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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ 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 SECTON 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-27945
ASCENDANT SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
Texas 75-2900905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13727 Noel Road, Suite 500, Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 469-374-6200
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001
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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 February 28, 2001 the aggregate market value of the voting
stock held by non-affiliates was approximately $3,036,059.
At February 28, 2001 21,230,900 shares of common stock were
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered
to stockholders in connection with the Annual Meeting of
Stockholders to be held May 31, 2001 are incorporated by
reference into Part III.
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ASCENDANT SOLUTIONS, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2000
Table of Contents
Page
PART I.
Item 1. Business..................................... 1
Item 2. Properties................................... 9
Item 3. Legal Proceedings............................ 9
Item 4. Submission of Matters to a Vote of
Security Holders............................ 10
PART II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............. 11
Item 6. Selected Financial Data...................... 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 16
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk........................... 28
Item 8. Financial Statements and Supplementary Data.. 29
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...... 46
PART III.
Item 10. Directors and Executive Officers of
the Registrant.............................. 46
Item 11. Executive Compensation....................... 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................... 46
Item 13. Certain Relationships and Related
Transactions................................ 46
PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..................... 47
Signatures............................................. 48
i
PART I.
ITEM 1. BUSINESS
THE FOLLOWING DISCUSSION OF OUR BUSINESS CONTAINS FORWARD-
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH BELOW UNDER
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--RISKS RELATED TO OUR BUSINESS," "--RISKS
RELATED TO OUR INDUSTRY" AND "--OTHER RISKS", AS WELL AS
ELSEWHERE IN THIS FORM 10-K.
General
- - -------
On October 19, 2000, shareholders of ASD Systems, Inc.
approved a corporate name change and redomestication effected by
merging ASD Systems, Inc., a Texas corporation, into Ascendant
Solutions, Inc. ("Ascendant" or the "Company"), a Delaware
corporation and wholly-owned subsidiary of ASD Systems, Inc. The
redomestication merger became effective October 20, 2000. ASD
Systems, Inc. was formed as a Texas corporation in January 1998.
The Company provides an integrated suite of best-of-industry
application software packages under the service name "Omnigy" or
the "Omnigy Platform". We automate and enable the interaction
between buyers and sellers in the digital economy. Our business
focuses on the sell side solution, managing the complete order
transaction and services lifecycle, in real time, throughout a
client's enterprise. Our solutions integrate and manage customer
relationships, product management, order capture, demand, and
fulfillment activities, on an outsourced basis for our customers.
We offer business process expertise and experience, professional
services and outsourced software solutions that are scalable,
leverageable and repeatable. We believe this is an attractive
alternative for companies that recognize the challenges and
expense of acquiring, building, integrating and maintaining a
complex application system infrastructure in-house.
Omnigy is an integrated suite of best-of-industry
application software packages that provides the tools required to
manage the infrastructure behind business-to-business ("B2B") and
business-to-consumer ("B2C") automated commerce. Components of
Omnigy integrate and manage customer relationships, product
management, order capture, demand and fulfillment activities.
The Omnigy.com offering, currently being developed, is a
supplier portal with methodologies and integrated tools that
enable suppliers to participate in eProcurement marketplaces and
exchanges. Tools available within Omnigy.com include online
catalog management, methods of displaying inventory and the
ability to purchase the displayed inventory (using online
"storefronts") to enable suppliers to conduct B2B commerce. See
additional information under "Technology" on page 6.
In May 2000, we began the process of reviewing our overall
business plan, beginning with major changes to specific
components of our operations. In connection with this review, we
decided to terminate the software development of Project Mercury,
a browser-based platform, and replace it with Omnigy, our new
services platform which combines third party technologies with a
proprietary framework and integration. We also terminated and
paid severance to 55 employees, who were primarily in the Mercury
software development and systems services groups, along with
certain executive positions. The write-off of our browser-based
software resulted in a charge to operations of approximately
$1,294,000, and other restructuring costs, including termination
pay, approximated $1,166,000.
In September 2000, we announced a strategic repositioning to
enable us to focus on our core business-providing supply chain
solutions for companies engaged in online and traditional
commerce through our Omnigy platform and Omnigy.com. This
repositioning included the transition out of our fulfillment and
call center services. We completed the sale of our fulfillment
services operation in December 2000 and our call center was sold
in February 2001. See "Management's Discussion and Analysis of
financial Condition and Results of Operations-Overview" on page
15 and Note 3 to the financial statements on page 38 for
summaries of the sale of assets related to the services that we
have discontinued.
-1-
The Omnigy platform has been designed for a different client
base from that serviced by Lynx, our previous software platform
which was designed for the B2C marketplace. While Omnigy will
continue to be marketed to B2C clients, we expect a substantial
portion of Omnigy related services will be sold to B2B
enterprises. Part of our marketing strategy is to develop
strategic relationships with other companies commanding respected
positions in the B2B marketplace. We announced such
relationships in early 2001 with OrderFusion, Inc. and CCP
global, Inc. ("CCP").
Although we have integrated certain B2C clients during 2000,
as of December 31, 2000, the total Omnigy package targeted to the
B2B market segment was still in development and we had not
completed the sale of Omnigy services to any B2B clients, nor had
we completed any B2B sales through March 31, 2001. We believe
that sales of Omnigy services to the B2B client base will occur
in 2001. If such sales are not made, we will be required to
revise our business plan and/or cut our overhead costs by a
substantial amount. See "Factors Affecting Operating Results" on
page 18, "Liquidity and Capital Resources" on page 19 and "Risks
related to our business-liquidity and capital Resources are
assured to be adequate" on page 21.
Through our Omnigy platform, we expect to serve two
principal markets:
(1) Supply Chain Solutions:
Supplier Enablement: We are targeting large companies (i.e.
Fortune 1000) seeking to streamline their procurement
processes. Omnigy represents a unique and robust supplier
enablement system supporting the automation of procurement
processes for direct and indirect inventory. With the
addition of our supplier portal, Omnigy.com, we can serve a
large number of suppliers that vary in size and technical
capability. Omnigy.com is currently under development and is
anticipated to be launched during 2001. See "Technology" on
page 6 for further information.
Sell Side Demand Management: Omnigy represents a scalable
supply chain solution for complex demand management and
execution across multiple channels (see further discussion of
demand management on page 4.
