, electronic or oral
complaint received pertaining to distributed medical devices, and that those
reports are investigated pursuant to a documented protocol. FDA laws and
regulations also included the requirement that distributors maintain records of
distribution of certain medical devices and provide reports to device
manufacturers for the purpose of tracking device distribution. Promedix relied
on suppliers to meet all of these FDA requirements, but it may also have been
required to do so itself. Promedix also relied on its suppliers to perform
adequate due diligence to confirm that purchasers held all appropriate licenses
needed to order, receive and use medical devices and also that purchasers
complied with product labeling requirements and they were not otherwise
diverting or misusing medical devices for purposes other than those set forth in
any FDA-approved product labeling.
Any failure to comply with applicable FDA laws and regulations could
subject us to civil and/or criminal liability, regardless of whether our
suppliers are maintaining FDA-required records. Regarding compliance with the
various statutory and regulatory requirements that relate to our involvement in
the sale of specialty medical products, there are, to our knowledge, currently
no investigations, inquiries, citations, fines or allegations of violations,
diversions or inappropriate use or noncompliance pending by government agencies
or by third parties against us. It is possible that there may be investigations
or allegations in the future. There is a risk that the FDA may not accept our
reliance on Promedix's suppliers to satisfy any or all of the FDA's requirements
for device distributors. Although any potential impact on us for noncompliance
cannot be established, it could seriously harm our business, financial condition
and results of operations, result in adverse publicity and could result in civil
or criminal penalties and liabilities.
In February 2000, we acquired SpecialtyMD. Access to the SpecialtyMD site
will be terminated on April 30, 2001; all other operations ceased by December
31, 2000. The activities of SpecialtyMD were not a part of the earlier reviews
discussed above. It is important to note that SpecialtyMD has never sold
pharmaceuticals, medical devices, chemicals or substances triggering any FDA or
other governmental regulation. Instead, SpecialtyMD provides a portfolio of
medical specialty websites for specialist physicians. There is no litigation or
past, pending, threatened or any alleged violation, fine, citation, inquiry,
notice or regulatory enforcement action involving SpecialtyMD, relating to
regulatory requirements, except as described herein. SpecialtyMD relies upon
third parties and pharmaceutical or medical device companies, that provided the
information on medical practices and product descriptions that it published on
its website for accuracy and to avoid violating any regulatory requirements.
SpecialtyMD had sought to clarify responsibilities and liabilities in both
existing and future legal arrangements with providers and companies advertising
their products on its website. SpecialtyMD also had sought to accompany the
information it provided with appropriate disclaimers regarding its
responsibility for the accuracy and content of third party information. However,
these disclaimers and legal arrangements may not have been effective in
transferring all liability for any misstatements, errors, defamation, libel,
slander or other legal or regulatory liabilities that may arise from or be
embedded in the information published by SpecialtyMD. Furthermore, it is
possible that all legal and regulatory responsibilities cannot be transferred.
It is possible that significant fines, penalties or judgments could result from
the information provided and the activities of SpecialtyMD.
Under the terms of our agreement with VWR, VWR provides support for the
purchase of third-party, off-catalogue products, where purchasers may order
products not listed in our database. As discussed above, after March 31, 2001
access via the Chemdex Marketplace to VWR will end although certain legal risks
may endure until the relevant statutes of limitation have expired. The type and
nature of all the products sold by VWR or that VWR may sell has not been
ascertained. We cannot be sure that we have not sold or caused to
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be sold, or may not inadvertently sell or have sold or caused to be sold and
shipped products for which we should have had the required governmental licenses
or permits.
We have also relied on our suppliers to comply with applicable local, state
and federal laws regarding the labeling and the dissemination of information on
any products sold that may be hazardous or present a health threat to the user.
If these suppliers have failed, or we have failed to maintain the requisite
records irrespective of the actions of the suppliers, or if either of us fails,
in the future, to adequately comply with labeling and information dispensing
requirements of local, state or federal laws, then we may be held legally
responsible, since we held title to these products, and could be subject to
governmental penalties or fines, as well as private lawsuits to enforce these
laws.
Finally, we have relied upon our suppliers to obtain appropriate approvals
for products regulated by the FDA and to comply with the requirements relating
to those approvals and products. The failure of suppliers to obtain or comply
with those approvals, or the failure of the product advertising or labeling to
be consistent with the FDA approval for the products, or other failures by the
products themselves, or our failure to keep regulatory records required by the
FDA, such as complaint files, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities and negative
publicity.
We intend to offer for sale products only to qualified purchasers. Unless
we have the necessary licenses, permits, authorizations and approvals, or an
exemption or exclusion applies, we do not intend to offer for sale or cause to
be sold products that are, for example:
- prescription or over-the-counter human or animal drugs that are regulated
by the FDA;
- radioactive materials that are regulated by the Nuclear Regulatory
Commission or state and local governmental authorities unless we have
appropriate licenses or permits;
- biological products intended for the treatment of humans or animals, and
that are regulated respectively by the FDA and U.S. Department of
Agriculture (USDA);
- pathogenic bacteria or viruses that may introduce any contagious or
infectious disease of humans or animals and which are regulated by the
Centers for Disease Control and Prevention and USDA as Select Agents;
- controlled substances that are regulated by the Drug Enforcement Agency
and whose distribution requires a registration;
- products to be imported or exported (no products are currently exported)
that are regulated by the U.S. Department of Commerce or other regulatory
agencies;
- explosive materials for which a license, permit, or authorization is
required under Bureau of Alcohol, Tobacco and Firearms regulations;
- ozone-depleting substances that are subject to production and importation
bans under the Federal Clean Air Act and the Montreal protocol; and
- certain polychlorinated biphenyls and asbestos-containing materials.
We intend to continue to sell products for which we do not need a
governmental license, permit, authorization or approval, or for which an
exemption or exclusion applies, and will seek to comply, either directly or
through our suppliers, with applicable local, state and federal laws and
regulations governing the sale, packaging and labeling of these products,
dispensing of information on health risks and hazards about a chemical and
record keeping concerning these products. However, our suppliers and we may
inadvertently fail to comply with applicable laws in the future. Noncompliance
could seriously harm our business, results of operations and financial condition
because of civil or criminal penalties and fines and negative publicity.
For sales of VWR core products under our agreement with VWR and under
agreements with a limited number of other suppliers, we act as a sales agent. In
these situations, we do not take title to, or have possession of these
suppliers' products. We rely on VWR and these other suppliers to comply with all
applicable local, state and federal laws. Although we are acting as a sales
agent for these suppliers and do not, in this situation, take legal title to, or
possession of, these products, we may still be held liable if we cause to be
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sold regulated products to purchasers who lack required licenses to use, store
and receive these products and if the suppliers of these products have failed to
adequately comply with local, state or federal laws.
Researchers and others who are not affiliated with an enterprise customer
may have registered to purchase through our Chemdex Marketplace. Although we
required unaffiliated users to provide information about themselves, we did not
independently verify the accuracy of this information. Because we did not
generally meet unaffiliated users in person or visit their work sites, we were
even less able to gauge whether they had appropriate storage facilities, permits
or licenses compared to enterprise customers with which we generally had some
direct contact or knowledge of their reputations. Therefore, we cannot be sure
that we will not inadvertently sell, or cause to be sold or delivered, products
for which the purchasers lack appropriate local, state or federal licenses or
permits or expertise or experience to handle or use these products. We may also
be subject to significant civil or criminal penalties, fines or monetary
judgments as well as negative publicity, if purchasers misuse or spill, or
injure themselves or third parties with, the products purchased from us.
Except as described in the next sentence, we are unaware of any current
investigations, inquiries, citations, fines or allegations of violations or
noncompliance relating to regulatory requirements pending by government agencies
or by third parties against us. In February, 2001 we have received a subpoena
from the U.S. Department of Justice, Drug Enforcement Administration, for
certain billing, invoice, and shipping records concerning sales to an
unaffiliated purchaser. It is also possible that there may be investigations or
allegations we are not aware of or future investigations or allegations. The
risk that any noncompliance may be discovered in the future is currently
unknown. Although any potential impact on us for noncompliance cannot currently
be established, it could result in significant civil or criminal penalties,
including monetary fines and injunctions, for noncompliance and negative
publicity, and seriously harm our business, revenues, results of operations and
financial condition.
The applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation, personal privacy, product
liability and environmental protection, as well as the necessity for
governmental permits, labeling, certifications and the need to supply
information to relevant parties, is uncertain. Most of the existing laws and
regulations were adopted before the widespread use and commercialization of the
Internet and, as a result, do not contemplate or address the unique issues of
the Internet and related technologies. Any export or import restrictions, new
legislation or regulation, or governmental enforcement of existing regulations
may limit the growth of the Internet, may seriously harm us by increasing our
cost of doing business or increase our legal exposure. Any of these factors
could have a negative effect on our business, revenues, results of operations
and financial condition.
EMPLOYEES
As of February 1, 2001, we had 300 full-time employees, including 150 in
research and development, 62 in sales and marketing, 36 in professional services
and customer support and 52 in general and administrative functions. Of this
number, 53 are associated with the Chemdex wind-down and will be terminated on
or about March 31, 2001. We also employ independent contractors to support our
engineering, marketing, sales and support, and administrative organizations.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding the directors and executive
officers of Ventro as of February 20, 2001.
NAME AGE POSITION
---- --- --------
David P. Perry.................... 33 President, Chief Executive Officer and
Director
Robin A. Abrams................... 49 Chief Operating Officer
James G. Stewart.................. 47 Chief Financial Officer and Assistant
Secretary
John Thorpe....................... 52 President and General Manager, Ventro Europe
Martha D. Greer................... 47 Vice President, Marketing
Brook H. Byers.................... 55 Chairman of the Board
Jonathan D. Callaghan............. 32 Director
Jan Leschly....................... 60 Director
Naomi O. Seligman................. 67 Director
L. John Wilkerson................. 57 Director
David P. Perry co-founded us in September 1997 and has served as our
President, Chief Executive Officer and a director since September 1997. From
December 1995 to April 1997, he co-founded and served in various positions,
including Chief Executive Officer, of Virogen, Inc., a biotechnology company.
Mr. Perry has also held various positions at Exxon Corporation, including
Refinery Operations Supervisor from January 1994 to May 1995, financial analyst
from March 1993 to January 1994, project manager from September 1992 to March
1993 and engineer from September 1990 to March 1992. Mr. Perry holds an M.B.A.
from Harvard University and a B.S. in chemical engineering from the University
of Tulsa.
Robin A. Abrams joined us in June 1999 as our Chief Operating Officer.
Prior to joining us, Ms. Abrams served as the President of Palm Computing Inc.
and the Senior Vice President of 3Com Corporation from February 1999 to June
1999. Ms. Abrams served as the President of VeriFone Inc., a secure payment
systems company and a subsidiary of Hewlett-Packard, from March 1998 to February
1999, and as the Vice President of the Americas of VeriFone from February 1997
to March 1998. From June 1996 to February 1997, Ms. Abrams was the Senior Vice
President of Apple Computer, Inc. and the President of Apple Americas, and from
December 1994 to June 1996, Ms. Abrams served as the Vice President and General
Manager of Apple Asia. Ms. Abrams holds a B.S. in political science and history
and a J.D. from the University of Nebraska. Ms. Abrams has announced that she
will be leaving the Company effective March 31, 2001.
James G. Stewart joined us in February 1999 as our Chief Financial Officer.
Previously, Mr. Stewart served as the Chief Financial Officer of CN Biosciences,
Inc., a chemical manufacturer and distributor, from June 1995 to March 1999, and
the President of CN Corporation, the principal operating division of CN
Biosciences, Inc., from March 1998 to March 1999. From April 1994 to April 1995,
Mr. Stewart served as the Chief Financial Officer of Fightertown Entertainment,
Inc., a virtual reality entertainment company. From November 1988 to April 1994,
Mr. Stewart held various positions at Verteq, Inc., a semiconductor equipment
company, including most recently as its Chief Financial Officer. Mr. Stewart was
formerly an Audit Partner of Arthur Young & Co. Mr. Stewart holds a B.S. in
business from the University of Southern California. Mr. Stewart has announced
that he will be leaving the Company effective March 31, 2001.
John Thorpe joined us in March 2000 as the President and General Manager,
Ventro Europe. Prior to joining us, Mr. Thorpe held various positions at GE
Information Systems and was the Corporate Vice President and President of
Europe, the Middle East and Africa from 1997 to 1999, where he sat on the GE
Chief Executives Council for Europe. Mr. Thorpe served as the Managing Director
of International Network Services, a provider of solutions for complex
enterprise networks, from 1994 to 1995. Mr. Thorpe holds a B.A. in business
studies from Portsmouth University, England.
Martha D. Greer joined us in January 1999 as our Vice President, Marketing
in January 1999. Prior to joining us, Dr. Greer served as Vice President,
Merchandise Management of Egghead, Inc., an online seller of computers and
computer-related products, from January 1997 to November 1998. Dr. Greer was
employed as
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an independent consultant from January to December 1996. From November 1992 to
January 1996, Dr. Greer served in various positions at PC Connection, a computer
direct marketing company, including Vice President, Product Management from
September 1994 to January 1996, Vice President, Marketing from September 1993 to
September 1994, Director, Marketing from May 1993 to September 1993 and
Director, Business Development from November 1992 to May 1993. Dr. Greer holds a
B.A. in linguistics from Macalester College and a Ph.D. in experimental
psychology from Harvard University. Dr. Greer has announced that she will be
leaving the Company effective February 28, 2001.
Brook H. Byers has served as one of the directors of Ventro since May 1998
and as Chairman of the Board since March 1999. Mr. Byers is a general partner of
Kleiner Perkins Caufield & Byers, a venture capital firm which he joined in
1977. He was the founding president and chairman of six lifesciences companies:
Hybritech Inc., IDEC Pharmaceuticals Corporation, InSite Vision Inc., Argonaut
Technologies, Inc., and Ligand Pharmaceuticals Inc. Mr. Byers currently serves
as a director of drugstore.com and a number of privately held technology
companies. Mr. Byers serves on the Board of Directors of the University of
California, San Francisco Foundation and the California Healthcare Institute.
Mr. Byers holds a B.S. in electrical engineering from Georgia Institute of
Technology and an M.B.A. from the Stanford Graduate School of Business.
Jonathan D. Callaghan has served as one of our directors since September
1997. Mr. Callaghan has been a general partner of CMG@Ventures, a venture
capital firm, since September 1997. Previously, from June 1991 to June 1995, Mr.
Callaghan was an associate of Summit Partners, a venture capital firm. Mr.
Callaghan also serves as a director of Vicinity Corporation. Mr. Callaghan holds
a B.A. in government from Dartmouth College and a M.B.A. with distinction from
Harvard University.
Jan Leschly has served as one of our Directors since April 2000. Mr.
Leschly has served as Chairman and Chief Executive Officer of Care Capital LLC,
a venture capital firm, since October 2000. Previously, from April 1994 to April
2000, he served as a Director and President and Chief Executive Officer of
SmithKline Beecham Corporation. Mr. Leschly currently serves as a director of
American Express Company, Viacom, Inc. and Maersk Group (Denmark). Mr. Leschly
holds a B.S. in Pharmacy from the Copenhagen College and a B.S. in Business
Administration from the Copenhagen School of Economics and Business
Administration.
Naomi O. Seligman has served as one of our directors since June 1999. Ms.
Seligman is a senior partner of Cassius Advisors, an e-commerce consulting firm
since 1998. She is a co-founder and has served as a senior partner of the
Research Board, Inc., an information technology research group since 1975. Ms.
Seligman currently serves as a director of Sun Microsystems, Exodus
Communications and The Dun and Bradstreet Corporation, John Wiley & Sons, Inc.
and Martha Stewart Living Omni-media. Ms. Seligman holds a B.A. in economics
with high honors from Vassar College and a M.B.A. from the London School of
Economics.
L. John Wilkerson has served as one of our directors since March 1999. Dr.
Wilkerson is a co-founder and has been a general partner of Galen Partners, a
venture capital firm, since May 1990, and has been a consultant to The Wilkerson
Group, a health care products consulting firm, since May 1996. Previously, Dr.
Wilkerson served as a Vice President of Smith Barney. He is currently a director
of Stericycle, Inc. Dr. Wilkerson holds a B.S. in plant science from Utah State
University and a M.S. and Ph.D. in economics from Cornell University.
ITEM 2. PROPERTIES
Our executive, administrative and operating offices are located in
approximately 107,000 square feet of leased office space located in Mountain
View, California under a lease expiring in February 2005. We also have
approximately 34,000 square feet in Palo Alto, California pursuant to a lease
that expires in December 2003. In November 1999, the Company entered into a
sublease agreement for the Palo Alto facilities which commenced on December 1,
1999 and will end on December 31, 2003. The Company also maintains sales offices
in Cambridge, Massachusetts, Bedminster, New Jersey, and the United Kingdom.
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ITEM 3. LEGAL PROCEEDINGS
We recently received correspondence from Broadlane, Inc., one of our
marketplace customers, asserting that we are in breach of our technology and
services agreement. Broadlane has stated its belief that we have failed to
provide the technology required to operate the Broadlane marketplace in the
manner and within the time frame established in the technology and services
agreement. Our management has had extensive discussions with Broadlane in an
effort to address these concerns, and believes it is in both companies' best
interest to settle this dispute quickly and amicably. We believe that any
settlement of our disagreement with Broadlane will involve termination of all
agreements between the parties, resulting in severance of Broadlane's customer
relationship with us, and may also involve the transfer or repurchase of our
common stock interest in Broadlane. There can be no assurance that we will be
able to settle this dispute on terms that are acceptable to us and, if we are
unable to settle the matter, there is a likelihood that the parties would resort
to litigation.
On November 15, 2000, a former stockholder of Promedix filed a complaint
against us, Promedix and certain other parties in the Superior Court of
California, County of Los Angeles alleging, among other things, that we had
negligently failed to exchange his shares of Promedix stock for shares of Ventro
common stock on a timely basis, causing him damages resulting from a decline in
our stock price in the intervening time between the submission of his Promedix
shares for exchange and his receipt of our shares. The complaint did not specify
the amount of damages sought by the plaintiff, but instead seeks general,
special and punitive damages. We filed a motion to dismiss all the plaintiff's
claims on February 5, 2001 and believe we have meritorious defenses against all
claims asserted. However, it is impossible at this early stage in the litigation
for us to predict the outcome of such litigation.
In December 1999, Fisher Scientific International and Fisher Scientific
Company, LLC ("Fisher") filed a complaint in the Supreme Court of the State of
New York, King's County against one of its former employees, Bruce Sobel and
Chemdex seeking to enjoin Sobel's employment by Chemdex and seeking $2,000,000
in compensatory and punitive damages from Chemdex for alleged tortious
interference with Fisher's contractual relationship with Sobel. In September
2000, Fisher amended its complaint to add additional causes of action including
misappropriation of trade secrets and unfair competition. Sobel was terminated
by Chemdex in December 2000; however, Fisher has advised us that it intends to
pursue its claim against us for damages and attorney's fees. Because the case is
still in the discovery phase, we cannot predict the outcome of such litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
Our common stock was traded on the Nasdaq National Market under the symbol
"CMDX" starting on July 27, 1999 and has been traded under the current symbol
"VNTR" since March 1, 2000. Prior to July 1999, there was no public market for
our common stock. The following table shows the high and low sale prices of the
Company's common stock as reported by the Nasdaq National Market for the periods
indicated.
COMMON STOCK PRICE
-------------------
HIGH LOW
-------- -------
(Price Range of Common Stock)
Year Ended December 31, 2000
First Quarter........................................... $243.50 $51.13
Second Quarter.......................................... $ 59.50 $14.00
Third Quarter........................................... $ 26.88 $ 8.13
Fourth Quarter.......................................... $ 12.02 $ 0.59
Year Ended December 31, 1999
Third Quarter (from July 27, 1999)...................... $ 34.88 $15.13
Fourth Quarter.......................................... $143.00 $29.44
On February 16, 2001, the last reported sales price of our common stock on
the Nasdaq National Market was $1.63 per share. As of February 1, 2001, there
were approximately 54,000 stockholders of record of our common stock.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception and do not expect to pay any cash dividends in the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data below should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included in this
document. The following balance sheet data as of December 31, 2000 and 1999 and
the selected consolidated statements of operations data for years ended December
31, 2000, 1999 and 1998 have been derived from audited consolidated financial
statements included elsewhere in this document. The consolidated balance sheet
data as of December 31, 1998 and 1997 and the consolidated statements of
operation data for the period from inception (September 4, 1997) through
December 31, 1997 have been derived from audited consolidated statements not
included in this document. The selected Consolidated Statement of Operations
Data data has been restated to reflect the Chemdex and Promedix businesses as
discontinued operations. Historical results are not necessarily indicative of
results that may be expected for future periods. See Note 2 of Notes to our
Consolidated Financial Statements that explains how shares used in computing
basic and diluted net loss per share were determined.
PERIOD FROM INCEPTION
(SEPTEMBER 4,
YEAR ENDED 1997)
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
2000 1999 1998 1997
--------- -------- ------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Loss from continuing operations......... $ (93,536) $ (5,421) $(1,051) $ (121)
Basic and diluted loss per share from
continuing operations................. (2.16) (0.35) (0.59) (0.07)
Loss from discontinued operations....... (524,561) (43,152) (7,437) (283)
Basic and diluted loss per share from
discontinued operations............... (12.12) (2.82) (4.20) (0.17)
Net loss................................ (618,097) (48,573) (8,488) (404)
Basic and diluted net loss per share.... $ (14.28) $ (3.17) $ (4.79) $(0.24)
Weighted average common shares
outstanding -- basic and diluted...... 43,298 15,322 1,772 1,704
AS OF DECEMBER 31,
----------------------------------------
2000 1999 1998 1997
-------- -------- ------ ------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash, and
short-term investments............................ $192,022 $103,095 $5,990 $1,346
Working capital..................................... 158,352 82,130 4,489 1,116
Total assets........................................ 257,308 163,933 8,168 1,728
Long term obligations............................... 250,206 494 -- 6
Total liabilities................................... 304,381 38,914 1,820 280
Total stockholders' equity (deficit)................ (47,073) 125,019 6,348 1,448
- ---------------
(1) We did not have revenue from continuing operations for any period presented.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, we caution that,
while such assumptions or bases are believed to be reasonable and are made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where in any forward-looking
statement we or our management express an expectation or belief as to future
results, such expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "estimate," "anticipate" and similar expressions may identify
forward-looking statements.
PRESENTATION OF FINANCIAL INFORMATION
In the quarter ended December 31, 2000, Ventro decided to restructure and
shut down its two wholly owned marketplaces, Chemdex and Promedix. Accordingly,
results of continuing operations for Ventro for the years ending December 31,
2000, 1999 and 1998 have been restated to exclude the results of operations of
Chemdex and Promedix. The results of operations for Chemdex and Promedix have
been accounted for as discontinued operations.
OVERVIEW
Ventro Corporation (the "Company" or "Ventro" or "We"), formerly known as
Chemdex Corporation, is a technology and service provider to business to
business ("B2B") marketplaces. Ventro offers a variety of products and services
through our marketplace solutions that give companies developing online B2B
marketplaces the power to transition from concept to liquidity and profitability
by integrating third party technology and software, hosting services, consulting
services and marketplace development services.
During 2000 the Company operated two wholly owned marketplaces, Chemdex and
Promedix, and provided technology and services to four minority owned
marketplaces. In the quarter ended December 31, 2000, Ventro announced that it
was restructuring and would discontinue operations of both Chemdex and Promedix.
Aggregate non-recurring charges of approximately $386.1 million were recorded
for the year ended December 31, 2000 in connection with restructuring and
discontinued operations.
Ventro is now focused on providing technology and services as a Marketplace
Service Provider to its existing four minority owned marketplace customers and
new marketplace customers. Ventro does not expect to own significant equity
interests in new marketplace customers. Technology and services provided to our
four existing minority owned marketplaces are generally provided at cost, and do
not result in revenues being recorded. Amounts related to billed and collected
costs of services provided are recorded by Ventro as offsets to related
operating expenses incurred. The Company anticipates providing additional
technology and services as requested by existing marketplaces, but does not
anticipate that billings for such services will result in future revenues.
The Company anticipates that contracts with new marketplace customers will
provide for billings and revenues in connection with technology and services
provided in the design, building, launching and operations of marketplaces.
Ventro will record revenue for new marketplace customers in accordance with the
terms of the individual customer contract. Revenues will be recorded when the
Company provides technology and services in accordance with the agreement, the
price of the services is fixed or determinable, all contracted services have
been delivered, significant contractual milestones have been achieved,
contractual contingencies have been eliminated, customer acceptance criteria
have been met, and payment is reasonably assured. Amounts billed and cash
received in excess of revenue recognized will be included as a customer advance.
Research and development expenses consist primarily of salaries and related
personnel expenses, consultant fees and prototype expenses related to the design
and development of our technology. Sales and marketing expenses consist
primarily of salaries, commissions and related personnel expenses, as well as
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advertising, trade shows and promotional expenses. General and administrative
expenses consist primarily of salaries and benefits of our administrative
personnel and fees for outside professional advisors.
We intend to continue to invest in research and development and new
technologies to develop new services and further enhance our offerings. In
addition, an important part of our strategy is to build our sales, technical and
operational resources.
We believe success requires expanding our customer base, moving into new
locations, achieving anticipated levels of utilization of our leased third-party
data center space and technology infrastructure, providing a high level of
customer service and being able to scale our capabilities through automation
technology. We expect to continue to incur net losses both on a quarterly and
annual basis for the foreseeable future. Our operating expenses are based in
part on our expectations of future revenue and are relatively fixed in the short
term. As such, a delay in the recognition of revenue or offsets of gross costs
from one or more contracts could cause variations in our operating results from
quarter to quarter and could result in greater net losses in a given quarter
than expected.
EFFECTS OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS
The various interests that we have acquired in companies are accounted for
under three broad methods: consolidation, the equity method and the cost method.
The applicable accounting method is generally determined based on our voting
interest in a company.
Consolidation. Companies in which we directly or indirectly own more than
50% of the outstanding voting securities are generally accounted for under the
consolidation method of accounting. Under this method, a company's accounts are
reflected within our Consolidated Financial Statements. All significant
inter-company accounts and transactions are eliminated.
Equity Method. Companies whose results we do not consolidate, but over whom
we exercise significant influence, are generally accounted for under the equity
method of accounting. Whether or not we exercise significant influence with
respect to a company depends on an evaluation of several factors including,
among others, representation on the company's board of directors and ownership
level, generally 20% - 50% interest in the voting securities of the company
including voting rights associated with our holdings in common, preferred and
other convertible instruments in the company. Under the equity method of
accounting, our share of the earnings or losses of these companies is included
in the equity income (loss) section of the Consolidated Statements of
Operations.
Cost Method. Companies not consolidated or accounted for under the equity
method are accounted for under the cost method of accounting. Under this method,
our share of the earnings or losses of these companies is not included in our
Consolidated Statements of Operations. The Company periodically evaluates the
carrying value of its investments for impairment.
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RESULTS OF OPERATIONS
The following table sets forth items from our consolidated statement of
operations (in thousands):
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- -------
Operating Expenses:
Research and development................................. $ 35,030 $ -- $ --
Sales and marketing...................................... 24,256 -- --
General and administrative............................... 6,599 7,925 1,304
Restructuring and other charges.......................... 4,891 -- --
Amortization of deferred stock based compensation........ 532 491 55
--------- -------- -------
Total operating expenses......................... 71,308 8,416 1,359
--------- -------- -------
Operating loss............................................. (71,308) (8,416) (1,359)
Interest expenses.......................................... (12,813) (168) (2)
Interest income and other, net............................. 14,242 3,163 310
Gain on investment......................................... 29,240 -- --
Loss on investment in strategic partners................... (22,268) -- --
Write-down of investment................................... (10,000) -- --
Equity loss................................................ (20,629) -- --
--------- -------- -------
Loss from continuing operations............................ (93,536) (5,421) (1,051)
Discontinued operations:
Loss from discontinued operations, net of income tax..... (186,466) (43,152) (7,437)
Loss on disposal, net of income taxes.................... (338,095) -- --
--------- -------- -------
Loss from discontinued operations.......................... (524,561) (43,152) (7,437)
--------- -------- -------
Net Loss................................................... $(618,097) $(48,573) $(8,488)
========= ======== =======
Revenues. Ventro has generated no revenues from the Company's service
operations to date; revenues were derived primarily from product sales through
the Chemdex and Promedix Marketplaces, and their operations have been
discontinued. The Company anticipates that any contracts that the Company may
enter into with new marketplace customers will provide for billings and revenues
in accordance with the terms of the contracts.
Research and Development. Research and development expenses consist
primarily of personnel and other expenses associated with developing, updating,
and enhancing software in support of our marketplace customers. Research and
development expenses from continuing operations were $35.0 million during fiscal
2000. Research and development expenses in 1999 and 1998 related to operations
that were discontinued in December 2000.
We believe that our success is dependent in large part on continued
enhancement and development of our marketplace provider solution. Accordingly,
we will continue to enhance and improve our Internet-based purchasing solution
as well as develop and introduce new solutions and services as we transition to
becoming a marketplace service provider.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising and promotional expenses, as well as, payroll and related expenses
for personnel engaged in enterprise sales activities and enterprise account
management. Sales and marketing expenses from continuing operations were $24.3
million during 2000. Sales and marketing expenses in 1999 and 1998 related to
operations that were discontinued in December 2000.
General and Administrative. General and administrative expenses consist
primarily of salaries, fees for professional services and lease expenses.
General and administrative expenses from continuing operations decreased to $6.6
million in 2000 from $7.9 million in 1999 due to lower headcount and cost
recoveries from vertical investments. General and administrative expenses from
continuing operations increased to $7.9 million in 1999 from $1.3 million in
1998 due to increased headcount and related expenses.
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Amortization of Deferred Stock-Based Compensation. The Company recorded
deferred compensation for options granted in fiscal year ended December 31, 1998
and 1999, for the difference at the option grant date between the exercise price
and the fair value of the common stock underlying the options in accordance with
FASB Interpretation No. 28. As of December 31, 2000 the Company had recorded
aggregate deferred stock compensation of $8.7 million, $6.6 million of which was
associated with discontinued operations. The deferred stock compensation is
being amortized over the vesting periods of the stock options. The Company
recognized $532,000, $491,000 and $55,000 in stock compensation expense from
continuing operations during the years ended December 31, 2000, 1999 and 1998,
respectively. The total charges to be recognized in future periods from
amortization of deferred stock compensation from continuing operations as of
December 31, 2000 are anticipated to be approximately $532,000, $477,000 and
$41,000 for 2001, 2002, 2003, respectively.
Restructuring. Ventro recorded a $4.9 million restructuring charge in 2000.
This charge was reported as a component of net loss from continuing operations.
The charge included $320,000 and $990,000 of cash and non-cash charges,
respectively, for layoffs of employees in addition to approximately $3.3 million
of non-cash charges for property and equipment associated with development
projects that were cancelled and $280,000 for other expenses. Substantially all
of the cash charges related to the restructuring were paid in the fourth quarter
of 2000.
Interest Expense. Interest expense increased to $12.8 million for 2000 from
$168,000 in 1999 and $2,000 in 1998. Interest expense consists primarily of
interest related to the convertible subordinated notes, financed equipment and
other financing arrangements. Interest on the subordinated notes of
approximately $7.5 million is payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on October 1, 2000. The deferred offering
costs of the notes are being amortized as interest expense ratably over the term
of the notes.
Interest Income and Other. Interest income and other, net, increased to
$14.2 million for 2000 from $3.2 million and $310,000 for 1999 and 1998,
respectively. Interest income and other, net has been derived primarily from
earnings on investments in cash equivalents and short-term investments. Interest
increased during 2000 and the second half of 1999 due to increased cash, cash
equivalents and short-term investments resulting from the net proceeds of the
Company's initial public offering on July 27, 1999 and the offering of 6%
convertible subordinated notes in March 2000.
Provision for Income Taxes. We incurred net losses and accordingly did not
record a provision for income taxes for any of the periods presented. At
December 31, 2000, we had federal and state net operating loss carryforwards of
approximately $212.0 million. These net operating loss carryforwards will expire
at various dates beginning in 2012 through 2020 if not utilized. Certain future
changes in our share ownership, as defined in the Tax Reform Act of 1986 and
similar state provisions, may restrict the utilization of carryforwards. A
valuation allowance has been recorded for the entire deferred tax asset as a
result of uncertainties regarding the realization of the asset due to our lack
of earnings history.
Net loss from continuing operations. As a result of the changes described
above, the net loss from continuing operations was $93.5 million in 2000.
For the year ended December 31, 2000, $3.3 million of the amounts billed
and collected from marketplace companies were offset against gross operating
expenses. An additional $5.0 million of amounts billed and collected were not
offset but were deferred pursuant to acceptance provisions of a service
agreement with MarketMile.
Discontinued Operations
In December 2000, the Company's Board of Directors adopted a formal plan
and announced the shut down of all business operations associated with the
Company's life sciences and specialty medical products marketplaces. The
shutdown of Chemdex, Promedix and SpecialtyMD is expected to be completed no
later than March 31, 2001.
Earlier in 2000, the Company had acquired the businesses represented by
Promedix and SpecialtyMD. These transactions were effected in accordance with
the purchase method of accounting. For Promedix, the purchase consideration was
12.1 million shares of the Company's common stock valued at $325.3 million. The
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entire Promedix purchase price was allocated to intangible assets. For
SpecialtyMD, the purchase consideration was 1.1 million shares of the Company's
common stock valued at $107.7 million. Of the SpecialtyMD purchase price, $0.8
million was allocated to net tangible liabilities and the remainder to
intangible assets. The Company wrote off as part of the loss on disposal of
discontinued operations $326.7 million of intangible assets, comprised of $317.1
million related to the Promedix and SpecialtyMD acquisitions and an additional
$9.6 million related to certain Chemdex contracts.
No interest expense has been allocated to discontinued operations. In
addition, general corporate overhead has been allocated to continuing operations
for all periods presented. Revenues from discontinued operations were $99.3
million, $30.8 million and $29,000 for 2000, 1999 and 1998, respectively. Gross
profit from discontinued operations was $5.7 million, $1.5 million and $7,000
for 2000, 1999 and 1998, respectively. The Company adopted Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101") and
Emergency Issues Task Force 99-19 ("EITF 99-19"), "Recording Revenue Gross as a
Principal versus Net as an Agent" in the fourth quarter of 2000. The adoption of
SAB 101 and EITF 99-19 did not change the Company's revenue reporting because
Chemdex and Promedex act as principals purchasing products from their suppliers
and then reselling them to their customers. Chemdex and Promedix assume the
risks and rewards of ownership and, consequently, the Company included gross
revenues from sales of product and related shipping fees, net of discounts and
provisions for sales returns and other allowances, in net revenues of
discontinued operations. The loss on disposal principally includes the write-off
of intangibles of $326.7 million, severance pay, write down of equipment to its
estimated recoverable amounts of $1.8 million, and accruals for estimated
liabilities and estimated operating losses of $5.7 million during the phase out
period for the discontinued businesses.
LIQUIDITY AND CAPITAL RESOURCES
Prior to Ventro's initial public offering in July 1999 we funded our
operations primarily by the private sale of our equity securities, through which
we raised approximately $45 million. In July 1999, we completed the initial
public offering of our common stock and realized net proceeds from the offering
of approximately $117.4 million. In April 2000, we completed an offering of 6%
convertible subordinated notes and realized net proceeds of $242.5 million. As
of December 31, 2000, our principal sources of liquidity included approximately
$192.0 million of cash, cash equivalents, short-term investments and restricted
cash as well as $3 million in equipment financing arrangements.