(2) CommerceDirect:
We target retailers, catalogers, manufacturers and
distributors seeking to sell online directly to consumers or
other businesses. Through Omnigy, Ascendant Solutions offers
a comprehensive and integrated Order Capture, Order
Management, Fulfillment Management and Customer Relationship
Management ("CRM") platform. Under our old platform, Lynx,
our focus was directed entirely at this market.
Our previous order management and fulfillment business was
commenced in January 1995 by Athletic Supply of Dallas, Inc.,
which was a direct marketing cataloger for a variety of sports
merchandise, including licensed sports products of the National
Football League, National Hockey League, National Basketball
Association, Major League Baseball, and the Sears "My Team"
catalogs. In January 1995, Athletic Supply of Dallas began
providing outsourced services for order management and
fulfillment to the Sears Craftsman Power and Hand Tool and Home
Healthcare catalogs using the proprietary software that had been
developed for its own catalog operations. On December 20, 1996,
Athletic Supply of Dallas, Inc. was sold, in its entirety, to
Genesis Direct, Inc. On October 14, 1997, ASD Partners, Ltd., a
limited partnership controlled by Norman Charney (our former
Chairman and Chief Executive Officer), acquired all of the
software, the call center and fulfillment center assets and the
Sears contracts previously owned by Athletic Supply of Dallas
from Genesis Direct, Inc. Effective January 1, 1998, ASD
Partners, Ltd. transferred this business to ASD Systems, Inc.,
the predecessor to Ascendant Solutions, Inc., in connection with
its conversion into a corporation.
Our principal executive offices are located at 13727 Noel
Road, Suite 500, Dallas, Texas 75240 and our telephone number at
this location is 469-374-6200.
-2-
Our Solutions Offering
- - ----------------------
Omnigy includes three major components, CRM, Order
Management and Order Fulfillment. We have licensed these
components from third party vendors, integrated them into one
system and added proprietary external extensions and
enhancements. Omnigy is available as a hosted solution, enabling
our clients to avoid the substantial cost associated with
traditional software investments. We believe this is an
attractive alternative for companies that recognize the
challenges and expense of acquiring, building, integrating and
maintaining a complex application system infrastructure in-house.
Omnigy.com, currently under development and anticipated to launch
in 2001, is an Internet-based supplier portal designed to provide
Omnigy features to a large number of suppliers that vary in size
and technical capability. See "Technology on page 6 for further
information.
Supply Chain Solutions: Supplier Enablement
Our management has confirmed that B2B commerce has created
the need to more effectively integrate suppliers with their
trading partners. These partners range from direct buyers to
emerging Internet "marketplaces" and distributors.
In attempting to electronically connect with their
suppliers, companies implementing Internet-based procurement
solutions are often unable to automate such interactions.
Further, for suppliers of all sizes, it is complex and costly to
support Internet-based trade with multiple buyers. Many
suppliers do not have the information technology infrastructure
or the specialized skill set available internally to implement
software to support technological demands from buyers. In
addition, the time and complexity and related cost to develop
these tools internally can be cost prohibitive to many
organizations.
Many companies are therefore seeking to reduce overall
procurement costs using Internet based procurement systems
mentioned above. However, reductions in the cost per transaction
cannot be fully realized by these companies without their
suppliers being technologically enabled. The key to fully
recognizing the expected return on investment for Internet-based
procurement is to identify a solution to enable integration with
a wide range of suppliers.
From the supplier perspective, there are numerous problems
to overcome. Suppliers are being asked to be responsive to many
buying organizations. In many cases, suppliers have a limited
understanding of the multiple formats for electronic catalog
content and/or cannot provide automated solutions that can be
adapted on a cost effective basis to multiple situations. In
some cases, buyers are requesting highly customized
functionality; however, suppliers may have limited resources to
support the implementation of these innovative technologies.
Supplier limitations can include:
* Limited or no Internet infrastructure
* Limited exposure to modern programming
formats
* Limited financial and skilled human resources
* Limited functional knowledge of integrated
purchaser-supplier technology
* Unproven payback on this technology
Supplier solutions normally consist of software applications
that provide effective, yet disparate products to enable
suppliers. Some supplier enablement services leave the supplier
without the skills and tools necessary to respond to
technological demands over time. A comprehensive solution for
suppliers would include:
* Automated product data extraction covering a
wide diversity of source data formats and
complexity
* Catalog cleansing, updating and refreshing
capabilities
* Electronic catalog tools
* Unique catalog maintenance for each client
* Transaction processing
* Automated integration to other internal
systems
* Internet site creation tools
* Electronic data storage services
* Supplier analytics
* Collaboration assistance
-3-
The current software available in the industry is limiting
in that if one specific software application is chosen, extensive
customizing is typically required by the supplier to extend the
functionality to meet its individual requirements. The
alternative is to purchase multiple applications and integrate
them to meet the business requirements. In either scenario, the
barrier to entry for the supplier is quite high since either
solution would require significant expenditures for, among other
things, licensing fees, custom integration, maintenance and
support.
Because of the high costs and the rapidly changing
technology, many suppliers are deterred from investing in the
technology necessary to maintain a competitive advantage in B2B
trade.
To overcome the cost and technology barriers, we have
responded to an opportunity in the B2B marketplace by developing
a solution to efficiently and cost-effectively integrate
suppliers with their customers. Our supplier portal, Omnigy.com,
is a comprehensive solution for suppliers in Internet-procurement
networks and digital marketplaces. This solution revolves around
Internet-based applications integrating currently established
high quality software tools in close collaboration with a third
party professional services organization. Through our strategic
partnership with CCP, co-developers of the portal concept, we are
developing a unique proprietary supplier enablement solution,
which we believe will differentiate us in the marketplace, as
well as address the above supplier needs.
Our focus is designed to provide solutions to issues facing
suppliers. Omnigy.com includes an online diagnostic
questionnaire to evaluate an individual supplier's progress in
developing Internet business initiatives as well as establishing
a collaboration environment to enable communication between
trading partners. Omnigy.com's tools include private and public
forums, document sharing, and online training and feedback. The
portal is designed to assist suppliers in creating master and
buyer-specific electronic catalogs. Electronic product data can
be standardized to create electronic-commerce ready content. The
essential catalog management tool is used to modify the catalog
format to accommodate various electronic coding standards.
Supply Chain Solutions: Sell-Side Demand Management
Omnigy also offers a fully integrated customer care, order
capture, order management and fulfillment management solution.
Our integrated "best-of-industry" solution platform enables
clients to accept multiple forms of demand from disparate sources
in disparate technologies. Once accepted into the system, Omnigy
integrates with and supports various order fulfillment and
planning systems.