Net cash used in operating activities totaled $138.9 million for the year
ended December 31, 2000. The net cash used in operating activities during this
period was primarily due to net losses, which were partially offset by non-cash
charges of depreciation and amortization of deferred compensation, amortization
and write-downs of intangible assets, and increases in accounts payable, accrued
expenses and accrued compensation.
Net cash used in investing activities totaled $39.8 million for the year
ended December 31, 2000. The Company had cash purchases of $26.3 million of
computer equipment, computer software, office furniture and leasehold
improvements during 2000 for continuing operations. In addition, during 2000 the
Company had net sales and maturities of $14.8 million of short-term investments.
Net cash provided by financing activities was $248.1 million for the year
ended December 31, 2000. Net cash provided by financing activities during 1999
resulted primarily from the sale of preferred stock and proceeds from our
initial public offering. Cash from financing activities during 1998 resulted
primarily from the sale of preferred stock. Net cash provided by financing
activities during 2000 resulted primarily from the offering of 6% convertible
subordinated notes in March.
In December 2000, we announced a plan to restructure our business by
shutting down our wholly owned marketplaces, Chemdex and Promedix in order to
focus on our a business model. Under the new model, Ventro plans to generate
billings and revenues as a Marketplace Service Provider, providing technology
and services to its four existing minority owned marketplace customers, as well
as to new marketplace customers. In connection with this restructuring, the
Company also plans to reduce its current level of operating expenses by reducing
marketing efforts, terminating or restructuring existing marketing arrangements
and reducing current employee and contractor staffing levels.
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The Company's restructuring plan and the shutdown of Chemdex and Promedix
were designed to lower our current level of operating expenses by reducing its
marketing efforts, terminating or restructuring existing marketing arrangements
and significantly reducing our current employee and contractor staffing levels.
While the shutdown of Chemdex and Promedix and other Ventro restructuring will
reduce the Company's cash operating expenses, the Company's ability to
adequately reduce cash used in operations, and ultimately generate profitable
results from operations, is dependent upon successful execution of its new
business plan, and signing of new marketplace customers. There can be no
assurance that we will be successful in signing customers or in billing existing
or future customers adequate amounts for technology and services provided, or
reducing operating expenses in the future. The inability to successfully
implement the restructuring and cost reduction measures could have a material
adverse effect upon the Company's ability to successfully transition to our new
business plan and to remain in business.
On February 19, 2001, our Board of Directors authorized us to commence a
tender offer for all of our outstanding convertible subordinated notes. The
tender offer for the notes will be made at $270 in cash per $1,000 principal
amount, plus accrued and unpaid interest up to, but not including, the date of
payment. The purpose of the tender offer is to retire all of the outstanding
notes in order to reduce our annual interest expense and eliminate the need to
repay or refinance the notes at maturity in 2007.
We currently anticipate that cash, cash equivalents and short-term
investments at December 31, 2000, together with our equipment lease lines and
taking into account the cash that will be needed to repurchase our convertible
subordinated notes, will be sufficient to meet our anticipated cash needs for
working capital, and capital expenditures for at least the next 12 months.
However, we may need to raise additional funds in future periods through public
or private financing, or other arrangements to fund operations and potential
acquisitions, if any, over a long-term basis until we achieves profitability, if
ever. Any additional financing, if needed, might not be available on reasonable
terms or at all. Failure to raise capital when needed could seriously harm our
business and results of operations. If additional funds are raised through the
issuance of equity securities, the percentage of ownership of our stockholders
would be reduced. Furthermore, these equity securities might have rights,
preferences or privileges senior to our common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", which the Company will be required to adopt
for the year ending December 31, 2001. SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because we currently
hold no derivative financial instruments and does not currently engage in
hedging activities, adoption of SFAS 133 is not expected to have a material
impact on its financial condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of Accounting Principles Board Opinion No. 25 ("Opinion 25"). FIN
44 clarifies (a) the definition of "employee" for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of previously fixed stock options or awards, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
was effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on our financial position,
results of operations or cash flows.
In March 2000, the EITF published its consensus on EITF No. 00-3,
"Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware." EITF No. 00-3 states that a software element covered by SOP
97-2 is only present in a hosting arrangement if the customer has the
contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on their own hardware or contract with another party
unrelated to the vendor to host the software. Ventro has historically treated
its hosted services as service arrangements, which is in accordance
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with the guidance contained in this pronouncement. Our hosting arrangements
generally do not provide customers with the contractual right to take possession
of the software.
RISK FACTORS
An investment in our securities involves significant risks, including those
described below. These risks relate to our new business model, our ability to
generate revenues and gain operating efficiencies, our history of losses, our
high debt level, our ability to hire and retain key personnel, our reliance on
the technology of others, the possible delisting of our common stock, the need
to respond to rapid technological change, possible claims against us for
products liability or failure to comply with government regulations and our need
to raise new capital to expand.
Our actual results may differ materially from those expressed in any
forward-looking statement as a result of certain factors, including but not
limited to those set forth below and included in other portions of this
document.
RECENTLY, WE HAVE MADE A SUBSTANTIAL CHANGE IN OUR BUSINESS MODEL AND SHUT DOWN
THE BUSINESSES THAT HAD PROVIDED ALL OF OUR REVENUES SINCE INCEPTION.
In December 2000, we initiated a major restructuring that will
substantially change our business. The Board of Directors decided to shut down
the Chemdex and Promedix marketplaces, laid off 235 employees and restructured
certain Ventro operations. For the year ended December 31, 2000, the loss from
discontinued Chemdex and Promedix operations aggregated $524.6 million, and we
recorded charges of $37.2 million related to Ventro restructuring and write-off
of certain Ventro investments. The Chemdex and Promedix marketplaces were the
source of all of our revenues since inception. In the future, Ventro will seek
to provide technology and services to marketplaces that are owned by others. To
date, we have not finalized our product offering or pricing or begun providing
services to any marketplace in which we are not an equity owner. There can be no
assurance that we will be successful in obtaining new marketplace customers at
all, or on terms that will permit us to achieve profitability in the future.
OUR RESTRUCTURING MAY NOT SUCCESSFULLY REDUCE OPERATING EXPENSES.
Our restructuring plan and the shutdown of Chemdex and Promedix were
designed to lower our current level of operating expenses by reducing our
marketing efforts, terminating or restructuring existing marketing arrangements
and significantly reducing our current employee and contractor staffing levels.
While the shutdown of Chemdex and Promedix and other Ventro restructuring will
reduce cash operating expenses, our ability to adequately reduce cash used in
operations, and ultimately generate profitable results from operations, is
dependent upon successful execution of our new business plan, and signing of new
marketplace customers. As of December 31, 2000, we had working capital of $158.4
million and had an accumulated deficit of $675.6 million. During 2000 we used
cash in operating activities of $138.9 million, purchasing $26.3 million of
equipment for continuing operations and invested $29.8 million in marketplace
companies. We can provide no assurance that we will be successful in
implementing our new business plan or reducing our operating expenses in the
future. Our inability to successfully implement the restructuring and cost
reduction measures could have a material adverse effect upon our ability to
successfully transition to our new business plan and to remain in business.
WE HAVE A LIMITED OPERATING HISTORY, AND OUR MARKETPLACE SERVICE PROVIDER MODEL
IS NEW AND UNPROVEN WHICH MAKES IT DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.
The success of our marketplace service provider model is based on securing
new independent marketplace customers. This business model is new and not proven
and depends upon our ability, among other things, to:
- acquire and deploy a sufficient number of customers to achieve
profitability;
- develop and market solutions that achieve broad market acceptance by our
customers and their marketplace users;
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- successfully provide high levels of service quality to our existing
customers as we expand the scale of our business;
- develop new technology and service offerings that complement our existing
offerings;
- reduce the costs of many of the processes required to deploy and support
our customers;
- extend our technology to support a wide range of hardware and software to
meet the needs of a large range of customers with a variety of needs;
- forecast the amount of leased third-party data center space and
infrastructure that we will require in order to accommodate customer
growth;
- acquire or license third-party technologies and services that we require
to deliver our services;
- overcome publicity related to our public announcements of the shutdown of
our Chemdex and Promedix marketplaces, and potentially harmful publicity
if current minority-owned marketplaces commence litigation against us or
otherwise express dissatisfaction with our products and services, that
may adversely affect potential customers' willingness to use our
services; and
- acquire marketplace customers operating in industries we have not served
to date and provide them quality services.
We may not successfully address these risks. If we do successfully address
these risks, additional risks related to factors that are outside our control
may prevent us from realizing sufficient revenues or profit margins to reach or
sustain profitability. For example, existing and future marketplace customers
may be unsuccessful in convincing users to adopt Internet-based purchasing
solutions. Our marketplace customers may experience difficulties because of
users' comfort with existing information gathering and purchasing habits,
existing direct supplier relationships, the costs and resources required to
switch purchasing methods, and the need for products and product information not
offered through marketplaces. Marketplaces may experience problems with users as
a result of security and privacy concerns, general reticence about technology or
the Internet or the failure of the market to develop the necessary
infrastructure for Internet-based communications, such as wide-spread Internet
access, high-speed modems, high-speed communication lines and computer
availability.
WE MAY BE UNSUCCESSFUL IN EXECUTING ON CURRENT MARKETPLACE CUSTOMER CONTRACTS,
AND MAY BE UNSUCCESSFUL IN NEGOTIATING CONTRACTS WITH NEW MARKETPLACE CUSTOMERS
THAT ALLOW US TO BILL AND COLLECT FOR OUR SERVICES.
The nature of technology and services provided by us does not allow us to
readily define services to be performed, products to be delivered and criteria
for ensuring that our customers are satisfied with the technology that we
provide and the services that we perform. Our ability to deliver services to our
existing marketplace customers, bill for these services and collect amounts
billed is, in part, dependent upon the interpretation of existing contractual
language. We have experienced disputes with existing marketplace customers, and
anticipate future contractual disputes, primarily related to billings for, and
delivery of, technologies or services not specifically defined or priced under
existing contractual language. In addition, the competitive marketplace for our
services, size of potential marketplace customers, and early stage of our
product and the market will make contractual negotiations difficult with
potential new marketplace customers. There can be no assurance that we will be
successful in negotiating contracts with new marketplace customers that will
allow us to profitably deliver services under the contract, bill for such
services, ultimately collect amounts that are billed, and record revenues.
OUR AGREEMENTS WITH MARKETMILE REQUIRE US TO PAY PENALTIES AND PROVIDE CREDITS
IF WE FAIL TO MEET CERTAIN PERFORMANCE CRITERIA.
The Company's agreements with MarketMile provide certain uptime and
performance guarantees regarding the quality of our services. Our scheduled
uptime guarantee assures MarketMile that, except during scheduled maintenance
windows or during service outages or degradations caused by MarketMile, outages
to its Internet operations will be repaired within specified time limits. Our
performance guarantee assures MarketMile that if the responsiveness of Internet
operations falls below mutually agreeable levels, we will restore the site to
the appropriate levels within specified time limits. If we fail to meet these
guarantees, we
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may be required to credit a percentage of the fees paid for our services,
generally up to a maximum of 100% of all service fees accrued in the month of
the outage. In addition, our contract with MarketMile provides a minimum pool of
$5.0 million in damages in the event the Company fails to achieve certain
defined contractual performance milestones. As of December 31, 2000 the Company
has not issued any credits to MarketMile, or other marketplace customers, in
connection with system uptime or performance. At December 31, 2000, the Company
had recorded approximately $5.0 million of billings to MarketMile as a customer
advance. These billings will not be reflected as reductions of operating expense
by the Company until such time as all contractual milestones with MarketMile
have been successfully achieved, and uncertainty regarding potential penalty
provisions has been eliminated.
WE HAVE A HISTORY OF LOSSES, NO SIGNIFICANT REVENUES, EXPECT TO CONTINUE TO
INCUR SIGNIFICANT OPERATING LOSSES AND NEGATIVE CASH FLOW, AND WE MAY NEVER BE
PROFITABLE.
We have not generated any revenues from our marketplace service operations
to date. We have derived revenues solely from product sales through our Chemdex
and Promedix marketplaces, and their operations have been discontinued. In
addition, services provided to our two existing minority-owned marketplace
customers have been provided at cost and amounts billed and collected have been
reflected as reductions of related operating expenses. Therefore, it is unlikely
that we will recognize any revenue in the future related to these marketplaces.
It is anticipated that contracts with new marketplace customers will provide for
billings and revenues in accordance with the terms of the contracts, although
there is no assurance that the Company will be successful in identifying new
customers, or negotiating commercially acceptable contractual provisions that
will allow recording of revenues. Accordingly, we have little basis upon which
to predict future operating results. We have spent significant funds to develop
our current services, lease third-party data center space, procure hardware,
software and networking products and develop our operations, research and
development and sales and marketing organizations. We have incurred significant
operating and net losses and negative cash flow and have not achieved
profitability. Our net losses in each of the three years ended December 31, 2000
were $8.5 million, $48.6 million, and $618.1 million. As of December 31, 2000,
we had stockholders' deficit of $47.1 million. There can be no assurance that we
will ever be profitable.
ONE OF OUR CURRENT MARKETPLACE CUSTOMERS IS DISSATISFIED WITH OUR PRODUCT AND
MAY COMMENCE LITIGATION.
We entered into a technology and services agreement with Broadlane in 1999.
The contract set forth a timetable for providing functionality and establishing
a marketplace to provide e-commerce solutions for the high-volume, hospital and
medical supplies market. Broadlane and its majority shareholder, Tenet
Healthcare, have informed the Company that they are dissatisfied with the
Company's e-commerce solution. As a result, Broadlane and Tenet have told the
Company that they will seek termination of the technology and services agreement
and rescission of the issuance of Broadlane shares to the Company. If either of
these events were to occur, the Company's financial position would be harmed and
its opportunity to seek additional customers could be impaired.
WE ARE A HIGHLY LEVERAGED COMPANY.
In April 2000, we incurred $250 million of indebtedness in connection with
the sale of our convertible subordinated notes. The annual interest payments on
the notes are $15 million. Our cash on hand is significantly less than the face
amount of the notes, and the Company during 2000 used $142.0 million more cash
in operations than it generated. Accordingly, we need to generate substantial
amounts of cash from operations to fund interest payments and to repay the
principal amount of this debt when it matures, while at the same time funding
our working capital needs. If we do not have sufficient cash to repay our debts
as they become due, we may be unable to refinance our debt on reasonable terms
or at all. The notes could be declared immediately due and payable if we do not
make timely interest payments. If we cannot meet our debt obligations, we may
not be able to develop and sell new products and services, respond to changing
economic conditions adequately or otherwise fund our business.
WE HAVE RECENTLY LOST THE SERVICES OF FOUR SENIOR EXECUTIVE OFFICERS.
Robin Abrams, our Chief Operating Officer, James Stewart, our Chief
Financial Officer, and Martha Greer, our Vice President of Marketing, have
notified the Company they will be leaving on or before
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March 31, 2001. Additionally, in December 2000 Pierre Samec, who had previously
served as our Chief Information Officer and had most recently served in a
consulting capacity with us, resigned his position. These individuals have been
key to the management and operation of our business, and if we are unable to
hire qualified personnel, or promote existing personnel, to replace them, our
business will be adversely affected.
OUR FINANCIAL PERFORMANCE AND WORKFORCE REDUCTION MAY ADVERSELY AFFECT THE
MORALE AND PERFORMANCE OF OUR PERSONNEL AND OUR ABILITY TO HIRE NEW PERSONNEL.
In connection with the transition to our new business model and in order to
reduce our cash expenses, in December 2000 we announced the shutdown of our
Promedix and Chemdex marketplaces and related workforce reductions. In addition,
recent trading levels of our common stock have decreased the value of the stock
options granted to employees pursuant to our stock option plan. As a result of
these factors, our remaining personnel may seek employment with larger, more
established companies or companies they perceive to have better prospects.
Additionally, in order to successfully implement our marketplace service
provider model, we will need to hire new personnel. Specifically, our services
require a sophisticated sales effort targeted at a limited number of key people
within our prospective customers' organizations. Because the market for our
services is new, many prospective customers are unfamiliar with the services we
offer. As a result, our sales effort requires highly trained sales personnel. We
need to expand our marketing and sales organization in order to increase market
awareness of our services to a greater number of organizations and, in turn, to
generate increased revenue. To meet this need we are in the process of
developing our direct sales force, and we require additional qualified sales
personnel. Competition for these individuals is intense, and we may not be able
to hire the type and number of sales personnel we need. Moreover, even after we
hire these individuals, they require extensive training in our infrastructure
services. In addition, we must continue to develop our marketing channels. If we
are unable to continue to expand our sales operations, retain our current
employees and train new sales personnel as rapidly as necessary, we may not be
able to increase market awareness and sales of our services, which may prevent
us from generating revenue and achieving and maintaining profitability.
IF OUR COMMON STOCK PRICE FALLS BELOW AND REMAINS UNDER $1.00, OR IF WE
OTHERWISE FAIL TO COMPLY WITH NASDAQ RULES, OUR COMMON STOCK IS LIKELY TO BE
DELISTED FROM THE NASDAQ NATIONAL MARKET, WHICH COULD ELIMINATE THE TRADING
MARKET FOR OUR COMMON STOCK.
If the market price for our common stock falls and remains below $1.00 per
share, our market capitalization falls and remains below $35 million or we
otherwise fail to meet the criteria for continued listing on the Nasdaq National
Market, our common stock may be deemed to be penny stock. During 2000, our
common stock traded below $1.00 per share, and on February 16, 2001 the closing
price was $1.63. If our common stock is considered penny stock, it would be
subject to rules that impose additional sales practices on broker-dealers who
sell our securities. For example, broker-dealers must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Also, a disclosure schedule must be
prepared prior to any transaction involving a penny stock and disclosure is
required about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Monthly
statements are also required to be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stock. Because of these additional obligations, some brokers may be
unwilling to effect transactions in penny stocks. This could have an adverse
effect on the liquidity of our common stock and your ability to sell the common
stock.
WE ARE HIGHLY DEPENDENT ON INTELLECTUAL PROPERTY AND EXPOSED TO LEGAL LIABILITY
FOR INFRINGEMENT.
Our success and ability to compete depends on our ability to develop and
maintain the proprietary aspects of our technology. Although we do not have any
registered trademarks, we rely on a combination of copyright, trademark and
trade secret laws and contractual restrictions to establish and protect the
proprietary aspects of our technology. We seek to protect our source code for
our software, documentation and other written materials under trade secret and
copyright laws. Finally, we seek to avoid disclosure of our intellectual
property by requiring employees and consultants with access to our proprietary
information to execute
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confidentiality agreements with us and by restricting access to our source code.
Although we have patent applications pending, no patents have been issued to us,
which may significantly limit our ability to protect the proprietary aspects of
some of our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our business involves the licensing of our technology to our customers and
joint venture partners. Most licenses to our partners are exclusive within such
partner's industry or business, thus limiting to some extent our ability to use
and license our technology in the future. Pursuant to our existing licenses, we
have made certain representations and warranties and agreed to indemnify our
licensees against claims of infringement by third parties. Thus, we may be
exposed to a significant risk of liability for intellectual property
infringement claims by others. Our success and ability to compete also depend on
our ability to operate without infringing upon the proprietary rights of others.
In the event of a successful claim of infringement against us and our failure or
inability to license the infringed technology, our business and operating
results would be significantly harmed.
WE ARE HIGHLY DEPENDENT ON PRODUCTS LICENSED OR PURCHASED FROM THIRD PARTIES.
As part of our normal operations, we purchase, license or lease software,
hardware and networking products from third party commercial vendors. We obtain
most of our components from third parties on a purchase order basis. These
products may not continue to be available on commercially reasonable terms, or
at all. The loss of these products could result in delays in the sale of our
services until equivalent technology, if available, is identified, procured and
integrated, and these delays could result in lost revenues. Some of the key
components of our services are available only from sole or limited sources. For
example, only hardware manufactured by two vendors is compatible with the
Solaris operating system, which is a key component of our infrastructure.
Further, to the extent that the vendors from whom we purchase these products
increase their prices, our gross margins could be negatively affected.
Our business involves the licensing of our technology to our customers and
joint venture partners. Most licenses to our partners are exclusive within such
partner's industry or business, thus limiting to some extent our ability to use
and license our technology in the future. Pursuant to our existing licenses, we
have made certain representations and warranties and agreed to indemnify our
licensees against claims of infringement by third parties. Thus, we may be
exposed to a significant risk of liability for intellectual property
infringement claims by others. Claims that we are infringing the intellectual
property of others or the misappropriation of our own intellectual property
could detrimentally affect our business.
Our intellectual property is important to our business, and we seek to
protect it with confidentiality provisions in our contracts, nondisclosure
agreements with third parties and invention assignment agreements with our
employees, but we cannot be certain such measures will adequately protect
against misappropriation of our intellectual property. In addition, we could be
subject to intellectual property infringement claims by others.
WE ARE SUBJECT TO GOVERNMENT REGULATION THAT EXPOSES US TO POTENTIAL LIABILITY
AND NEGATIVE PUBLICITY
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping,
licensing, and other regulatory requirements applicable to our business during
the entire transaction. Our reliance on suppliers' regulatory due diligence
assessment of purchasers and the compliance by suppliers and purchasers with
applicable governmental regulations may not be sufficient if we are held to need
our own licenses. For example, if we are held to be a seller or a distributor of
regulated products because we did take legal title, we may have inadvertently
violated some governmental regulations by not having the appropriate license or
permit or by not properly maintaining appropriate records, and may be subject to
potentially severe civil or criminal penalties and fines for each offense. Thus,
while we attempt to transfer responsibility for compliance with these
requirements to suppliers through our legal
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arrangements with them, that transfer may be inadequate, unclear, or incomplete.
We are aware that some of our prior sales may have been made in the absence of
our having the requisite local, state, or federal license or permit or in the
absence of required record keeping or other compliance. We may be subject to
potentially severe civil and criminal penalties and fines for each of these
sales, which could have a material adverse impact on our business, revenues,
results of operations and financial condition. In addition to these prior sales,
we are unable to verify that our suppliers have in the past complied, or will in
the future comply, with the applicable governmental regulatory requirements, or
that their actions are adequate or sufficient to satisfy all governmental or
other legal requirements that may be applicable to our sales. We could be fined
or exposed to significant civil or criminal liability, including monetary fines
and injunctions, and we could receive potential negative publicity, if the
applicable governmental regulatory requirements have not been, or are not being,
fully met by our suppliers or by us. Negative publicity, fines and liabilities
could also occur if an unqualified person, or even a qualified customer, lacks
the appropriate license or permits to sell, use or ship, or improperly receives
a dangerous or unlicensed product through the Chemdex or Promedix marketplace.
We do not maintain any reserves for potential liabilities resulting from
government regulation. It is also possible that a number of laws and regulations
may be adopted or interpreted in the United States and abroad with particular
applicability to the Internet.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS
We face potential liability for claims based on the type and adequacy of
the information and data that we obtain from suppliers and make available, and
the nature of the products that we sell and distribute utilizing the Internet,
including claims for breach of warranty, product liability, misrepresentation,
violation of governmental regulations, defamation, libel, slander, or publishing
otherwise inaccurate, biased, incomplete, or misleading information, or
information that invades or violates privacy, confidentiality, patents,
copyrights or other rights, and other commercial and tortious claims. We also
bear the risk of liability for product loss, spill, or release, and resulting
damages to persons and property during delivery by the supplier to the customer
and return by the customer to the supplier. We do not pass through the
manufacturers' warranties on the products we distribute. However, we bear the
risk of loss of revenue from the product sale if a purchaser does not pay for a
defective product. We also bear some risk if our suppliers have not obtained
appropriate approvals for products regulated by the FDA and other governmental
agencies, or do not comply with the requirements relating to those products or
approvals. The failure to obtain or comply with those requirements or approvals,
or other failures by these products themselves, could result in costly product
recalls, significant fines and judgments, civil and criminal liabilities, and
negative publicity. Although we maintain general liability insurance, our
insurance may not cover some claims, penalties, or spills, is subject to policy
limits and exclusions, and may not be adequate to fully indemnify us or our
employees for any civil, governmental or criminal liability that may be imposed.
Furthermore, this insurance may not be available at commercially reasonable
rates in the future. Any liability not covered by our insurance or in excess of
our insurance coverage could have a negative effect on our business, results of
operations and financial condition. Our liability is potentially greater with
respect to sales to users and others that are not affiliated with an enterprise
customer.
Because we facilitate the sale of many different life sciences and
specialty medical products by suppliers, and publish information about medical
products and procedures, we may become subject to legal proceedings regarding
defects in these products or the information provided. In addition, we take
title to certain products between the period of time after the supplier has
delivered the product but before the product has been accepted by the customer.
Any claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources, and result in
significant liability.
We also seek to rely upon our suppliers, pass on all regulatory
responsibilities, and obtain indemnification from our suppliers against some of
these claims. However, the transfer of liabilities and indemnification may be
inadequate, unclear, or incomplete, the scope of the indemnification is limited,
a few of our suppliers have not agreed to indemnify us, and some suppliers may
be unable or unwilling to indemnify us in the future. In addition, we are not in
a position to monitor our suppliers' activities or the accuracy of the
information they provide to us. Therefore, we are exposed to liability and risk
for these claims.
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WE PLAN TO OPERATE IN A NEW, HIGHLY COMPETITIVE MARKET, AND OUR INABILITY TO
COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS AND ESTABLISHED COMPANIES WOULD LIMIT
OUR ABILITY TO GAIN SIGNIFICANT MARKET SHARE.
Our target market is rapidly evolving and highly competitive. It will
likely be characterized by an increasing number of market entrants, as there are
few barriers to entry.
We face competition from a diverse group of companies. Competition may come
from providers of co-location or website hosting and related services, and
providers of Internet systems integration and professional services such as CSC,
EDS, IBM Global Services, Accenture and PriceWaterhouseCoopers. In addition,
providers of various software products to our marketplace, such as Ariba,
Commerce One, Oracle and SAP may expand their existing product offerings to be
competitive with us in the future.
Our current and potential competitors may develop superior e-commerce
platforms that achieve greater market acceptance than our solution. Many of our
existing and potential competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. Such competitors can undertake
more extensive marketing campaigns for their brands, products and services,
adopt more aggressive pricing policies and make more attractive offers to
customers, potential employees, distribution partners, commerce companies and
third-party suppliers.
In addition, substantially all of our prospective customers have
established long-standing relationships with some of our competitors or
potential competitors. Accordingly, we cannot be certain that we will be able to
expand our customer list and user base, or retain our current customers. We may
not be able to compete successfully against our current or future competitors
which could have a material adverse effect on our business, results of
operations and financial condition.
WE ANTICIPATE OUR OPERATING RESULTS WILL FLUCTUATE SIGNIFICANTLY FROM QUARTER TO
QUARTER.
Important factors that could cause our quarterly results to fluctuate
materially include:
- the timing of obtaining new customers (length of sales cycle);
- the timing of deploying services for new customers;
- the timing and magnitude of operating expenses and capital expenditures;
- costs related to the various third-party technologies we incorporate into
our services;
- utilization of our leased third-party data center space and technology
infrastructure;
- changes in our pricing policies or those of our competitors; and
- the amount of credits that we may be required to issue to our customers
if we fail to deliver our services pursuant to our scheduled uptime and
performance guarantees.
Due to these and other factors, quarter-to-quarter comparisons of our
operating results may not be meaningful. You should not rely on our results for
any one quarter as an indication of our future performance. In future quarters,
our operating results may fall below the expectations of public market analysts
or investors. If this occurs, the market price of our common stock would likely
decline.
Our current and future levels of operating expenses and capital
expenditures are based largely on our growth plans and estimates of future
billings and revenues. These expenditure levels are, to a large extent, fixed in
the short term. We may not be able to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall, and any significant shortfall
in revenue relative to planned expenditures could negatively impact our business
and results of operations.
The deployment cycle for marketplaces is complex, and we may not be able to
successfully streamline their construction which could increase our costs and
harm our operating results. Moreover, if our technology fails to work properly
or if we are unable to continue to expand the scope of its capabilities, the
quality and reliability of our services may decline, and we may be unable to
grow our revenue at the rate required to sustain our business. In addition, if
we are unable to continue to increase the functionality of our technology, we
will not achieve anticipated efficiencies and we will need to hire additional
personnel to support our customers, which would cause our cost of revenue to
increase and our margins to decline.
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WE MAY REQUIRE ADDITIONAL CAPITAL FOR OUR OPERATIONS, WHICH COULD HAVE A
NEGATIVE EFFECT ON YOUR INVESTMENT.
We currently anticipate that our available funds will be sufficient to meet
our anticipated needs for working capital and capital expenditures for at least
the next 12 months. However, we may need to raise additional funds in the future
in order to fund rapid expansion, to pursue customer sales and implementation,
to develop new or enhanced solutions and services, to respond to competitive
pressures or to acquire complementary businesses, technologies or services.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and these securities may have
powers, preferences and rights that are senior to those of the rights of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available or not
available on acceptable terms, we may be unable to fund our business transition,
promote our brand identity, take advantage of acquisition opportunities, develop
or enhance services or respond to competitive pressures. Any inability to do so
could have a negative effect on our business, revenues, financial condition and
results of operations.
OUR SERVICES DEPEND UPON THE CONTINUED AVAILABILITY OF LEASED DATA CENTER SPACE
FROM THIRD PARTIES.
We lease and intend to continue to lease data center space from third
parties. If we are unable to acquire new or retain existing third-party data
center space, our growth could be slowed and our business could be harmed. In
the event that we cannot obtain adequate data center space from third parties,
we could also be required to build our own data center facilities, which would
require significant capital expenditures, could delay the expansion of our
operations and change the nature of our business model. In addition, because we
are required in most circumstances to enter into contracts for data center space
in advance of customer commitments, if we are unable to increase our customer
base at the rate that we anticipate in the geographic areas in which we have
contracted for space, our operating results will suffer. Recently, some of our
existing data center providers have begun marketing new services beyond their
core co-location or website hosting offerings. To the extent that these
providers expand the scope of these new services to address some of the
functionality we currently provide, this may limit our ability to renew existing
agreements and enter into new agreements for data center space with existing or
new data center providers.
OUR OPERATIONS DEPEND UPON OUR ABILITY AND THE ABILITY OF OUR THIRD-PARTY DATA
CENTER AND NETWORK SERVICES PROVIDERS TO MAINTAIN AND PROTECT THE COMPUTER
SYSTEMS ON WHICH WE PROVIDE OUR SERVICES.
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service and attract and
retain customers, suppliers, users and strategic partners. Currently our
infrastructure and systems are located at one site at Exodus Communications in
Sunnyvale, California. We anticipate adding a mirror site at a different,
distant location. Until then, we depend on our single-site infrastructure and
any disruption to this infrastructure resulting from a natural disaster or other
event could result in an interruption in our service, and, if sustained or
repeated, could impair our reputation and the attractiveness of our services.
Although our data center and network providers maintain back-up systems, a
natural disaster, human error, physical or electronic security breaches, power
loss, sabotage or similar disruption at any of their sites could impair our
ability to provide our services to our customers until the site is repaired or
back-up systems become operable. Some of our data center providers, as well as
our corporate headquarters, are located in Northern California near known
earthquake fault zones. Our systems and the data centers we use are also
vulnerable to damage from fire, flood, power loss, telecommunications failures
and similar events. Recent events in California have demonstrated that power
outages and reduced availability of electricity may be likely in the coming
years. We do not have a formal disaster recovery plan or alternative provider of
hosting services. In addition, we do not carry sufficient business interruption
insurance to compensate us for losses that could occur.
In addition, because many of our customers depend upon their Internet
operations to help run their businesses, they could be seriously harmed if the
services we provide to them work improperly or fail, even if only temporarily.
Our inability to maintain the quality of our services at guaranteed levels could
cause our
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reputation to suffer, hinder our ability to obtain and retain new customers,
force us to divert research and development and management resources, cause a
loss of revenue or subject us to liabilities, any one of which could adversely
affect our results and harm our business.
THE INABILITY TO EXPAND OUR SYSTEM'S CAPACITY MAY LIMIT OUR GROWTH.
Our inability to add additional software or to upgrade our technology,
transaction processing systems, or network infrastructure to timely accommodate
increased demands for website traffic or transaction volume could have adverse
consequences. These consequences include unanticipated system disruptions,
slower response times, degradation in levels of customer service for
marketplaces we build or service. We may be unable to effectively upgrade and
expand our systems in a timely manner or to integrate smoothly any newly
developed or purchased technologies with our existing systems. These
difficulties could harm or limit our ability to expand our business.
OUR SERVICES BUSINESS INVOLVES A LENGTHY AND UNPREDICTABLE SALES CYCLE.
The sales cycle for the target customers of the services we provide tends
to be lengthy and because the marketplace service provider model is a new one
for the Company, and we have no new customers to date, our sales cycle may be
somewhat longer than those of our more established competitors. Additionally,
should we target more large enterprises and traditional businesses as potential
customers, our sales cycle may be longer than is typical for sales to
Internet-based businesses. The unpredictability of the length of our sales cycle
could make it difficult to forecast revenue and plan expenditures. Additionally,
any delays in deployment of our services related to our inexperience with a type
of business or the size or complexity of the account would delay our ability to
recognize revenue from that account. Such delays could adversely affect our
financial results.
OUR BUSINESS WILL SUFFER IF WE DO NOT ENHANCE OR INTRODUCE NEW SERVICES AND
UPGRADES TO MEET CHANGING CUSTOMER REQUIREMENTS.
The market for Internet technology and services is characterized by rapid
technological change, frequent new hardware, software and networking product
introductions and Internet-related technology enhancements, uncertain product
life cycles, changes in customer demands and evolving industry standards. Any
delays in responding to these changes and developing and releasing enhanced or
new services could hinder our ability to retain existing and obtain new
customers. In particular, our technology is designed to support a variety of
hardware, software and networking products that we believe to be proven and
among the most widely used. We can make no assurances, however, that present and
future customers will continue to use these products. Even if they do, new
versions of these products are likely to be released and we will need to adapt
our technology to these new versions. We must, therefore, constantly modify and
enhance our technology to keep pace with changes made to our customers' hardware
and software configurations and network infrastructures. If we fail to promptly
modify or enhance our technology in response to evolving customer needs and
demands, our technology could become obsolete, which would significantly harm
our business. In addition, frequent changes in the hardware, software and
networking components of the systems and services we provide could adversely
affect our ability to automate the deployment process, a key element of our
business strategy.
If we do not develop, license or acquire new services, or deliver
enhancements to existing products on a timely and cost-effective basis, we may
be unable to meet the growing demands of our existing and potential customers.
In addition, as we introduce new services or technologies into existing customer
architectures, we may experience performance problems associated with
incompatibility among different versions of hardware, software and networking
products. To the extent that such problems occur, we may face adverse publicity,
loss of sales, delay in market acceptance of our services or customer claims
against us, any of which could harm our business.
SECURITY RISKS AND CONCERNS MAY DECREASE THE DEMAND FOR OUR SERVICES, AND
SECURITY BREACHES MAY DISRUPT OUR SERVICES OR MAKE THEM INACCESSIBLE TO OUR
CUSTOMERS.
Our services involve the storage and transmission of business-critical,
proprietary information. If the security measures we or our third party data
centers have implemented are breached, our customers could lose
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this information and we could be exposed to litigation and possible liability.
Anyone who circumvents these security measures could misappropriate
business-critical proprietary information or cause interruptions in our services
or operations. In addition, computer "hackers" could introduce computer viruses
into our systems or those of our customers, which could disrupt our services or
make them inaccessible to customers. We may be required to expend significant
capital and other resources to protect against the threat of security breaches
or to alleviate problems caused by breaches. Our security measures and those
that our third-party data centers provide may be inadequate to prevent security
breaches, and our business and reputation will suffer if these breaches occur.
IF CUSTOMERS REQUIRE THAT WE CUSTOMIZE OUR SERVICES BEYOND WHAT WE CURRENTLY
PROVIDE OR THAT WE PERFORM SYSTEMS INTEGRATION WORK FOR THEM, OUR OPERATING
RESULTS MAY SUFFER.