CommerceDirect
Our CommerceDirect offering is the continuation of our
previous B2C service model, using Omnigy as our systems engine to
provide Order Capture, Order Management and fulfillment
management, rather than the previous Lynx platform. It does not
include the fulfillment and call center services, which were sold
in December 2000 and February 2001, respectively. Our Omnigy
system is replacing the Lynx software on a systematic basis. We
expect to be completely transitioned out of the Lynx software by
June 30, 2001.
Omnigy presents our B2C clients with a comprehensive
solution for real time order management, fulfillment logistics
and CRM. Omnigy is available as a hosted solution. It is
designed to integrate with inventory and financial functions, as
well as enterprise resource planning systems. It is compatible
with Internet sales cycles as well as traditional telephone and
mail order sales systems. Key functional components of Omnigy
for CommerceDirect clients are Prospect Contact, Order Capture,
Customer Care Management, Offer Management, Order Management,
Campaign Marketing, and Fulfillment and Distribution Management.
Client Relationships
- - --------------------
For the fiscal years ended December 31, 2000 and
December 31, 1999, Sears, our largest client, accounted for
approximately 82% and 54% of our gross revenues, respectively. A
substantial portion of our Sears related revenue has been reduced
by the sale of our call center and warehouse assets. The
contracts for the remaining systems services we are performing
for Sears will terminate on June 30, 2001. Sears has indicated
that their contract with us will not be renewed. This will have
a material adverse effect on our business, including our
financial performance and revenue stream, and will result in the
loss of an important client reference. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-- Risks Related to Our Business -- Sears has
historically represented a significant majority of our revenues,
but cannot be relied upon in the future".
-4-
No single client which terminated our services accounted for
2% or more of our total revenues for the year ended December 31,
2000. However, the new clients we obtained during 2000 did not
provide the revenue, or the profitability, from our multiple
service offerings that would have given us the confidence that
our business strategy would be successful. This was a
significant reason why we made the decision to exit the
fulfillment and call center businesses, and we have refocused our
efforts primarily on obtaining clients that will use our supply
chain solutions service offering. We will also continue to
pursue clients who would use our CommerceDirect services. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Risks Related to Our Business - The
recent sales of the call center and fulfillment operations will
result in the loss of recurring revenues," "-- We may not be able
to satisfy the unique and sophisticated requirements of our
clients" and "--Our contracts may be terminated and we may be
exposed to potential liability for actual or perceived failure to
provide required services."
Sales and Marketing Strategy
- - ----------------------------
As of February 28, 2001, our sales staff consisted of our
Vice President-Sales and three senior sales professionals with an
average of more than 20 years of experience. We added a VP-
Marketing in the first quarter of 2001, and we intend to add
additional sales and marketing professionals in the future.
Supplier Enablement
Supplier enablement (SE) is a new software driven service
that is rapidly evolving in the B2B marketplace. Our potential
targets are companies which supply direct or indirect products to
large (i.e., Fortune 1000) companies which have established or
are establishing themselves as Internet "hosts" to allow their
purchasing departments to acquire goods and services
electronically in a secure, pre-approved environment. These
companies may supply their customers directly, or through a
trading exchange. We have also targeted these "exchanges", which
are digital marketplaces attempting to drive substantial
transactions between multiple buyers and multiple sellers
simultaneously. Since this is an emerging market area, our
competitors are made up of numerous companies offering software
with loosely-defined attributes.
We have formed strategic alliances with software developers
and consultants with an installed base of customers fitting our
sales target criteria. See "Strategic Alliances and
Partnerships" on page 6. Our sales effort includes direct sales
tightly coupled with indirect partner sales efforts.
Since our supplier enablement pricing model is based
primarily on a monthly subscription, our ability to scale
revenues will be dependent on our ability to sell to the host's
suppliers.
Sell-Side Demand Management
Our Sell Side Demand Management (SSDM) priority is to team
with strategic partners to bring us qualified leads. We have
recently entered into an agreement with one such source, but the
relationship has not generated significant new business to date,
and there is no assurance that it will ever generate significant
business for us.
We believe that our supplier enablement clients may also be
candidates for the SSDM component of Omnigy. However, we have
not completed any such contracts to date.
CommerceDirect
CommerceDirect (CD) is a sub-set of the SSDM solution,
addressing the original B2C market. CD and SSDM utilize the
identical Omnigy platform, with CD addressing one end of the SSDM
user spectrum. Our primary sales efforts will be focused on SE
and SSDM, with CD sales arising as a byproduct of those sales
efforts.
-5-
Strategic Alliances and Partnerships
- - ------------------------------------
A critical element of our sales and marketing strategies is
to engage in strategic business alliances to assist in marketing,
selling and developing client applications. We believe we will be
able to develop these alliances with well-respected companies in
our chosen marketplaces. For example, in early 2001 we announced
alliances with OrderFusion and CCP. This approach is intended
to: (1) increase the number of personnel available to perform
application design and development services for our clients;
(2) enhance our market credibility, potential for lead generation
and access to large accounts; and (3) provide additional
marketing and technical expertise in certain vertical industry
segments. Our Vice President - Business Partnerships oversees
these activities.
We expect that many of our strategic partners will have
numerous strategic relationships and there can be no assurance
that any of our strategic partners will regard their
relationships with us as significant to their own businesses or
that they will regard it as significant in the future. In
addition, there can be no assurance that any strategic partners
will not pursue other partnerships or relationships or attempt to
develop or acquire products or services that compete with us,
either on their own or in collaboration with others, including
our competitors.
Technology
- - ----------
In May 2000, we terminated the internal development of
Project Mercury, our browser based software platform and
eliminated related software development personnel. At the same
time, we initiated the development of our Omnigy platform.
Omnigy has been developed to provide supply chain solutions on a
hosted basis. Omnigy is an integrated suite of best-of-industry
application software packages combined by and within proprietary
integration and framework. In addition to Omnigy, we are
developing Omnigy.com, which is an Internet portal that makes
supply chain solutions available to a wide number of suppliers of
varying size and technical ability. Omnigy.com is anticipated to
be launched during 2001. The move to the Omnigy platform was
made as a result of management's decision that creating the
combination of a "best of industry" software solution would
result in a superior, more cost effective product than the
complete creation of proprietary software in-house. The write-
off of our browser-based software resulted in a charge to
operations of approximately $1,294,000, and other restructuring
costs, including termination pay, approximated $1,166,000.