We currently do not customize the delivery of our services beyond the
technology platforms that we currently support, and we do not provide general
systems integration work for our customers. Some businesses may prefer more
customized applications and services than our business model contemplates. If we
do not offer the desired customization, there may be less demand for our
services. Conversely, although we may choose to provide such services as a
Marketplace Service Provider, providing customization of our services would
increase our costs and could reduce our flexibility to provide broad-based
services to a wide range of customers. Accordingly, increased demand for
customization of our services increase our operating costs. If our customers
require service for technology platforms other than those we currently support,
we may not be able to provide service to those customers. If we do choose to
support additional platforms, the added complexity of our systems may increase
our costs, decrease the reliability of our services and limit our ability to
scale. This may harm our ability to attract and retain customers.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD HARM OUR
BUSINESS.
We are committing significant resources to our international operations and
sales and marketing activities. For example, we commenced operations in Europe
in 2000 and we ultimately plan to expand our presence more broadly in the
Asia-Pacific region. We have limited experience conducting business outside of
the United States, and we may not be aware of all the factors that may affect
our business in foreign jurisdictions. We will be subject to a number of risks
associated with international business activities that may increase our costs,
lengthen our sales cycles and require significant management attention. These
risks include:
- increased costs and expenses related to the leasing of foreign,
third-party data center space;
- difficulty in staffing and managing foreign operations;
- the added complexity and expense of adapting technology to systems and
equipment designed to operate outside the United States;
- protectionist laws and business practices that favor local companies;
- general economic and political conditions in international markets;
- potentially adverse tax consequences, including complications and
restrictions on the repatriation of earnings;
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- currency exchange rate fluctuations; and
- unusual or burdensome regulatory requirements or unexpected changes to
requirements.
If one or more of these risks were to materialize, our financial results
could suffer.
INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY COULD
CAUSE OUR STOCK PRICE TO FLUCTUATE DRAMATICALLY, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES TO INVESTORS.
The stock market and specifically the stock of Internet related companies
have been very volatile. This broad market volatility and industry volatility
may reduce the price of our common stock, because our business is Internet-based
without regard to our operating performance. Our common stock reached a high of
$243.50
34
37
and traded as low as $0.59 during 2000, and on February 16, 2001 the last
reported sales price of the shares on the Nasdaq was $1.63.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. We are exposed to market risk
related primarily to changes in interest rates. However, we do not hold
derivative financial instruments for speculative or trading purposes.
Interest Rate Sensitivity
We maintain a short-term investment portfolio consisting of mainly income
securities with maturities of less than one year. These available-for-sale
securities are subject to interest rate risk and will fall in value if market
interest rates increase. We place our investments in instruments that meet high
credit quality standards, as specified in our investment policy. We do not
expect any material loss with respect to our investment portfolio.
Foreign Currency Risk
Our sales from inception to date are included in discontinued operations.
The sales have been made to U.S. customers and, as a result, we have not had any
exposure to factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. However, in future periods, we expect to
sell in foreign markets. As our sales will be made in U.S. dollars, a
strengthening of the U.S. dollar could make our products less competitive in
foreign markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of Ventro Corporation are filed as part
of this Report on Form 10-K:
Ventro Corporation Consolidated Financial Statements:
Independent Auditors' Report.............................. 36
Consolidated Balance Sheets at December 31, 2000 and
1999................................................... 37
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998...................... 38
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2000, 1999, and
1998................................................... 39
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998...................... 40
Notes to Consolidated Financial Statements................ 41
35
38
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ventro Corporation
We have audited the accompanying consolidated balance sheets of Ventro
Corporation (formerly "Chemdex Corporation") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2000. Our audits also included the financial statement schedule
listed in Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ventro
Corporation at December 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three the years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
February 20, 2001
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VENTRO CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
DECEMBER 31,
---------------------
2000 1999
--------- --------
Current assets:
Cash and cash equivalent.................................. $ 91,348 $ 21,934
Short-term investments.................................... 94,987 81,161
Accounts receivable, net of allowances for doubtful
accounts of $0 and $664 in 2000 and 1999,
respectively........................................... -- 12,414
Due from marketplace companies net of allowances for
doubtful accounts of $4,646 and $0 in 2000 and 1999,
respectively........................................... 4,269 --
Other current assets...................................... 6,303 5,041
Current assets relating to discontinued operations........ 15,620 --
--------- --------
Total current assets.............................. 212,527 120,550
Restricted cash............................................. 5,687 --
Property and equipment, net................................. 21,797 10,264
Ownership interest in marketplace companies................. 6,103 --
Intangible and other long-term assets, net.................. 9,333 33,119
Long-term assets relating to discontinued operations........ 1,861 --
--------- --------
Total assets...................................... $ 257,308 $163,933
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,931 $ 8,445
Accrued compensation...................................... 3,699 3,958
Accrued expenses.......................................... 14,423 25,648
Customer advance.......................................... 5,000 --
Other current liabilities................................. 419 369
Current liabilities relating to discontinued operations,
net.................................................... 27,703 --
--------- --------
Total current liabilities......................... 54,175 38,420
Notes payable, less current portion......................... 250,000 494
Other long-term liabilities................................. 206 --
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, no par value; 2,500,000 shares
authorized; none issued or outstanding as of December
31, 2000............................................... -- --
Common stock, $.0002 par value; 175,000,000 shares
authorized; 45,953 and 32,763 shares issued and
outstanding as of December 31, 2000 and 1999........... 9 7
Additional paid-in capital................................ 630,140 189,842
Deferred compensation..................................... (1,051) (6,380)
Notes receivable from stockholders........................ -- (985)
Accumulated deficit....................................... (675,562) (57,465)
Accumulated other comprehensive loss...................... (609) --
--------- --------
Total stockholders' equity (deficit).............. (47,073) 125,019
--------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 257,308 $163,933
========= ========
See accompanying notes to the consolidated financial statements.
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VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- -------
Operating Expenses:
Research and development(1).............................. $ 35,030 $ -- $ --
Sales and marketing(2)................................... 24,256 -- --
General and administrative(3)............................ 6,599 7,925 1,304
Restructuring............................................ 4,891 -- --
Amortization of deferred stock based compensation........ 532 491 55
--------- -------- -------
Total operating expenses......................... 71,308 8,416 1,359
--------- -------- -------
Operating loss............................................. (71,308) (8,416) (1,359)
Interest expense........................................... (12,813) (168) (2)
Interest income and other, net............................. 14,242 3,163 310
Gain on investment......................................... 29,240 -- --
Loss on investment in strategic partners................... (22,268) -- --
Write-down of investment................................... (10,000) -- --
Equity loss(4)............................................. (20,629) -- --
--------- -------- -------
Loss from continuing operations............................ (93,536) (5,421) (1,051)
Discontinued operations:
Loss from discontinued operations, net of income tax..... (186,466) (43,152) (7,437)
Loss on disposal......................................... (338,095) -- --
--------- -------- -------
Loss from discontinued operations.......................... (524,561) (43,152) (7,437)
--------- -------- -------
Net Loss................................................... $(618,097) $(48,573) $(8,488)
========= ======== =======
Basic and diluted loss per share from continuing
operations............................................... $ (2.16) $ (0.35) $ (0.59)
Basic and diluted loss per share from discontinued
operations............................................... (12.12) (2.82) (4.20)
Basic and diluted net loss per share....................... (14.28) (3.17) (4.79)
Weighted average common shares outstanding -- basic and
diluted.................................................. 43,298 15,322 1,772
- ---------------
(1) Excluding $197 in amortization of deferred stock based compensation in 2000.
(2) Excluding $245 in amortization of deferred stock based compensation in 2000.
(3) Excluding $90, $491 and $55 in amortization of deferred stock based
compensation in 2000, 1999 and 1998, respectively.
(4) Includes $8,306 in amortization of goodwill related to the equity interest
in marketplace companies in 2000.
See accompanying notes to the consolidated financial statements.
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41
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
---------------- --------------- ADDITIONAL DEFERRED FROM
SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL COMPENSATION STOCKHOLDERS
------- ------ ------ ------ --------------- ------------ ------------
BALANCE AS OF DECEMBER 31, 1997.... 2,696 $ 1 2,570 $1 $ 1,850 $ -- $ --
Issuance of Series A, preferred
stock at $0.6994 per share, net of
issuance costs.................... 100 -- -- -- 45 -- --
Issuance of Series B, preferred
stock at $1.50 per share, net of
issuance costs.................... 8,650 1 -- -- 12,929 -- --
Exercise of stock options, net of
repurchases....................... -- -- 1,352 -- 191 -- (150)
Deferred Compensation relating to
stock options..................... -- -- -- -- 3,364 (3,364) --
Amortization of deferred
compensation relating to stock
options........................... -- -- -- -- -- 372 --
Net loss........................... -- -- -- -- -- -- --
------- ----- ------ -- -------- ------- -----
BALANCE AS OF DECEMBER 31, 1998,... 11,446 2 3,922 1 18,379 (2,992) (150)
Issuance of Series C preferred
stock at $5.716 per share, net of
issuance costs.................... 5,300 1 -- -- 30,197 -- --
Conversion of preferred shares into
common stock upon Initial Public
Offering.......................... (16,746) (3) 16,746 3 -- -- --
Issuance of shares upon Initial
Public Offering, net of issuance
costs............................. -- -- 8,625 2 117,403 -- --
Issuance of common stock........... -- -- 2,726 1 15,691 -- --
Exercise of stock options, net of
repurchases....................... -- -- 744 -- 1,856 -- (844)
Deferred Compensation relating to
stock options..................... -- -- -- -- 5,380 (5,380) --
Amortization of Deferred
Compensation...................... -- -- -- -- -- 1,992 --
Issuance of warrants............... -- -- -- -- 936 -- --
Payment on notes receivable........ -- -- -- -- -- -- 9
Net loss........................... -- -- -- -- -- -- --
------- ----- ------ -- -------- ------- -----
BALANCE AS OF DECEMBER 31, 1999.... -- -- 32,763 7 189,842 (6,380) (985)
Issuance of common stock relating
to acquisitions................... -- -- 12,373 2 437,336 -- --
Exercise of stock options, net of
repurchases....................... -- -- 688 -- 5,730 -- --
Payments on notes receivable....... -- -- -- -- -- -- 985
Exercise of warrants............... -- -- 129 -- 375 -- --
Amortization of Deferred
Compensation...................... -- -- -- -- -- 2,186 --
Reclassification of Deferred
Compensation related to
Discontinued Operations........... -- -- -- -- (3,143) 3,143 --
Components of comprehensive loss:
Unrealized loss on available for
sale securities................... -- -- -- -- -- -- --
Cumulative transaction
adjustment........................ -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
Total comprehensive loss.... -- -- -- -- -- -- --
------- ----- ------ -- -------- ------- -----
BALANCE AS OF, DECEMBER 31, 2000... -- $ -- 45,953 $9 $630,140 $(1,051) $ --
======= ===== ====== == ======== ======= =====
ACCUMULATED
OTHER
COMPREHENSIVE ACCUMULATED
LOSS DEFICIT TOTAL
------------- ----------- ---------
BALANCE AS OF DECEMBER 31, 1997.... $ -- $ (404) $ 1,448
Issuance of Series A, preferred
stock at $0.6994 per share, net of
issuance costs.................... -- -- 45
Issuance of Series B, preferred
stock at $1.50 per share, net of
issuance costs.................... -- -- 12,930
Exercise of stock options, net of
repurchases....................... -- -- 41
Deferred Compensation relating to
stock options..................... -- -- --
Amortization of deferred
compensation relating to stock
options........................... -- -- 372
Net loss........................... -- (8,488) (8,488)
----- --------- ---------
BALANCE AS OF DECEMBER 31, 1998,... -- (8,892) 6,348
Issuance of Series C preferred
stock at $5.716 per share, net of
issuance costs.................... -- -- 30,198
Conversion of preferred shares into
common stock upon Initial Public
Offering.......................... -- -- --
Issuance of shares upon Initial
Public Offering, net of issuance
costs............................. -- -- 117,405
Issuance of common stock........... -- -- 15,692
Exercise of stock options, net of
repurchases....................... -- -- 1,012
Deferred Compensation relating to
stock options..................... -- -- --
Amortization of Deferred
Compensation...................... -- -- 1,992
Issuance of warrants............... -- -- 936
Payment on notes receivable........ -- -- 9
Net loss........................... -- (48,573) (48,573)
----- --------- ---------
BALANCE AS OF DECEMBER 31, 1999.... -- (57,465) 125,019
Issuance of common stock relating
to acquisitions................... -- -- 437,338
Exercise of stock options, net of
repurchases....................... -- -- 5,730
Payments on notes receivable....... -- -- 985
Exercise of warrants............... -- -- 375
Amortization of Deferred
Compensation...................... -- -- 2,186
Reclassification of Deferred
Compensation related to
Discontinued Operations........... -- -- --
Components of comprehensive loss:
Unrealized loss on available for
sale securities................... (711) -- (711)
Cumulative transaction
adjustment........................ 102 -- 102
Net loss........................... -- (618,097) (618,097)
---------
Total comprehensive loss.... -- -- 618,706
----- --------- ---------
BALANCE AS OF, DECEMBER 31, 2000... $(609) $(675,562) $ (47,073)
===== ========= =========
See accompanying notes to the consolidated financial statements.
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VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
----------- --------- -------
OPERATING ACTIVITIES
Net loss from continuing operations......................... $ (93,536) $ (5,421) $(1,051)
Net loss from discontinued operations....................... (524,561) (43,152) (7,437)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 9,727 1,749 301
Amortization of goodwill and other intangibles............ 120,299 -- --
Amortization of deferred stock-based compensation......... 2,186 4,884 372
Restructuring............................................. 4,596 -- --
Equity loss............................................... 20,629 -- --
Net gain on investments................................... (29,240) -- --
Write-down of investments................................. 32,268 -- --
Write-down of intangible assets........................... 326,653 -- --
Issuance of common stock for services..................... -- 637 --
Non-cash charges related to stock-option grants........... 120 -- --
Loss on disposition of equipment.......................... -- -- 8
Changes in operating assets and liabilities:
Accounts receivable....................................... -- (12,382) (32)
Due from vertical marketplace companies................... (4,269) -- --
Other current assets...................................... (6,353) (4,124) (244)
Other assets.............................................. (15,130) (19,712) (240)
Discontinued assets and liabilities....................... (7,916) -- --
Accounts payable.......................................... 2,931 7,830 361
Accrued compensation...................................... 3,699 3,446 480
Accrued expenses.......................................... 14,123 24,960 706
Customer advances......................................... 5,000 -- --
Other liabilities......................................... (125) -- --
----------- --------- -------
Net cash used by operating activities..................... (138,899) (41,285) (6,776)
----------- --------- -------
INVESTING ACTIVITIES
Purchases of property and equipment -- continuing........... (26,341) (9,323) (1,614)
Proceeds on sale of property and equipment.................. -- -- 25
Purchases of short-term investments......................... (1,532,759) (101,571) (6,593)
Sale and maturities of short-term investments............... 1,547,561 20,410 6,593
Restricted cash............................................. (5,687) -- --
Investment in marketplace companies......................... (29,800) -- --
Purchase of Promedix, net of cash........................... 5,373 -- --
Purchase of SpecialtyMD, net of cash........................ 1,855 -- --
----------- --------- -------
Net cash provided by/(used by) investing activities....... (39,798) (90,484) (1,589)
----------- --------- -------
FINANCING ACTIVITIES
Principal payments on capital lease obligations............. (369) (5) (7)
Principal payments on notes payable......................... -- (269) --
Net proceeds from issuance of convertible subordinated
notes..................................................... 242,500 -- --
Net proceeds from issuance of preferred stock............... -- 30,198 12,975
Exercise of warrants........................................ 375 -- --
Issuance of common stock.................................... 4,620 117,405 41
Payments of stockholders' notes receivable.................. 985 9 --
Proceeds from exercise of options........................... -- 375 --
----------- --------- -------
Net cash provided by financing activities................. 248,111 147,713 13,009
----------- --------- -------
Net increase in cash and cash equivalents................... 69,414 15,944 4,644
Cash and cash equivalents at beginning of period............ 21,934 5,990 1,346
----------- --------- -------
Cash and cash equivalents at end of period.................. $ 91,348 $ 21,934 $ 5,990
=========== ========= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Issuance of shares in exchange for stockholders' notes
receivable, net........................................... $ -- $ 844 $ 150
Equipment purchased under capital lease or note payable..... $ -- $ 1,132 $ --
Issuance of common stock for intangible assets.............. $ -- $ 15,692 $ --
Issuance of warrants........................................ $ 246 $ 936 $ --
Issuance of shares in connection with the acquisition of
Promedix.................................................. $ 314,772 $ -- $ --
Issuance of shares in connection with the acquisition of
SpecialtyMD............................................... $ 103,708 $ -- $ --
Issuance of shares in connection with the investment in
Amphire................................................... $ 19,100 $ -- $ --
Unrealized loss on available-for-sale securities............ $ (711) $ -- $ --
Other non-cash equity transactions.......................... $ 102 $ -- $ --
Discontinued deferred compensation.......................... 3,143 -- --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ -- $ 117 $ 3
Cash paid for taxes......................................... $ -- $ -- $ 2
See accompanying notes to the consolidated financial statements.
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VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. DESCRIPTION OF BUSINESS
The Company
Ventro Corporation (the "Company" or "Ventro"), formerly known as Chemdex
Corporation, is a technology and service provider to business to business
("B2B") marketplaces. Ventro offers a variety of products and services to
companies developing online B2B marketplaces.