Our objective is to ensure that our service solution is
capable of meeting or exceeding industry standards by taking
advantage of new and emerging technologies, although no
assurances can be given that we will be successful in this
regard.
Omnigy focuses on the sell side solution, managing the
complete order transaction and services lifecycle throughout a
client's enterprise. Omnigy provides essential e-commerce supply
chain functions by integrating the best-of-industry software
solutions into a seamless solution. Omnigy.com provides the
Omnigy supply chain solutions through an Internet portal, making
Omnigy available to a wide variety of suppliers in varying size
and technical ability. In addition, Omnigy.com provides a wide
variety of methodologies and tools to assist suppliers in the "on
ramp" to B2B commerce.
The Omnigy components required by our CommerceDirect
customers are operational, available and being used by clients.
The additional components and capabilities to fully support
Supplier Enablement and Sell-Side Demand Management, as well as
the portal for Omnigy.com, are currently in development and
expected to be launched during 2001.
If we are unable, for technical or other reasons, to
complete the development of our Omnigy suite of products and/or
introduce enhancements of existing products and services in a
timely manner in response to changing market conditions or client
requirements, our business, prospects, financial condition and
results of operations will be materially adversely affected.
Competition
- - -----------
The marketplace in which we operate is rapidly growing and
highly fragmented. However, it is also characterized by intense
competition, including companies with financial resources
superior to ours. We believe that we compete with these and our
other competitors on the basis of our technical capabilities,
scope of service, industry experience, past contract performance,
service level and price.
-6-
To a great extent, we compete with different companies in
each of our three identified markets: CommerceDirect (B2C) as
well as Supplier Enablement and Sell-Side Demand Management
(B2B). The overall e-commerce marketplace is rapidly growing and
has attracted, and is expected to continue to attract, a large
number of entrants with products and services in direct
competition with ours. These competitors may offer subsets of
our solutions, for example catalog content creation, or a wider
range of products and services. Additionally, competitors can
also be grouped as to those offering hosted solutions and those
that simply offer software. Our market research has identified
companies that offer somewhat similar products and/or services to
ours. However, because the competitive landscape in the e-
commerce and supply chain solution marketplaces are anticipated
to change dramatically both in the near term and beyond the next
decade, remaining highly fragmented and diverse, it is not
possible for us, at this time, to identify a meaningful list of
direct competitors in our business areas.
We expect to face further competition from new market
entrants and possible alliances between competitors in the
future. Certain of our current and potential future competitors
have greater financial, technical, market and other resources
than we can provide. As a result, these competitors may be able
to respond more quickly to new or emerging technologies and
changes in client requirements or to devote greater resources to
the development, promotion and sales of their services.
There can be no assurance that we will be able to compete
successfully with existing or new competitors or that competition
will not have a material adverse effect on our business,
financial condition and operating results.
Intellectual Property
- - ---------------------
We rely on a combination of copyrights, trademark, service
mark and trade secret laws and contractual restrictions to
establish and protect the proprietary rights of our software and
services. However, we will not be able to protect our
intellectual property if we are unable to enforce our rights or
if we do not detect unauthorized use of our intellectual
property. In addition, these legal protections only provide us
with limited protection. If it becomes necessary to litigate to
enforce our rights, it will be expensive, divert management
resources and may not be adequate to protect our business. Our
inability to protect our proprietary technology could have a
material adverse effect on our business, prospects, financial
condition and results of operations.
We have not filed any United States patent applications with
respect to our order management systems, nor do we have any
patent applications pending. As a result, we currently do not
have patented technology that would preclude or inhibit
competitors from entering our market. Moreover, none of our
technology is patented abroad, nor do we currently have any
international patent applications pending. As of March 31, 2001,
we had not secured registration on any of our service marks in
the United States nor had we pursued registration in any foreign
country. We cannot be certain that any future patents, registered
trademark or registered service marks, if any, will be granted or
that any future patent, trademark or service mark will not be
challenged, invalidated or circumvented, or that rights granted
under any patents, trademarks or service marks that may be issued
in the future will actually provide a competitive advantage to
us.
We generally enter into confidentiality agreements with our
employees and consultants and with our clients and corporations
with whom we have strategic relationships. We attempt to
maintain control over access to and distribution of our software
documentation and other proprietary information. However, the
steps we have taken to protect our technology and intellectual
property may be inadequate. Our competitors may independently
develop technologies that are substantially equivalent or
superior to ours or may have jointly developed such technologies
under agreements giving them co-equal rights to exploit those
technologies.
The Ascendant Solutions, Inc. name and logo, "Omnigy", "The
UBE", "From Click to Consumer" and "The Ultimate Buying
Experience" are trademarks, registered trademarks, service marks
or registered service marks of Ascendant Solutions, Inc.
Employees
- - ---------
As of February 28, 2001, we had a total of 65 employees. Of
the total employees, five were in sales and marketing, eight were
in executive, finance and administration, and fifty-two were in
software development, systems support and customer care. Our
employees are not represented by any collective bargaining unit,
and we have never experienced a work stoppage. We believe our
relations with our employees to be good. From time to time, we
also employ independent contractors to support our professional
services, product development, sales, marketing and business
development organizations.
-7-
Our future success will depend, in part, on our ability to
attract, retain and motivate highly qualified technical and
management personnel for whom competition is intense. As part of
our retention efforts, we work to minimize turnover of key
employees by emphasizing our industry experience, the nature of
our work, our work environment, our encouragement of technical
enhancements and our competitive compensation packages.
-8-
ITEM 2. PROPERTIES
Our headquarters are currently located at a leased facility
in Dallas, Texas, consisting of approximately 24,950 square feet
of office space under a lease expiring in 2006.
Our systems operation center is located in Dallas, Texas
under a sublease in our former call center building. Our
commitment for this space expires on July 31, 2001 when we intend
to complete our transition out of this phase of our business.
See "Business-General" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Overview".
We are obligated under two leases for approximately 169,000
square feet of space that formerly was the site of our office and
warehouse in Garland, Texas. This space has been subleased in
connection with the sale of our warehouse operations. We
maintained approximately 12,000 square feet of this space through
March 15, 2001. Our commitments under these leases expire in
April 2003.
We have also leased an aggregate of approximately 28,000
square feet of space in Garland, Texas for our data processing
personnel and additional warehouse space. This lease expired on
March 31, 2001.
ITEM 3. LEGAL PROCEEDINGS
On April 21, 2000, The Original Honey Baked Ham Company of
Georgia, Inc. (HBH) filed suit against the Company in the United
States District Court of the Northern District of Georgia for
alleged injuries sustained as a result of the Company's alleged
breach of contract. HBH claims it is entitled to compensatory,
incidental and consequential damages in an amount HBH alleges to
be in excess of $10,000,000. The Company has denied any
liability, and in February 2001 filed a counterclaim against HBH
to collect approximately $1,100,000 in outstanding receivables
from HBH. This receivable was fully reserved during the fourth
quarter of 2000. The Company expects discovery in this matter to
begin in the Spring of 2001.
Management has reviewed the terms of the contract and is of
the opinion that the Company has performed as required under
terms of the contract. Management further believes that none of
the claims alleged by the client relate to services actually
performed by the Company and the related billings. Management
believes that the Company has sound defenses against the claims
asserted by the client. Management is unable to ascertain the
ultimate aggregate amount of monetary liability or financial
impact with respect to this matter.
Between January 23, 2001 and February 21, 2001, five putative
class action lawsuits were filed in the United States District
Court for the Northern District of Texas, against Ascendant
Solutions, Inc., certain of its directors, and a limited
partnership of which a director is a partner. The five lawsuits
assert causes of action under Sections 10(b) and 20(a) of the
Securities Exchange Act for an unspecified amount of damages on
behalf of a putative class of individuals who purchased the
Company's common stock between various periods ranging from
November 11, 1999 to January 24, 2000. The lawsuits claim that
the Company and the individual defendants made misstatements and
omissions concerning the Company's products and customers. The
Company denies the plaintiffs' allegations and intends to
vigorously defend the lawsuits.
The Company anticipates that the Court will consolidate the
cases and appoint a lead plaintiff under the provisions of the
Private Securities Litigation Reform Act of 1995 ("Reform Act")
by May 31, 2001. Then, the lead plaintiff will file a
consolidated amended complaint, which may change the allegations
and purported class period, within 60 days of the appointment of
a lead plaintiff. The Company expects to file a motion to
dismiss within 45 days of receipt of the consolidated amended
complaint. It is to early to determine whether these lawsuits
will have any material affect on our future financial position
and results of operations.
-9-
We are also occasionally involved in other claims and
proceedings which are incidental to our business. We cannot
predict what, if any, material adverse effect these proceedings
might have on our future business, financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to our security holders
during the fourth quarter ended December 31, 2000:
* A proposal to redomesticate the Company in Delaware by
merging the Company into a newly created subsidiary
named Ascendant Solutions, Inc.
* A proposal to amend our 1999 Long-Term Incentive Plan
to increase the maximum number of shares underlying
stock options that may be issued to an individual
during any one year period from 50,000 to 450,000.
* A proposal to ratify the grant of stock options to
certain senior executive officers of the Company
exercisable for a total of 1,425,000 shares of common
stock.
All of the above resolutions were passed by a vote of
the shareholders.
-10-
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Prices; Record Holders and Dividends
- - -------------------------------------------
Our stock is listed and trades on The Nasdaq Stock Market's
National Market under the symbol "ASDS." However, see our
discussion under "Other Risks-Our stock may be delisted from the
Nasdaq Stock Market" on page 27 relating to our possible
delisting from the Nasdaq's National Market.
Following is a summary of our stock's quarterly market price
ranges since November 11, 1999 (the first day of trading in our
common stock). The price quotations noted herein represent prices
between dealers, without retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
High Low
------ -----
Period November 11-December 31, 1999 $32.38 $7.94
Fiscal year 2000:
First quarter 19.00 4.50
Second quarter 4.63 1.50
Third quarter 3.31 .69
Fourth quarter 1.44 .22
On March 23, 2000, the last reported sale price of our
common stock on The Nasdaq Stock Market's National Market was
$0.156 per share.
At February 28, 2001, there were approximately 7,000
registered and beneficial holders of record of our common stock.
We have not paid any cash dividends on our common stock and
do not anticipate declaring dividends in the foreseeable future.
Our current policy is to retain earnings, if any, to finance the
expansion of our business. The future payment of dividends will
depend on the results of operations, financial condition, capital
expenditure plans and other factors that we deem relevant and
will be at the sole discretion of our board of directors.
-11-
Use of Proceeds
- - ---------------
(1) On November 10, 1999, the Securities and Exchange
Commission declared effective the Registration Statement
on Form S-1 (File No. 333-85983) relating to our initial
public offering.
(2) The offering date was November 11, 1999.
(3) Not applicable.
(4) (i) The offering has terminated and all of the
securities registered have been sold.
(ii) The managing underwriters were:
* Bear Stearns & Co. Inc.
* Prudential Securities
* Friedman Billing Ramsey
* E*Offering
(iii) Title of class of securities registered:
common stock, par value $0.0001 per share.
(iv) Shares of common stock were sold for the
account of Ascendant Solutions, as follows:
ISSUER
----------
* Amount registered (shares).......... 5,750,000
* Aggregate price of the offering
amount registered..................$46,000,000
* Amount sold (shares)................ 5,750,000
* Aggregate offering price of the
amount sold to date................$46,000,000
(v) From November 10, 1999 (the effective date of
the Registration Statement) to December 31, 2000
(the ending date of this report), we incurred the
following expenses in connection with the issuance
and distribution of the securities sold in our
initial public offering:
* Underwriters' discounts and
commissions.................... $ 3,220,000
* All other expenses............. 900,000
-----------
* Total expenses paid by us...... $ 4,120,000
===========
All of the expenses paid by us were
comprised of direct or indirect payments to
others.
(vi) Net offering proceeds to us: $41,880,000.
-12-
(vii) From November 10, 1999 (the effective
date of the Registration Statement) to
December 31, 2000 (the ending date of this
report), we expended net offering proceeds for the
following uses:
* Construction of plant,
building and facilities...... $ 0
* Purchase and installation
of machinery and equipment... $ 5,072,000
* Purchases of real estate....... $ 0
* Acquisition of other
businesses................... $ 0
* Repayment of indebtedness...... $ 3,740,000
* Working capital................ $17,102,000
* Temporary investments.......... $15,966,000*
All of the payments referenced above were direct or
indirect payments to others.
----------------
* Pending final application of the net proceeds of
the offering, we have invested such proceeds
primarily in cash and cash equivalents.
(viii) Material change in the use of proceeds: Not
applicable.