The Company began operations in 1997 as Chemdex, a marketplace for life
sciences research products. In February 2000, Chemdex announced the formation of
Ventro Corporation as a new parent company focused on building the next
generation of B2B marketplace companies. Ventro expanded its portfolio of wholly
owned marketplaces with the acquisition of Promedix.com, Inc., ("Promedix"), a
marketplace company addressing the specialty medical products market. In
December 1999 and throughout 2000 Ventro continued to expand its operations with
the formation of four minority owned marketplaces addressing the needs of a
number of new industry markets. Broadlane, Inc., ("Broadlane"), a cost method
investment, was formed with Tenet Healthcare to address the high-volume,
hospital and medical supplies market. Industria Solutions Inc., ("Industria"),
was formed with Dupont and IBM to address the fluid processing market. Amphire
Solutions Inc., ("Amphire"), was formed with several large food industry
distributors to address the U.S. foodservice market. MarketMile Inc.,
("MarketMile") was formed with American Express to provide customers an
affordable e-purchasing solution for a broad array of products from office and
industrial supplies, computers and peripherals, to business services such as
temporary labor. Industria, Amphire and MarketMile are accounted for under the
equity method.
On December 6, 2000, the Company announced that it would restructure and
discontinue operations of its wholly owned marketplaces, Chemdex and Promedix,
and SpecialtyMD. Ventro is now focused on providing technology and services as a
marketplace service provider to its existing four minority owned marketplace
customers and new marketplace customers. Ventro does not expect to own
significant equity interests in new marketplace customers.
As a result of Ventro's decision to shut down Chemdex, Promedix and
SpecialtyMD, the results of operations from these businesses have been reported
as discontinued operations. The accounting for discontinued operations requires
that the results of businesses being discontinued be reported separately. See
Note 18 for more details of the shut-down costs and results of operations for
these businesses.
In the fourth quarter of 2000, Ventro recorded charges of $37.2 million
related to write-offs of certain investments and costs of restructuring its
business to be consistent with the new business model. These charges were
reported as components of net loss from continuing operations. The write-downs
of investments included a $22.3 million write-down of a strategic marketplace
investment and $10.0 million of write-downs of other investments. The
restructuring charge included $320,000 and $990,000 of cash and non-cash
charges, respectively, related to employee layoffs in addition to approximately
$3.3 million of non-cash charges for the write-off of intangible assets
associated with development projects that were cancelled and $280,000 for other
expenses. Substantially all of the cash charges related to the restructuring
were paid in the fourth quarter of 2000.
Ventro's strategy in the future is to identify existing e-commerce
marketplaces, and marketplaces in formation, that can benefit from technologies
and services provided by Ventro. Target customers will include industry
consortia (coalitions of players in a given industry sector), private
marketplaces (internal supply chains between select trading partners) and
independent public marketplaces.
To date, Ventro has not entered into any contracts with new marketplace
customers, has not finalized its marketplace product offerings and has not
priced technology and services it expects to deliver to non-affiliated
marketplace customers.
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VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
As of December 31, 2000, the Company had working capital of $158.4 million
and had an accumulated deficit of $675.6 million. During 2000 the Company used
cash in operating activities of $138.9 million, purchased $26.3 million of
equipment from continuing operations and invested $29.8 million in marketplace
companies. In addition the Company is planning to repurchase its convertible
subordinated notes subsequent to December 31, 2000. Management believes that its
restructuring plan and the shutdown of Chemdex, Promedix and SpecialtyMD will
lower operating expenses and that it will have sufficient working capital, after
repurchase of its convertible subordinated notes, to support the Company's
planned activities through 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation, Equity and Cost Method
The various interests that Ventro acquires in companies are accounted for
under three broad methods: consolidation, the equity method and the cost method.
The applicable accounting method is generally determined based on our voting
interest in a company.
Consolidation. Companies in which Ventro directly or indirectly owns more
than 50% of the outstanding voting securities are generally accounted for under
the consolidation method of accounting. Under this method, a company's accounts
are reflected within its Consolidated Financial Statements. All significant
inter-company accounts and transactions are eliminated.
Equity Method. Companies whose results Ventro does not consolidate, but
over whom Ventro exercises significant influence, are generally accounted for
under the equity method of accounting. Whether or not Ventro exercises
significant influence with respect to a company depends on an evaluation of
several factors including, among others, representation on the company's board
of directors and ownership level, generally 20% -- 50% interest in the voting
securities of the company including voting rights associated with Ventro's
holdings in common, preferred and other convertible instruments in the company.
Under the equity method of accounting, our share of the earnings or losses of
these companies are included in the equity income (loss) section of the
Consolidated Statements of Operations.
Cost Method. Companies not consolidated or accounted for under the equity
method are accounted for under the cost method of accounting. Under this method,
Ventro's share of the earnings or losses of these companies is not included in
its Consolidated Statements of Operations. The Company periodically evaluates
the carrying value of its investments for impairment.
Billings to Marketplace Customers
Ventro bills marketplace customers in accordance with the terms of the
individual customer contract. Offsets to gross expenses are recorded when the
Company provides technology and services that include hosting and consulting in
accordance with the agreement, the price of the services is fixed or
determinable, all contracted services have been delivered, significant
contractual milestones have been achieved, contractual contingencies have been
eliminated, customer acceptance criteria have been met, and payment is
reasonably assured. Amounts billed and cash received in excess of costs offset
have been included as a customer advance.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management determines
the appropriate classification of debt and equity securities at the time of
purchase and re-evaluates such designation as of each balance sheet date.
Marketable securities are classified as available-for-sale and are carried at
fair value with material unrealized gains and losses, if any, included in
stockholders' equity. Realized gains and losses on available-for-sale securities
are included in interest income.
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VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair
value of tangible and identifiable intangible net assets acquired in business
combinations. Identifiable intangible assets primarily include business partner
agreements, assembled workforce, and trademarks. The Company uses modeling
techniques on new acquisitions and long-range business plans, revised annually,
to assess whether a revision of the existing estimated useful lives of
intangible assets is necessary. The Company regularly performs reviews to
determine if the carrying value of the goodwill and other intangible assets is
impaired. The purpose for the review is to identify any facts of circumstances,
either internal or external, which indicate that the carrying value of the asset
cannot be recovered. Goodwill and other intangible assets are stated net of
accumulated amortization and are amortized on a straight-line basis over their
expected useful lives.
Capitalized Software
Ventro capitalizes product development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", and EITF 00-2, "Accounting
for Web Site Development Costs", under which certain software development costs
incurred subsequent to the establishment of technological feasibility may be
capitalized and amortized over the estimated lives of the related products. We
determine technological feasibility to be established upon the internal release
of the product for acceptance testing. Upon the general release of the product
to customers, development costs for that product are amortized based on the
estimated economic life of the product.
The related amortization of the capitalized development costs is provided
on a product-by-product basis, and accounted for as either research and
development costs or cost of revenue for products or services sold to
marketplaces. Quarterly, the Company reviews and expenses the unamortized cost
of any feature identified as being impaired. The Company also reviews
recoverability of the total unamortized cost of all features and software
products in relation to estimated product and service revenues, and, when
necessary, makes an appropriate adjustment to net realizable value.
Capitalized software costs amounted to $0 at December 31, 2000 and 1999. In
the fourth quarter of 2000, in connection with the shut down of the Chemdex and
Promedix businesses, $3.3 million of software costs that were capitalized in
2000 were no longer being used. The software was written off and included as a
restructuring cost.
Property and Equipment
Ventro records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of three to five
years. Property under capital leases is depreciated over the lesser of the
useful lives of the assets or lease term.
Evaluation of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company periodically evaluates the carrying value
of long-lived assets and certain identifiable intangibles for impairment, when
events and circumstances indicate that the book value of an asset may not be
recoverable. Recoverability of long-lived assets is measured by a comparison of
the carrying amount of an asset to the future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount by the assets exceeds the fair value of the assets.
43
46
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
expense is recognized over the vesting period based on the difference, if any,
on the date of grant between the deemed fair value for accounting purposes of
the Company's stock and the exercise price on the date of grant. The Company
accounts for stock issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
Advertising Costs
Advertising costs are charged to expense when incurred. Advertising expense
was $2.7 million, $5.5 million and $787,000 for the years ended December 31,
2000, 1999 and 1998 respectively.
Accumulated Other Comprehensive Income
SFAS No. 130 Reporting Comprehensive Income, establishes standards of
reporting and display of comprehensive income and its components of net income
(loss) and "Other Comprehensive Income" in a full set of general purpose
financial statements. "Other Comprehensive Income" refers to revenues, expenses,
gains and losses that are not included in net income (loss) but rather are
recorded directly in stockholders' equity. Comprehensive loss is the same as net
loss in 1999 and 1998.
Net Loss Per Share
Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128) which requires dual presentation of basic earnings per share ("EPS") and
diluted EPS.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares and potentially
dilutive shares outstanding during the period. If Ventro had reported net
income, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as an additional 4.5 million,
2.1 million and 0.5 million common share equivalent related to the outstanding
options and warrants (determined using the treasury stock method) for the
periods ended December 31, 2000, 1999, and 1998, respectively. These options and
warrants could potentially dilute basic earnings per share in the future but
have not been included in the computation of diluted net loss per share as the
impact would have been antidilutive for the periods presented.
44
47
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
The following table presents the calculation of basic and diluted loss per
share from continuing and discontinued operations and net loss per common share
as of December 31, 2000 (in thousands, except per share data):
2000 1999 1998
--------- -------- -------
Loss from continuing operations............................ $ (93,536) $ (5,421) $(1,051)
Loss from discontinued operations.......................... (524,561) (43,152) (7,437)
--------- -------- -------
Net loss................................................... $(618,097) $(48,573) $(8,488)
========= ======== =======
Basic and diluted:
Weighted-average shares of common stock outstanding...... 44,108 17,446 3,243
Less: weighted-average common shares subject to
repurchase............................................ (810) (2,124) (1,471)
--------- -------- -------
Weighted-average shares used in computing basic and diluted
net loss per common share................................ 43,298 15,322 1,772
========= ======== =======
Basic and diluted loss per share from continuing
operations............................................... $ (2.16) $ (0.35) $ (0.59)
Basic and diluted loss per share from discontinued
operations............................................... (12.12) (2.82) (4.20)
--------- -------- -------
Basic and diluted net loss per common share................ $ (14.28) $ (3.17) $ (4.79)
========= ======== =======
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", which the Company will be required to adopt
for the year ending December 31, 2001. SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because the Company
currently holds no derivative financial instruments and does not currently
engage in hedging activities, adoption of SFAS 133 is not expected to have a
material impact on its financial condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of Accounting Principles Board Opinion No. 25 ("Opinion 25"). FIN
44 clarifies (a) the definition of "employee" for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of previously fixed stock options or awards, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
was effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on the Company's results of
operations, financial position, or cash flows.
In March 2000, the EITF published its consensus on EITF No. 00-3,
"Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware." EITF No. 00-3 states that a software element covered by SOP
97-2 is only present in a hosting arrangement if the customer has the
contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on their own hardware or contract with another party
unrelated to the vendor to host the software. The Company has historically
treated its hosted services as service arrangements, which is in accordance with
the guidance contained in this pronouncement. The Company's hosting arrangements
generally do not provide customers with the contractual right to take possession
of technology.
45
48
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in prior years' financial statements have been reclassified
to conform to the current year presentation.
3. CONCENTRATION OF CREDIT RISK AND OTHER RISKS
Financial instruments that potentially subject Ventro to credit risk
consist primarily of uninsured cash, and cash equivalents and short-term
investments. Cash and cash equivalents are deposited with a federally insured
commercial bank in the United States.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Ventro analyzes the need for reserves for
potential credit losses and records reserves when necessary. In 2000, the
Company wrote-off approximately $5.1 million of bad debt related to receivables
from marketplace companies.
4. FINANCIAL INSTRUMENTS
The following is a summary of available for sale securities as of December
31, (in thousands):
DECEMBER 31,
1999
DECEMBER 31, 2000 --------------
---------------------- ESTIMATED AMORTIZED COST
AMORTIZED UNREALIZED FAIR AND ESTIMATED
COST LOSS VALUE FAIR VALUE
--------- ---------- --------- --------------
Money Market Funds........................ $ 4,323 $ -- $ 4,323 $ --
Commercial paper.......................... 110,020 (251) 109,769 66,156
Corporate notes........................... 22,505 (401) 22,104 28,720
Government bonds.......................... 1,069 (22) 1,047 --
Muni bonds/notes.......................... 40,247 (37) 40,210 --
-------- ----- -------- -------
Total short-term investments..... $178,164 $(711) $177,453 $94,876
======== ===== ======== =======
Report as:
Cash equivalents.......................... $ 82,466 $ -- $ 82,466 $13,715
Short-term investments.................... 95,698 (711) 94,987 81,161
-------- ----- -------- -------
$178,164 $(711) $177,453 $94,876
======== ===== ======== =======
As of December 31, 1999, the difference between the fair value and the
amortized cost of available-for-sale securities was immaterial. All
available-for-sale securities as of December 31, 2000 and 1999 have a
contractual maturity of one year or less.
46
49
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, (in
thousands):
2000 1999
------- -------
Computer equipment....................................... $11,636 $ 6,751
Furniture and equipment.................................. 1,667 951
Purchased software....................................... 15,883 2,746
Leased equipment and software............................ 1,145 1,145
Leasehold improvements................................... 706 706
------- -------
31,037 12,299
Less: accumulated depreciation and amortization.......... (9,240) (2,035)
------- -------
$21,797 $10,264
======= =======
6. INTANGIBLE AND OTHER LONG-TERM ASSETS
Intangible and other long-term assets were comprised of the following as of
December 31, (in thousands):
2000 1999
------ -------
Deposits and other........................................ $ 395 $ 512
Deferred debt offering costs, net of accumulated
amortization of $991 in 2000............................ 6,938 --
Long-term investments..................................... 2,000 --
VWR related intangible, net of accumulated amortization of
$2,318 in 1999.......................................... -- 11,592
BIO related intangible, net of accumulated amortization of
$267 in 1999............................................ -- 1,515
Notes receivable from Promedix and Specialty MD........... -- 5,000
Deferred acquisition costs................................ -- 14,500
------ -------
Total other long-term assets.................... $9,333 $33,119
====== =======
7. ACCRUED EXPENSES
Accrued expenses were comprised of the following as of December 31, (in
thousands):
2000 1999
------- -------
Accrued marketing expenses............................... $ 790 $ 2,630
Accrued consulting expenses.............................. 4,317 --
Accrued acquisition costs................................ -- 14,500
Other accrued liabilities................................ 9,316 8,518
------- -------
Total accrued expenses......................... $14,423 $25,648
======= =======
47
50
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
8. COMMITMENTS AND CONTINGENCIES
Ventro leases its office facilities under non-cancelable operating leases
expiring through 2005. Minimum annual operating lease commitments as of December
31, 2000 are as follows (in thousands):
2001........................................................ $ 5,930
2002........................................................ 6,096
2003........................................................ 6,276
2004........................................................ 5,229
2005........................................................ 1,646
Thereafter.................................................. --
-------
Total minimum lease payments...................... $25,177
=======
In November 1999, the Company entered in a new facilities sublease
agreement for its former headquarters. The sublease term commenced on December
1, 1999 and will end on December 31, 2003. Sublease receipts for the Company
will be received on an escalating basis with the total future minimum sublease
receipts amounting to approximately $3,586,000 over the lease term. The sublease
receipts are not included in the above table.
Rent expense for the years ended December 31, 2000, 1999 and 1998 was
$5,641,000, $1,488,000, and $343,000, respectively.
The Company leases equipment under a non-cancelable operating lease with an
equipment vendor which contains certain renewal and purchase options. As part of
the lease agreement, the Company is required to hold a certificate of deposit as
a form of security. This certificate is for $5.7 million and is classified as
restricted cash on our balance sheet. Future minimum payments as of December 31,
2000 are as follows (in thousands):
2001........................................................ $5,353
2002........................................................ 3,224
------
Total minimum lease payments...................... $8,577
======
9. FINANCING ARRANGEMENTS
On April 3, 2000, the Company issued $250,000,000 of 6% Convertible
Subordinated Notes ("the Notes") with a scheduled maturity in 2007, for which
the Company received net cash proceeds of $242.5 million. The Notes are
unsecured and are subordinated to existing and future senior debt as defined in
the indenture pursuant to which the Notes were issued. Interest on the Notes of
approximately $7.5 million is payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on October 1, 2000. The Notes could be
declared immediately due and payable if we do not make timely interest payments.
The deferred debt offering costs are being amortized as interest expense ratably
over the term of the Notes.
The Notes are convertible into common stock of the Company at a conversion
price of $90.78 per share subject to adjustment if certain events affecting our
common stock occur. The Company may redeem the Notes, as a whole or in part, on
or after April 4, 2003. Unless the Notes are redeemed, repaid, or converted
prior thereto, the Notes will mature on April 1, 2007 at their principal amount.
Ventro has or may use the net proceeds from the offering of the Notes for
general corporate purposes, including working capital to fund anticipated
operating losses, investments in new business products, technologies and
markets, capital expenditures, and acquisitions or investments in complementary
businesses, products and technologies. The Company announced on February 20,
2001 its intention to tender for all of the outstanding Notes at $270 per $1,000
principal amount.
48
51
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
In January 1999, Ventro entered into a $3,000,000 equipment lease line
agreement with a financial institution for a term of 48 months, with interest
imputed at 13.02% per year. At December 31, 2000 and 1999, Ventro had no
outstanding borrowings under the equipment lease line.
In February 1999, Ventro entered into a financing arrangement in the amount
of $1,132,000 for the purchase of certain computer software and related support.
This arrangement provides for 12 equal quarterly payments of the financed amount
commencing May 1, 1999, with interest imputed at 13.24% per year.
As of December 31, 2000, aggregate future minimum payments under the
financing agreement which has been drawn upon are (in thousands):
2001........................................................ $369
2002........................................................ 125
----
Total Payments.............................................. $494
====
10. STOCKHOLDERS' EQUITY
Preferred Stock
The Board of Directors has the authority, within the limitations and
restrictions in the amended and restated certificate of incorporation, to issue
2,500,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of any series, without further vote or action by
the stockholders.