We have not yet determined the actual use of the proceeds
derived from the offering, and thus cannot estimate the amounts
to be used for each purpose discussed above. The amounts and
timing of these expenditures will vary significantly depending on
a number of factors, including such factors as the amount, if
any, of cash generated by our operations and the market response
to our service offerings. Accordingly, our management will have
broad discretion in the application of the net proceeds. Our
stockholders will not have the opportunity to evaluate the
economic, financial or other information on which we base our
decisions on how to use the proceeds.
-13-
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the financial statements, the notes to such
statements and the information under "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
beginning on page 15 of this report. The statement of operations
data for the period from January 1, 1996 through December 20,
l996; the period from December 21, 1996 through October 13, 1997;
the period from October 14, 1997 through December 31, 1997 and
the years ended December 31, 1998, 1999 and 2000; and the balance
sheet data at December 20, 1996; October 13, 1997; December 31,
1997; December 31, 1998; December 31, 1999 and December 31, 2000
are derived from our audited financial statements. The selected
financial data for all periods ending on or prior to December 31,
1997, include information derived from the order management and
fulfillment business of our predecessors as follows:
Predecessor name Period of operation
- - ------------------------------- ------------------------
Athletic Supply of Dallas, Inc. January 1, 1996 through
December 20, 1996
Athletic Supply of Dallas, LLC December 21, 1996 through
October 13, 1997
ASD Partners, Ltd. October 14, 1997 through
December 31, 1997
The unaudited pro forma net income (loss) information for
the periods ended1 December 20, 1996; October 13, 1997 and
December 31, 1997 reflect a tax provision computed by applying
the anticipated effective tax rate of approximately 37% to pretax
income. The unaudited pro forma basic and diluted net income
(loss) per share information for the periods ended on or prior to
December 31, 1997 have been calculated as if based on the number
of shares of common stock outstanding at January 1, 1998.
-14-
Predecessors
-------------------------------------------
Period from Period from Period from
January 1, December 21, October 14,
1996 through 1996 through 1997 through Year Ended December 31,
December 20, October 13, December 31, -------------------------------------------
1996 1997 1997 1998 1999 2000
------------- ------------- ------------- ------------- ------------- -------------
(in thousands, except per share data)
Statements of Operations Data:
Revenues $ 6,826 $ 4,882 $ 2,574 $ 8,020 $ 12,313 $ 8,405
Cost of revenues 2,094 2,686 1,248 5,051 9,701 5,279
Gross profit 4,732 2,196 1,326 2,969 2,612 3,126
Operating expenses:
Selling, general, and
administrative expenses 2,819 2,649 1,074 4,258 10,035 18,835
Restructuring costs -- -- -- -- -- 2,460
Depreciation and amortization 517 367 252 1,084 1,482 2,473
Total operating expenses 3,336 3,016 1,326 5,342 11,517 23,768
Operating income (loss) 1,396 (820) -- (2,373) (8,905) (20,642)
Loss on sale of assets (481)
Interest income (expense), net -- -- (27) (233) 98 1,589
Net income (loss) $ 1,396 $ (820) $ (27) $ (2,606) $ (8,807) (19,534)
------------ ------------ ------------ ------------ ------------ ------------
Preferred stock dividend (6,000)
Accretion of preferred
stock discount (1,145)
Net loss attributable to
common shareholders $ (15,952) $ (19,534)
============ ============
Basic and diluted net loss
per share (1) $ (0.43) $ (1.39) $ (0.92)
------------ ------------ ------------
Unaudited Pro Forma Data:
Net income (loss) $ 879 $ (820) $ (27)
============ ============ ============
Basic and diluted net income
(loss) per share (1) $ 0.15 $ (0.14) $ (0.01)
============ ============ ============
Shares used in computing basic
and diluted net income (loss)
per share (1) 6,000 6,000 6,000 6,000 11,464 21,173
============ ============ ============ ============ ============ ============
- - ---------------
December 31,
December 20, October 13, ----------------------------------------------------------
1996 1997 1997 1998 1999 2000
------------- ------------- ------------- ------------- ------------- -------------
Balance Sheet Data:
Cash and cash equivalents $ -- $ -- $ 97 $ -- $ 37,278 $ 16,837
Working capital (deficit) 1,126 (1,629) (442) (2,575) 36,995 15,139
Total assets 2,693 1,262 3,624 3,266 44,453 25,482
Long-term debt (including
current maturities) -- -- 1,754 1,360 1,020 680
Division equity (deficit) 2,263 820 -- -- -- --
Partners' capital -- -- 943 -- -- --
Shareholders' equity (deficit) -- -- -- (1,664) 41,048 21,628
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN
CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND OUR FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.
OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW UNDER "RISKS RELATED TO OUR BUSINESS," "RISKS RELATED TO
OUR INDUSTRY" AND "OTHER RISKS." OUR FORWARD-LOOKING STATEMENTS
ARE BASED ON THE CURRENT EXPECTATIONS OF MANAGEMENT, AND WE
ASSUME NO OBLIGATION TO UPDATE THIS INFORMATION. THE CAUTIONARY
STATEMENTS MADE IN THIS REPORT SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS, WHEREVER THEY APPEAR
IN THIS REPORT.
Overview
- - --------
In May 2000, we began transitioning our business to be a
solution service provider ("SSP") offering supply chain solutions
for three business process areas: Supplier Enablement (e-
procurement environment), Sell Side Demand Management and
CommerceDirect. We offer business process expertise and
experience, professional services and outsourced software
solutions that are scalable, leverageable and repeatable.
Through Omnigy, our solutions platform, we offer a seamlessly
integrated Order Management, Fulfillment Management, e-
procurement supplier enablement and Customer Relationship
Management (CRM) system on a cost-effective, hosted basis to
multiple industries.
Our CommerceDirect offering is the continuation of our
previous B2C service model, except we do not provide the call
center and fulfillment services.
On September 28, 2000, the Company announced that it would
transition out of its fulfillment and call center services
operations and concentrate on providing only systems solutions
services.
On December 14, 2000, we completed the sale of our
fulfillment service assets, and on February 1, 2000, we completed
the sale of our call center service assets. See "General"
beginning on page 1. Therefore, we will not have recurring
revenue related to the fulfillment and call center operations in
future years. In addition, certain systems revenue related to
these operations will not continue. We will depend, in the
future, on sales of our SSP products and services to be our
primary source of revenue. See "Factors Affecting Operating
Results" on page 18,"Liquidity and Capital Resources" on page 19
and "Risks related to our business-liquidity and capital
Resources are assured to be adequate" on page 21.
A summary of the direct revenues and costs attributable to
our call center and fulfillment services during the year ended
December 31, 2000 is presented below:
Call Center Fulfillment
----------- -----------
Revenues $ 2,804 $ 1,544
Direct costs 5,010 3,219
---------- ----------
Excess costs over revenues $ (2,206) $ (1,675)
========== ==========
-16-
For the year ended December 31, 2000, the percentage of
total revenues by service category was as follows:
% of Total Revenue
Service Category for FY 2000
--------------------- ------------------
Systems services 47%
Call center services 34
Fulfillment services 18
Other services 1
-------------------
TOTAL 100%
===================
We typically charged on a per-transaction basis for systems
processing, on a per-minute basis for call center services and on
a per-item basis for fulfillment services. Additional fees were
billed for other services. We priced our services based on a
variety of factors including the depth and complexity of the
services provided, the amount of required systems customization,
length of contract and other factors. Our revenues were
recognized as our services were rendered and the majority of our
clients were billed on a weekly basis. Our client contracts can
be cancelled on a 180 or fewer days notice.
Our expenses have been comprised of:
* cost of revenues, which consists primarily of
compensation and related expenses of our call center
and fulfillment center and the variable costs of third-
party call center and fulfillment center services;
* selling, general and administrative, which consists
primarily of compensation and related expenses for
sales, client service and administrative personnel and
software development technicians; occupancy costs;
software development costs; marketing programs; and bad
debt expense; and
* depreciation and amortization expense.
Our order management and fulfillment business was commenced
in January 1995 by Athletic Supply of Dallas, Inc. Athletic
Supply of Dallas, Inc. was a direct marketing cataloger for a
variety of sports merchandise, including licensed sports products
of the National Football League, National Hockey League, National
Basketball Association and Major League Baseball and the Sears
"My Team" catalogs. In January 1995, Athletic Supply of Dallas
began providing order management and fulfillment services
relating to the Craftsman Power and Hand Tool and Home Healthcare
catalogs using the proprietary software that had been developed
for its own catalog operations. On December 20, 1996, Athletic
Supply of Dallas, Inc. was sold, in its entirety, to Genesis
Direct, Inc. On October 14, 1997, ASD Partners, Ltd., a limited
partnership controlled by Norman Charney, acquired all of the
software, the call center and fulfillment center assets and the
Sears contracts previously owned by Athletic Supply of Dallas
from Genesis Direct, Inc. Effective January 1, 1998, ASD
Partners, Ltd. transferred this business to ASD Systems, Inc. in
connection with its conversion into a corporation. On October
19, 2000, shareholders of the Company approved a corporate name
change and redomestication effected by merging ASD Systems, Inc.,
a Texas corporation, into Ascendant Solutions, Inc., a Delaware
corporation and wholly-owned subsidiary of ASD Systems, Inc. The
redomestication merger became effective October 20, 2000.
Results of Operations
- - ---------------------
Comparison of the year ended December 31, 2000 to the year
ended December 31, 1999.
Revenues. Our revenues decreased 32% to $8.4 million for
the year ended December 31, 2000 from $12.3 million for the year
ended December 31, 1999. The decrease in revenue over the period
was due in part to the loss of clients which provided significant
revenue during the year ended December 31, 1999. Specifically,
in 1999, e4L, Inc. and HBH accounted for approximately 22% and
9%, respectively, of our total revenues and two other clients
accounted for an aggregate of 5% of our total revenues for this
period. Sears accounted for 82% of total revenues for the year
ended December 31, 2000 and 54% of total revenues for the year
ended December 31, 1999. However, our overall revenue from Sears
declined by 27% in 2000 compared to 1999, primarily as a result
of lower transaction volume produced by Sears' sales. A majority
of our revenue from Sears will not continue in the future year as
a result of the sale of our call center and fulfillment
operations. Our contracts with Sears for the remaining systems
revenue will terminate on June 30, 2001. Sears has indicated
that they will not renew the contracts. Further, our other call
center and fulfillment revenue has terminated as a result of our
sale of those services. See "--Risks Related to Our Business
- - -`Sears has historically represented a significant majority of
our revenues, but cannot be relied upon in the future as a result
of the sales of our call center and fulfillment operations' and
`The recent sales of the call center and fulfillment operations
will result in the loss of recurring revenues.'"
-17-
Cost of Revenues. Cost of revenues decreased 46% to $5.3
million for the year ended December 31, 2000 from $9.7 million
for the year ended December 31, 1999. The decrease in cost of
revenues resulted primarily from the decrease in sales, the
implementation of cost reduction measures, as well as realizing a
portion of our revenues through higher margin systems business.
As a percentage of revenues, cost of revenues was 63% for the
year ended December 31, 2000 and 79% for the year ended
December 31, 1999.
Selling, General and Administrative Expense. For the year
ended December 31, 2000, our selling, general and administrative
(SG&A), expense was $18.8 million compared to $10.0 million for
the same period of 1999, an increase of 88%. Approximately $3.8
million of this increase in total SG&A expense was associated
with salaries and related benefits, especially in the first two
quarters when we experienced higher than normal staffing levels
in anticipation of revenues that did not materialize. In
addition, approximately $2.8 million of this increase in total
SG&A expense was associated with increased professional and
consulting fees, including legal fees, accounts receivable
reserve and other costs in connection with the HBH litigation,
and $0.7 million in increased marketing and advertising costs,
some of which had been committed in 1999. SG&A expense increased
to 224% of revenues for the year ended December 31, 2000 from 81%
for the year ended December 31, 1999. We anticipate that the
amount of SG&A expense, in absolute dollars, will decrease in
subsequent periods as a result of the sale of our call center and
fulfillment operations as well as additional cost reduction
measures that we have undertaken.
Depreciation and Amortization. For the year ended
December 31, 2000, depreciation and amortization expense was $2.5
million compared to $1.5 million for the same period of 1999, an
increase of 36%. The increase corresponds with the increase in
computer equipment purchased for internal and client use and
amortization of software development costs.
Restructuring costs. In May 2000, we terminated the
internal development of Project Mercury, our browser-based
software platform and eliminated related software development
personnel. In addition, we completed a thorough reorganization
and eliminated other personnel. The write-off of the internal
software development, plus the severance and other costs related
to these events, resulted in restructuring costs of $2.5 million.