Warrants
In January 1999, in connection with an equipment lease line, Ventro issued
a fully vested warrant that entitles the holder to purchase 105,000 shares of
Ventro's common stock at an exercise price of $1.50 per share. This warrant is
exercisable through January 2006. The fair value of this warrant, approximately
$353,000 is being expensed as a cost of financing over the four year period of
the lease line. The fair value of this warrant was calculated using the
Black-Scholes option pricing model. The warrant was exercised in full during
2000.
In March 1999, Ventro issued a fully vested, non-forfeitable warrant in
exchange for consulting services. The warrant entitles the holder to purchase
49,999 shares of Ventro's common stock at an exercise price of $5.20 per share.
This warrant is exercisable through July 27, 2001. The fair value of this
warrant, approximately $208,000, was expensed over the six month period of the
consulting agreement. The fair value of this warrant was calculated using the
Black-Scholes option pricing model. At December 31, 2000, this warrant remained
unexercised.
In July 1999, the Company issued a fully-vested, non-forfeitable warrant
that entitles the holder to purchase 25,000 shares of Ventro's common stock at
an exercise price of $15.00 per share, in connection with a lease agreement.
This warrant is exercisable through July 2004. The fair value of this warrant,
approximately, $375,000, is being expensed over the term of the lease. The fair
value of this warrant was calculated using the Black-Scholes option pricing
model. As of February 2000, this warrant was exercised in full.
In February 2000, in conjunction with the Company's acquisition of
SpecialtyMD, the Company converted 166,310 outstanding and exercisable warrants
for shares of SpecialtyMD Series B preferred stock into warrants exercisable for
an aggregate of 17,179 shares of Ventro common stock having the same terms and
conditions as the SpecialtyMD warrants. These warrants have an exercise price is
$10.55 and are exercisable through September 10, 2009.
49
52
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Common Stock
As of December 31, 2000 and 1999, 389,000 and 1,514,000 shares,
respectively, were subject to repurchase. The stock vests over a period of four
years. For the fiscal years ended December 31, 2000 and 1999, 390,904 and
397,411 shares were repurchased, respectively.
Stock Option Plans
1998 STOCK PLAN
General. Ventro's 1998 Stock Plan provides for the granting of stock
options and stock purchase rights to eligible employees, officers, directors,
including non-employee directors, and consultants of Ventro. Stock options
granted under the 1998 Stock Plan may be either "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
non-statutory stock options, which are options not intended to qualify as
incentive stock options. Stock purchase rights granted under the 1998 Stock Plan
allow a recipient to purchase shares of common stock directly from Ventro.
Incentive stock options may be granted to employees, officers and employee
directors of Ventro and nonstatutory stock options and stock purchase rights may
be granted to employees, officers, directors and consultants.
PROMEDIX STOCK PLAN
On February 10, 2000, the Company assumed the Promedix 1998 stock plan.
Approximately 1,013,511 outstanding and unexercised options of Promedix
converted into 1,281,710 options of Ventro common stock, under the 1998 Stock
Plan, having the same terms and conditions as the Promedix options, after giving
effect to the 1.2647 exchange ratio in the merger.
SPECIALTYMD STOCK PLAN
On February 10, 2000, the Company assumed the SpecialtyMD 1998 stock plan.
Under the 1998 Stock Plan, 1,311,583 outstanding and unexercised options of
SpecialtyMD converted into 137,540 options of Ventro common stock having the
same terms and conditions as the SpecialtyMD options after giving effect to the
0.1033 exchange ratio in the merger.
As of December 31, 2000, 11,271,882 shares of common stock were issuable
upon the exercise of outstanding options granted under the 1998 Stock Plan at a
weighted average exercise price of $28.06 per share. For the fiscal year ended
December 31, 2000, 765,422 shares of common stock have been issued upon exercise
of options or pursuant to stock purchase rights at exercise or purchase prices
ranging between $0.08 and $190.00 per share and 2,440,351 shares of common stock
remained available for future issuance under the 1998 Stock Plan. The 1998 Stock
Plan was originally adopted by the Board of Directors in January 1998 and
approved by the stockholders in March 1998. In May 1999 the Board of Directors
authorized an automatic annual increase on the first day of each of our fiscal
years beginning in 2000, 2001, 2002, 2003, and 2004 equal to the lesser of
1,250,000 shares, 3% of our outstanding common stock on the last day of the
preceding fiscal year or a lesser number determined by Ventro's Board of
Directors. In 2000 shareholders approved increases in the number of common
shares available for issuance under the Ventro 1998 Stock Plan by 7,750,000 to a
total of 13,875,000 shares. Unless terminated earlier by our Board of Directors,
the 1998 Stock Plan will terminate in January 2008.
50
53
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
1999 DIRECTORS' STOCK PLAN
Ventro's 1999 Directors' Stock Plan was adopted by the Board of Directors
in May 1999 and was approved by the stockholders in July 1999. The directors'
Plan provides for the grant of nonstatutory stock options to non-employee
directors of Ventro.
The Directors' Plan provides that each person who is or becomes a
non-employee director of Ventro will be granted a non-statutory stock option to
purchase 12,500 shares of common stock on the date which the optionee first
becomes a non employee director of Ventro. Thereafter, on the date of Ventro's
Annual Stockholders Meeting each year, each non-employee director of Ventro will
be granted an additional option to purchase 5,000 shares of common stock if, on
that date, he or she has served on Ventro's Board of Directors for at least six
months.
The Directors' Plan provides that each option granted under the directors'
Plan shall vest and become exercisable in full immediately upon grant of the
option. The exercise price of all stock options granted under the Directors'
Plan shall be equal to the fair market value of a share of Ventro's common stock
on the date of grant of the option. Options granted under the Directors' Plan
have a term of ten years.
The Board of Directors may amend or terminate the Directors' Plan;
provided, however, that none of these actions may adversely affect any
outstanding option. The Company will obtain stockholder approval for any
amendment to the extent required by applicable law. If not terminated earlier,
the Directors' Plan will have a term of ten years.
As of December 31, 2000, 92,500 shares of common stock were issuable upon
the exercise of outstanding options granted under the 1999 Stock Plan at a
weighted average exercise price of $19.65 per share. For the fiscal year ended
December 31, 2000, 37,500 shares of common stock have been issued upon exercise
of options or pursuant to stock purchase rights at exercise or purchase prices
ranging between $15.00 and $46.69 per share. As of December 31, 2000, 125,000
shares of common stock remained available for future issuance under the 1999
Directors' Stock Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
Ventro's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors in May 1999 and was approved by the stockholders in July 1999. A total
of 750,000 shares of common stock was initially reserved for issuance under the
purchase plan, as well as an automatic annual increase on the first day of each
of Ventro's fiscal years beginning in 2001, 2002, 2003 and 2004 equal to the
lesser of 200,000 shares, or 1/2% of Ventro's outstanding common stock on the
last day of the immediately preceding fiscal year. In February 2000 shareholders
approved an increase in the number of common shares available for issuance under
the Ventro 1999 Employee Stock Purchase Plan by 300,000 to a total of 1,050,000
shares. As of December 31, 2000, 276,055 shares have been issued under the 1999
Employee Stock Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions. Employees may end their participation in the
offering at any time during the offering period, and participation end
automatically on termination of employment. If not terminated earlier, the
Purchase Plan will have a term of 20 years.
Accounting for Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation."
51
54
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
For purposes of the SFAS No. 123 disclosure, the fair value for the options
granted subsequent to the Company's initial public offering was estimated at the
date of grant using a Black-Scholes option pricing model. The fair value of the
Company's stock based awards was estimated assuming no expected dividends and
the following weighted-average assumptions: expected life of four years,
risk-free interest rate of 6.0% and volatility of 3.5.
If SFAS No. 123 were used to account for the Company's stock based
compensation programs, the pro forma net loss per share would be as follows (in
thousands, except per share data):
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- -------
Net loss:
As reported.............................................. $(618,097) $(48,573) $(8,488)
Pro forma................................................ $(681,070) $(52,114) $(8,495)
Basic and diluted net loss per share:
As reported.............................................. $ (14.28) $ (3.17) $ (4.79)
Pro forma................................................ $ (15.73) $ (3.40) $ (4.79)
Stock option activity for all our stock plans was as follows (in thousands,
except per share data):
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ---------------- ------ ----------------
Outstanding at beginning of
period...................... 2,793 $17.40 509 $ 0.14 -- $ --
Acquired -- Promedix.com.... 1,282 $11.48 -- $ -- -- $ --
Acquired -- SpecialtyMD..... 137 $ 2.63 -- $ -- -- $ --
Granted..................... 11,034 $34.45 3,579 $14.28 1,979 $0.16
Exercised................... (803) $ 2.21 (1,142) $ 1.40 (1,419) $0.12
Canceled.................... (3,079) $36.91 (153) $ 6.40 (51) $0.12
------ ------ ------ ------ -----
Outstanding at end of
period...................... 11,364 $28.06 2,793 $17.40 509 $0.14
====== ====== ====== ====== =====
Exercisable at end of
period...................... 1,828 119
====== ======
The following table summarizes information about stock options outstanding
as of December 31, 2000 (in thousands, except per share data):
OUTSTANDING
-------------------------------------------------------
WEIGHTED AVERAGE EXERCISABLE
REMAINING -----------------------------------
NUMBER CONTRACTUAL LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OF SHARES (YEARS) EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE
- ------------------------ --------- ---------------- ---------------- ---------------- ----------------
$0.08 - $3.69 1,148 8.16 $ 1.25 560 $ 0.63
$4.22 - $4.22 2,605 1.30 $ 4.22 300 $ 4.22
$5.00 - $16.12 3,167 8.11 $13.02 652 $11.32
$18.62 - $33.87 2,379 9.26 $26.44 170 $30.89
$38.92 - $190.00 2,065 9.14 $97.98 146 $71.96
------ -----
11,364 6.98 $28.06 1,828 $13.54
====== =====
52
55
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
11. DEFERRED STOCK-BASED COMPENSATION
The Company recorded deferred compensation for options granted in the
fiscal years ended December 31, 1998 and 1999, for the difference at the option
grant date between the exercise price and the fair value of the common stock
underlying the options in accordance with FASB Interpretation No. 28. As of
December 31, 2000 the Company had recorded aggregate deferred stock compensation
of $8.7 million, $6.6 million of which was associated with discontinued
operations. The deferred stock compensation is being amortized over the vesting
periods of the stock options. The Company recognized $532,000, $491,000 and
$55,000 in stock compensation expense from continuing operations during the
years ended December 31, 2000, 1999 and 1998, respectively. The total charges to
be recognized in future periods from amortization of deferred stock compensation
as of December 31, 2000 are anticipated to be approximately $532,000, $477,000,
and $41,000 for 2001, 2002, 2003, respectively.
12. EMPLOYEE SAVINGS AND RETIREMENT PLAN
Ventro has a 401(k) Plan that allows eligible employees to contribute up to
20% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limits. Ventro may make discretionary contributions to the plan based
on profitability as determined by the Board of Directors. Ventro did not make
any contributions to the plan during the years ended December 31, 2000, 1999 and
1998.
13. INCOME TAXES
Due to operating losses and the Company's inability to recognize an income
tax benefit from current losses, there is no provision for income taxes for the
years ended December 31, 2000, 1999 or 1998. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax assets are as
follows (in thousands):
DECEMBER 31,
--------------------
2000 1999
-------- --------
Deferred Tax Assets:
Net operating losses...................................... $ 79,300 $ 21,500
Research Credits.......................................... 1,210 1,100
Reserves and accruals..................................... 4,320 300
-------- --------
Total Deferred Tax Assets......................... 84,830 22,900
Valuation Allowance......................................... (84,830) (22,900)
-------- --------
Net Deferred Tax Assets..................................... $ -- $ --
======== ========
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $61.9 million and $19.4 million during 2000 and 1999,
respectively.
Approximately $6.6 million of the valuation allowance at December 31, 2000
is attributable to stock option deductions, the benefit of which will be
credited to paid-in capital when realized.
As of December 31, 2000, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $212.0 million which expire in
the years 2012 through 2020 and federal research and development tax credits of
approximately $800,000 which expire in the years 2012 through 2020.
53
56
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
Utilization of the Company's net operating losses may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating losses before
utilization.
14. OWNERSHIP INTEREST IN MARKETPLACE COMPANIES
On January 24, 2000, Ventro, DuPont, IBM and @ Ventures, the venture
capital division of CMGI, Inc., announced the formation of Industria, a
business-to-business e-commerce company in the worldwide fluid processing
market. For a cash investment of $5.0 million, as well as the contribution of
technology, Ventro received an ownership interest in Industria of approximately
49%. The investment is accounted for using the equity method.
On April 11, 2000, Ventro and Entangible.com announced the formation of
Amphire, a business-to-business e-commerce company in the food service market.
As part of the formation of Amphire, Ventro acquired a portion of Entangible.com
for cash and equity totaling $35 million. Ventro's ownership interest in Amphire
was approximately 37% (see Note 20) at December 31, 2000. The investment is
accounted for using the equity method. As of the date that Amphire was formed,
April 11, 2000, Ventro's carrying value in Amphire, accounted for under the
equity method, exceeded its share of the underlying equity in the net assets by
$34.5 million. This excess relates to ownership interest acquired and was
originally to be amortized over a three-year period. The remaining unamortized
carrying value was written down in the fourth quarter to reflect the fair value
of the investment at December 31, 2000. At December 31, 2000 the Company had
guaranteed a $1.5 million line of credit in favor of Amphire. As part of the
Amphire financing described in Note 20, the line of credit was retired.
On August 3, 2000, Ventro and American Express Company, announced the
formation of MarketMile, a new business-to-business e-commerce company in the
business products and services market. For a cash investment of $9.0 million,
Ventro obtained an ownership interest in MarketMile of approximately 35%. The
investment is accounted for using the equity method.
In addition, Ventro has approximately an 18.9% interest in Broadlane, a
business-to-business e-commerce company in the healthcare industry that Ventro
formed with Tenet Healthcare in January 2000. The investment is accounted for
using the cost method.
The following table outlines the Company's activity with its marketplace
companies, accounted for under the equity method, for the year ended December
31, 2000 (in thousands):
INITIAL EQUITY LOSS AMORTIZATION WRITEDOWN CARRYING
INVESTMENT OF INVESTEE OF GOODWILL OF GOODWILL VALUE
($) ($) ($) ($) ($)
---------- ----------- ------------ ----------- --------
Industria.......................... 5,000 5,000 -- -- --
Amphire............................ 35,000 4,426 8,306 22,268 --
MarketMile......................... 9,000 2,897 -- -- 6,103
See Note 17 for a summary of the Company's activity with these marketplace
companies since their inception.
15. CONTINGENCIES
Broadlane
Ventro entered into a technology and services agreement with Broadlane in
1999. The contract set forth a timetable for providing functionality and
establishing a marketplace to provide e-commerce solutions for the high-volume,
hospital and medical supplies market. Broadlane and its majority shareholder,
Tenet Healthcare,
54
57
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
have stated their belief that the Company has failed to provide the technology
required to operate the Broadlane marketplace. Ventro disputes this assertion
and Broadlane's withholding of amounts billed for services rendered by the
Company and not collected. As a result of this dispute, Broadlane and Tenet have
told the Company that they will seek termination of the technology and services
agreement and rescission of the issuance of Broadlane shares to the Company. If
either of these events were to occur, the Company's financial position could be
harmed and its opportunity to seek additional customers could be impaired.
MARKETMILE
Ventro's agreements with MarketMile provide certain uptime and performance
guarantees regarding the quality of our services. The Company's scheduled uptime
guarantee assures MarketMile that, except during scheduled maintenance windows
or during service outages or degradations caused by MarketMile, outages to its
Internet operations will be repaired within specified time limits. Ventro's
performance guarantee assures MarketMile that if the responsiveness of Internet
operations falls below mutually agreeable levels, Ventro will restore the site
to the appropriate levels within specified time limits. If Ventro fails to meet
these guarantees, the Company may be required to credit a percentage of the fees
paid for services, generally up to a maximum of 100% of all service fees accrued
in the month of the outage. In addition, Ventro's contract with MarketMile
provides a minimum pool of $5.0 million in damages in the event the Company
fails to achieve certain defined contractual performance milestones. As of
December 31, 2000 the Company has not issued any credits to MarketMile, or other
marketplace customers, in connection with system uptime or performance. At
December 31, 2000, the Company had recorded approximately $5.0 million of
billings to MarketMile as a customer advance. These billings will not be
reflected as reductions of operating expense by the Company until such time as
all contractual milestones with MarketMile have been successfully achieved, and
uncertainty regarding potential penalty provisions has been eliminated.
PROMEDIX AND CHEMDEX
Contracts with Promedix and Chemdex customers and suppliers provide, in
some cases, for cancellation notification periods longer than the Company
provided. In some cases, shorter notification periods have caused inconvenience
to customers and suppliers, and the Company has been notified by several
suppliers that discontinuing the marketplace represents a breach of Promedix
contractual obligations. Additionally, two customers of Chemdex have informed
the Company that they did not receive notice of the termination of their
contracts within the contractually required time period. However, as of December
31, 2000 no customer or supplier of Promedix or Chemdex had filed a formal
complaint with the Company.
GOVERNMENT REGULATIONS
In addition to regulations applicable to businesses generally, the Company
is or may be subject to direct regulation by governmental agencies which
includes numerous laws and regulations generally applicable to the chemical,
pharmaceutical, controlled substances, human and biological reagents, medical
and in vitro devices, nuclear chemical businesses and environmental spills, as
well as U.S. import and export controls and import controls of other countries.
While the shutdown of Chemdex, Promedix and specialty MD may limit future
regulatory and product liability risks, until all statutes of limitation have
expired, certain legal risks will remain.
The Company relied on their suppliers to comply with applicable local,
state and federal laws regarding the labeling and the dissemination of
information on any products sold that may be hazardous or present a health
threat to the user. If these suppliers have failed, or we have failed to
maintain the requisite records irrespective of the actions of the suppliers, or
if either of us fails, in the future, to adequately comply with labeling and
information dispensing requirements of local, state or federal laws, then the
Company may be
55
58
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
held legally responsible, since Company held title to these products, and could
be subject to governmental penalties or fines, as well as private lawsuits to
enforce these laws.
Finally, Company has relied upon their suppliers to obtain appropriate
approvals for products regulated by the FDA and to comply with the requirements
relating to those approvals and products. The failure of suppliers to obtain or
comply with those approvals, or the failure of the product advertising or
labeling to be consistent with the FDA approval for the products, or other
failures by the products themselves, or our failure to keep regulatory records
required by the FDA, such as complaint files, could result in costly product
recalls, significant fines and judgments, civil and criminal liabilities and
negative publicity.
Except as described in the next sentence, the Company is unaware of any
current investigations, inquiries, citations, fines or allegations of violations
or noncompliance relating to regulatory requirements pending by government
agencies or by third parties against us. In February, 2001 the Company received
a subpoena from the U.S. Department of Justice, Drug Enforcement Administration,
for certain billing, invoice, and shipping records concerning sales to an
unaffiliated purchaser. It is also possible that there may be investigations or
allegations that the Company is not aware of or future investigations or
allegations. The risk that any noncompliance may be discovered in the future is
currently unknown. Although any potential impact on the Company for
noncompliance cannot currently be established, it could result in significant
civil or criminal penalties, including monetary fines and injunctions, for
noncompliance and negative publicity, and seriously harm our business, revenues,
results of operations and financial condition.
OTHER
The Company is a party to various claims in the ordinary course of
business. Although the results of litigation and claims cannot be predicted with
certainty, the Company believes the final outcome of such matters will not have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
16. SEGMENT REPORTING
During the year ended December 31, 1998, Ventro adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 changes the way companies
report selected segment information in annual financial statements and requires
companies to report selected segment information in interim financial reports to
stockholders.
Due to the shut down of the Company's two operating exchanges, Chemdex,
Promedix and Specialty MD, the Company has changed the composition of its
reportable segments. The Company's Chemdex exchange, which sells life science
research products to research scientists working in pharmaceutical and
biotechnology companies and academic research institutions, and the Promedix
exchange, which sells specialty medical products to healthcare professionals
have been classified as discontinued operations (Note 18) and are no longer
reported as part of segment reporting. After the shut down of Chemdex and
Promedix the Company is operating in one segment, as a marketplace service
provider to consortia (allocations of players in a given industry sector),
private marketplaces (internal supply chains between select trading partners)
and independent public marketplaces.
17. RELATED PARTY TRANSACTIONS
For the year ended December 31, 2000, Ventro billed its affiliated
marketplace companies, Broadlane, Industria, Amphire, and MarketMile, an
aggregate of approximately $26.6 million. The billings were for services Ventro
had provided or for charges such as rent that Ventro passed through to the
affiliates. As of December 31, 2000, Ventro had collected $12.7 million of the
amounts billed. The Company wrote off
56
59
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
$5.1 million due from Amphire and reserved $4.4 million related to Broadlane and
$270,000 related to Industria. The $4.3 million net receivable is due from
Industria ($2.1 million) and MarketMile ($2.2 million). Ventro management
believes that collectibility of all amounts due from Industria and MarketMile
are probable. All amounts billed to Amphire and Broadlane were either reserved
as potentially uncollectible or written off at December 31, 2000. The net amount
of receivables from related parties is included in the accompanying balance
sheet at December 31, 2000.
Approximately $3.3 million of the amounts billed and collected from
marketplace companies were offset against Ventro's gross operating expenses
during 2000. An additional $5.0 million of amounts billed and collected were not
offset but were deferred pursuant to acceptance provisions of a service
agreement with MarketMile.
18. DISCONTINUED OPERATIONS
In December 2000, the Company's Board of Directors adopted a formal plan
and announced the shut down of all business operations associated with the
Company's life sciences and specialty medical products marketplaces. The shut
down of Chemdex, Promedix and SpecialtyMD is to be completed no later than March
31, 2001.
Earlier in 2000, the Company had acquired the businesses represented by
Promedix and SpecialtyMD. These transactions were effected in accordance with
the purchase method of accounting. For Promedix, the purchase consideration was
12.1 million shares of the Company's common stock valued at $325.3 million. The
entire Promedix purchase price was allocated to intangible assets. For
SpecialtyMD, the purchase consideration was 1.1 million shares of the Company's
common stock valued at $107.7 million. Of the SpecialtyMD purchase price, to
$0.8 million was allocated to net tangible liabilities and the remainder to
intangible assets. The Company wrote off as part of the loss on disposal of
discontinued operations $326.7 million of intangible assets comprised of $317.1
million related to the Promedix and SpecialtyMD acquisitions, $1.2 million
related to the Biotechnology Industry Organization intangible asset and $8.4
million related to the VWR customer list intangible asset.
No interest expense has been allocated to discontinued operations. In
addition, general corporate overhead has been allocated to continuing operations
for all periods presented. Revenues from discontinued operations were $99.3
million (consisting of $97.9 million related to Chemdex and $1.4 million related
to Promedix), $30.8 million and $29,000 for 2000, 1999 and 1998, respectively.
Gross profit from discontinued operations was $5.7 million, $1.5 million and
$7,000 for 2000, 1999 and 1998, respectively. The Company adopted Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101") and Emergency Issues Task Force 99-19 ("EITF 99-19"), "Recording Revenue
Gross as a Principal versus Net as an Agent" in the fourth quarter of 2000. The
adoption of SAB 101 and EITF 99-19 did not change the Company's revenue
reporting because Chemdex and Promedex act as principals purchasing products
from their suppliers and then resell them to their customers. Chemdex and
Promedex assume the risks and rewards of ownership and, consequently, the
Company included gross revenues from sales of product and related shipping fees,
net of discounts and provisions for sales returns and other allowances, in net
revenues of discontinued operations. The loss on disposal principally includes
the write-off of intangibles of $326.7 million, severance pay, write down of
equipment to its estimated recoverable amounts of $1.8 million, and accruals for
estimated liabilities and estimated operating losses of $5.7 million during the
phase out period for the discontinued businesses.
57
60
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 1999 1999 2000 2000
--------- -------- ------------- ------------ --------- ---------
(IN THOUSANDS)
Operating Expenses:
Research and development... $ -- $ -- $ -- $ -- $ 4,315 $ 5,721
Sales and marketing........ -- -- -- -- 6,355 5,296
General and
administrative........... 1,002 2,000 2,588 2,335 914 608
Restructuring and other
charges.................. -- -- -- -- -- --
Amortization of deferred
stock based
compensation............. 92 133 133 133 133 133
------- -------- -------- -------- -------- ---------
Total operating expenses... (1,094) 2,133 2,721 2,468 11,717 11,758
------- -------- -------- -------- -------- ---------
Operating loss............... (1,094) (2,133) (2,721) (2,468) (11,717) (11,758)
Interest expenses............ (25) (59) (60) (60) (47) (4,307)
Interest income and other,
net........................ 55 245 1,321 1,578 1,683 4,660
Gain/loss on investment...... -- -- -- -- 74,532 (45,292)
Loss on investment in
strategic partners......... -- -- -- -- -- --
Write-down of investment..... -- -- -- -- -- --
Equity Loss.................. -- -- -- -- (1,702) (6,603)
------- -------- -------- -------- -------- ---------
Loss from continuing
operations................. (1,064) (1,947) (1,460) (950) 62,749 (63,300)
Discontinued operations:
Loss from discontinued
operations, net of income
tax...................... (5,745) (10,558) (12,539) (14,310) (33,336) (56,322)
Loss on disposal, net of
income taxes............. -- -- -- -- -- --
------- -------- -------- -------- -------- ---------
Loss from discontinued
operations................. (5,745) (10,558) (12,539) (14,310) (33,336) (56,322)
------- -------- -------- -------- -------- ---------
Net income (loss)............ $(6,809) $(12,505) $(13,999) $(15,260) $ 29,413 $(119,622)
======= ======== ======== ======== ======== =========
THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
2000(1) 2000
------------- ------------
(IN THOUSANDS)
Operating Expenses:
Research and development... $ 9,897 $ 15,097
Sales and marketing........ 6,022 6,583
General and
administrative........... 1,531 3,546
Restructuring and other
charges.................. -- 4,891
Amortization of deferred
stock based
compensation............. 133 133
-------- ---------
Total operating expenses... 17,583 30,250
-------- ---------
Operating loss............... (17,583) (30,250)
Interest expenses............ (4,237) (4,222)
Interest income and other,
net........................ 4,229 3,670
Gain/loss on investment...... -- --
Loss on investment in
strategic partners......... -- (10,000)
Write-down of investment..... -- (22,268)
Equity Loss.................. (6,324) (6,000)
-------- ---------
Loss from continuing
operations................. (23,915) (69,070)
Discontinued operations:
Loss from discontinued
operations, net of income
tax...................... (52,396) (44,412)
Loss on disposal, net of
income taxes............. -- (338,095)
-------- ---------
Loss from discontinued
operations................. (52,396) (382,507)
-------- ---------
Net income (loss)............ $(76,311) $(451,577)
======== =========
- ---------------
(1) The Company has reclassified to the appropriate operating expense
categories, amounts previously reported as other revenue and associated cost
of other revenues of $3.6 million related to services provided to investees
in the third quarter of 2000. The reclassification had no impact on gross
margins, operating losses or net loss as the Company is providing services
and support at cost.
20. SUBSEQUENT EVENTS
Investments
In January, 2001, Ventro contributed $4.0 million in MarketMile's Series C
Preferred Stock Financing.
In February, 2001, Ventro contributed $2.0 million in Amphire's Series B
Preferred Stock Financing.
Bond Tender Offer
In April 2000, Ventro incurred $250 million of indebtedness in connection
with the sale of convertible subordinated notes. On February 20, 2001, the
Company announced it is tendering for the repurchase of the convertible
subordinated notes. The tender offer for the Notes will be $270 in cash per
$1,000 principal amount, plus accrued and unpaid interest up to, but not
including the date of payment. The Company is unable to predict what amount of
cash will be required to retire the notes or whether it will succeed in retiring
the notes.
58
61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to the Company's
executive officers is incorporated herein by reference from the information
contained in Item 1 of Part I of this Report under the caption "Directors and
Executive Officers of the Registrant." The information required by Item 405 of
Regulation S-K is incorporated herein by reference from the information provided
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" of
the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the information provided under the heading "Executive Compensation
Information" of the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
from the information provided under the heading "Stock Ownership of Certain
Beneficial Owners" of the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the information provided under the heading "Certain Relationships and
Related Transactions" of the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Data Schedule. The financial statement Schedule
II -- VALUATION AND QUALIFYING ACCOUNTS is filed as part of this annual report
on Form 10-K, at page 62.
(2) Exhibits and Financial Statement Schedules. The following exhibits
and financial statement schedules are filed as part of this report or are
incorporated herein by reference:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.8 Form of Certificate of Merger between Chemdex Corporation
and Ventro Corporation(4)
3.1 Amended and Restated Certificate of Incorporation of
Ventro(1)
3.2* Amended and Restated Bylaws of Ventro
4.1 Specimen of Ventro Common Stock Certificate(4)
4.2 Third Amended and Restated Investors' Rights Agreement dated
March 24, 1999(1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated
Investors' Rights Agreement(1)
4.4 Form of Indenture between Ventro and State Street Bank and
Trust Company of California, N.A.(4)
4.5 Form of Note(4)
10.1* Form of Indemnification Agreement between Ventro and each of
its officers and directors
**10.2 Form of Change of Control Agreement between Ventro, each of
its officers and certain employees(1)
**10.4 1998 Stock Plan, as amended, and form of option agreement(4)
**10.6 1999 Directors' Stock Plan(1)
**10.7* Consultant agreement between Pierre Samec and Ventro
Corporation
dated December 1, 2000.
59
62
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
**10.8* Letter agreement between Robin Abrams and Ventro Corporation
dated November 8, 2000.
**10.9* Letter agreement between James Stewart and Ventro
Corporation dated November 8, 2000.
10.10 Standard Office Lease dated June 11, 1998 between Ventro and
Fabian Partners II, a California General Partnership, as
amended(1)
10.11 Master Lease Agreement dated January 20, 1999, as amended,
between Ventro and Comdisco, Inc.(1)
10.12 Warrant to Purchase Shares of Common Stock of Ventro dated
March 24, 1999 between Ventro and Galen Partners III,
L.P.(1)
10.13 Warrant to Purchase Shares of Common Stock of Ventro dated
March 24, 1999 between Ventro and Galen Partners
International III, L.P.(1)
10.14 Warrant to Purchase Shares of Common Stock of Ventro dated
March 24, 1999 between Ventro and Galen Employee Fund III,
L.P.(1)
10.15 Payment Plan Agreement dated February 22, 1999 and related
agreements between Ventro and Oracle Credit Corporation(1)
10.16 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1010 Joaquin Road, Mountain
View, California.(4)
10.17 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1500 and 15550 Plymouth
Street, Mountain View, California.(3)
10.18 Form of warrant to purchase common stock of Healthcare
Transaction Systems, Inc.(4)
10.19* Master Lease Agreement between Sun Microsystems Finance and
Ventro Corporation dated June 27, 2000, as amended and
related Letter of Credit dated June 22, 2000
10.20* Lease Agreement dated January 7, 2000 between 2755 E.
Cottonwood Parkway, L.C. and Promedix.com
21.1 Subsidiaries of Ventro(4)
23.1* Consent of Ernst & Young, Independent Auditors
- ---------------
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August 16,
1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-4 (File No.
333-90727) filed with the Commission on January 4, 2000, as amended, which
Registration Statement was declared effective January 5, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 filed with the
Commission on March 6, 2000. (file 333-31774)
* Filed herewith
** Indicates management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
None
60
63
VENTRO CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
BALANCE AT AMOUNTS BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION YEAR EXPENSES WRITE-OFFS YEAR
----------- ------------ ---------- ---------- ----------
Allowance for Doubtful Accounts:
Year ended December 31, 2000....................... $-- $4,646 $5,067 $9,713
Year ended December 31, 1999....................... $-- $ -- $ -- $ --
Year ended December 31, 1998....................... $-- $ -- $ -- $ --
Period ended December 31, 1997..................... $-- $ -- $ -- $ --
61
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on February 20, 2001.
VENTRO CORPORATION
By: /s/ DAVID P. PERRY
------------------------------------
David P. Perry
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DAVID P. PERRY President, Chief Executive Officer February 20, 2001
- --------------------------------------------- and Director (Principal Executive
David P. Perry Officer)
/s/ JAMES G. STEWART Chief Financial Officer and February 20, 2001
- --------------------------------------------- Assistant Secretary (Principal
James G. Stewart Financial Officer)
/s/ BROOK H. BYERS Director February 20, 2001
- ---------------------------------------------
Brook H. Byers
/s/ JONATHAN D. CALLAGHAN Director February 20, 2001
- ---------------------------------------------
Jonathan D. Callaghan
/s/ JAN LESCHLY Director February 20, 2001
- ---------------------------------------------
Jan Leschly
/s/ NAOMI O. SELIGMAN Director February 20, 2001
- ---------------------------------------------
Naomi O. Seligman
/s/ L. JOHN WILKERSON Director February 20, 2001
- ---------------------------------------------
L. John Wilkerson
62
65
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.8 Form of Certificate of Merger between Chemdex Corporation
and Ventro Corporation(4)
3.1 Amended and Restated Certificate of Incorporation of
Ventro(1)
3.2* Amended and Restated Bylaws of Ventro
4.1 Specimen of Ventro Common Stock Certificate(4)
4.2 Third Amended and Restated Investors' Rights Agreement dated
March 24, 1999(1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated
Investors' Rights Agreement(1)
4.4 Form of Indenture between Ventro and State Street Bank and
Trust Company of California, N.A.(4)
4.5 Form of Note(4)
10.1* Form of Indemnification Agreement between Ventro and each of
its officers and directors
**10.2 Form of Change of Control Agreement between Ventro, each of
its officers and certain employees(1)
**10.4 1998 Stock Plan, as amended, and form of option agreement(4)
**10.6 1999 Directors' Stock Plan(1)
**10.7* Consultant agreement between Pierre Samec and Ventro
Corporation
dated December 1, 2000.
**10.8* Letter agreement between Robin Abrams and Ventro Corporation
dated November 8, 2000.
**10.9* Letter agreement between James Stewart and Ventro
Corporation dated November 8, 2000.
10.10 Standard Office Lease dated June 11, 1998 between Ventro and
Fabian Partners II, a California General Partnership, as
amended(1)
10.11 Master Lease Agreement dated January 20, 1999, as amended,
between Ventro and Comdisco, Inc.(1)
10.12 Warrant to Purchase Shares of Common Stock of Ventro dated
March 24, 1999 between Ventro and Galen Partners III,
L.P.(1)
10.13 Warrant to Purchase Shares of Common Stock of Ventro dated
March 24, 1999 between Ventro and Galen Partners
International III, L.P.(1)
10.14 Warrant to Purchase Shares of Common Stock of Ventro dated
March 24, 1999 between Ventro and Galen Employee Fund III,
L.P.(1)
10.15 Payment Plan Agreement dated February 22, 1999 and related
agreements between Ventro and Oracle Credit Corporation(1)
10.16 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1010 Joaquin Road, Mountain
View, California.(4)
10.17 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1500 and 15550 Plymouth
Street, Mountain View, California.(3)
10.18 Form of warrant to purchase common stock of Healthcare
Transaction Systems, Inc.(4)
10.19* Master Lease Agreement between Ventro and Sun Microsystems
Finance, dated June 27, 2000, as amended and related Letter
of Credit dated June 22, 2000
66
EXHIBIT
NUMBER DESCRIPTION
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10.20* Lease Agreement dated January 7, 2000 between 2755 E.
Cottonwood Parkway, L.C. and Promedix.com
21.1 Subsidiaries of Ventro(4)
23.1* Consent of Ernst & Young, Independent Auditors
- ---------------
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August 16,
1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-4 (File No.
333-90727) filed with the Commission on January 4, 2000, as amended, which
Registration Statement was declared effective January 5, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 filed with the
Commission on March 6, 2000. (file 333-31774)
* Filed herewith
** Indicates management contract or compensatory plan or arrangement