Operating Loss. For the year ended December 31, 2000, our
operating loss was $19.5 million compared with $8.9 million for
the year ended December 31, 1999. The significant majority of
this increase in loss is attributable to decreased revenues,
restructuring costs and increased SG&A expenses.
Interest income (expense), net. For the year ended
December 31, 2000 interest income net of expense was
approximately $1.6 million compared to approximately $0.1 million
in net interest income for the prior year. The interest income
for the year ended December 31, 2000 is attributed to a full
year's investment income on remaining proceeds from our initial
public offering (IPO) as compared to related investment income
for less than two months after our IPO in 1999.
Comparison of the year ended December 31, 1999 to the year
ended December 31, 1998.
Revenues. Our revenues increased 54% to $12.3 million for
the year ended December 31, 1999 from $8.0 million for the year
ended December 31, 1998. The increase in revenue over the period
was due primarily to an increase in the number of clients from
six at December 31, 1998 to eight at December 31, 1999. Sears
accounted for 54% of total revenues for the year ended
December 31, 1999 and 84% of total revenues for the year ended
December 31, 1998. Four of our client relationships that
generated revenue during the year ended December 31, 1999 were
terminated. Specifically, for the year ended December 31, 1999,
e4L, Inc. and The Original Honey Baked Ham Company of Georgia,
Inc. accounted for approximately 22% and 9%, respectively, of our
total revenues and two other clients accounted for an aggregate
of 5% of our total revenues for this period.
-18-
Cost of Revenues. Cost of revenues increased 92% to $9.7
million for the year ended December 31, 1999 from $5.1 million
for the year ended December 31, 1998. The increase in cost of
revenues resulted primarily from the addition of call center,
fulfillment center and technical service personnel to support
anticipated growth. As a percentage of revenues, cost of revenues
was 79% for the year ended December 31, 1999 and 63% for the year
ended December 31, 1998.
Selling, General and Administrative Expense. For the year
ended December 31, 1999, our selling, general and administrative,
or SG&A, expense was $10.0 million compared to $4.3 million for
the same period of 1998, an increase of 133%. Approximately $1.2
million of this increase in total SG&A expense was associated
with the salaries and related benefits of additional personnel in
the executive, financial, sales and marketing departments. In
addition, approximately $1.3 million of this increase in total
SG&A expense was associated with increased professional and
consulting fees, approximately $1.5 million in increased bad debt
expense and settlement costs (which related primarily to e4L).
SG&A expense increased to 81% of revenues for the year ended
December 31, 1999 from 53% for the year ended December 31, 1998.
Depreciation and Amortization. For the year ended
December 31, 1999, depreciation and amortization expense was $1.5
million compared to $1.1 million for the same period of 1998, an
increase of 36%. The increase was consistent with the increase in
computer equipment purchased for internal and client use.
Operating Loss. For the year ended December 31, 1999, our
operating loss was $8.9 million compared with $2.4 million for
the year ended December 31, 1998. The significant majority of
this increase in loss was attributable to increased salaries and
related benefits expense. The total increase in expenses was
partially offset by decreases in certain other expenses and the
effect of capitalizing software development costs.
Interest income (expense), net. For the year ended
December 31, 1999 interest income net of expense was
approximately $0.1 million compared to approximately $0.2 million
in net interest expense for the prior year. The interest income
for the year ended December 31, 1999 is attributed to investment
income on proceeds from our initial public offering completed in
the fourth quarter of 1999.
Preferred stock dividend. For the year ended December 31,
1999, a $6.0 million non-cash preferred stock dividend was
recorded. The dividend related to the embedded beneficial
conversion feature of the Series A convertible preferred stock
which was fully converted into common stock in November 1999.
Accretion of preferred stock discount. During the year
ended December 31, 1999, we recorded a total of $1.1 million of
preferred stock accretion. This had the same effect as a dividend
on preferred stock. Of the total, $0.6 million was attributed to
the value placed on the preferential conversion feature of
warrants we issued with the sale of our preferred stock. In
addition, $0.3 million, representing the difference between the
face amount of the Series A convertible preferred stock and the
net funds received, and $0.3 million, representing the difference
between the face amount of the Series B redeemable preferred
stock and the net funds received, were recorded as accretion of
preferred stock.
Factors Affecting Operating Results
- - -----------------------------------
We have experienced significant fluctuations in our results
of operations from quarter to quarter. As a result of these
fluctuations, period-to-period comparison of our operating
results is not necessarily meaningful and should not be relied
upon as an indicator of future performance. We expect our future
operating results to fluctuate. Factors that are likely to cause
these fluctuations include:
* our ability to successfully transition to a supply
chain solution provider;
* demand for and market acceptance of our Omnigy and
Omnigy.com product offerings;
* client acquisition and retention;
* amount of ongoing investments in software development;
* timing and magnitude of other capital expenditures;
* costs relating to the implementation of our software
products, expansion of our operations and the
development and/or acquisition of additional software
applications;
* introduction of new systems and services or
enhancements by us or our competitors;
* the ability to meet the technological demands of our
clients;
* changes in our pricing policies or those of our
competitors;
* economic conditions specific to companies desiring to
conduct significant business over the Internet, as well
as generally; and
* the effect of potential strategic acquisitions or
alliances.
-19-
As a result of these and other factors, our future operating
results may fall below the expectations of securities analysts
and investors. In this event, the price of our common stock could
decrease, perhaps significantly.
Seasonality
- - -----------
Our historical revenues and business have been seasonal. We
do not expect to continue to experience the same trends of
seasonal fluctuation of revenues and operating results in the
future as a result of our business emphasis to market software
solutions only with significant focus on the B2B marketplace. To
a certain extent, we expect our CommerceDirect business to
continue to be seasonally weighted to the Christmas holiday
shopping period.
Liquidity and Capital Resources
- - -------------------------------
Since inception in January 1998, we have financed our
operations principally through funds from the private and public
placement of equity securities. We completed our initial public
offering of 5,750,000 shares of common stock in November 1999,
which yielded net proceeds of approximately $41.9 million. Prior
to the initial public offering, we also supplemented our capital
needs with short-term borrowings under a bank credit facility. As
of December 31, 2000, we had working capital of approximately $15
million as compared to approximately $37 million at December 31,
1999. We expect to collect approximately $1,000,000 during 2001
from the sale of our call center in February 2001.
For the year ended December 31, 2000, net cash used in
operating activities was approximately $15.6 million compared to
approximately $7.2 million for the year ended December 31, 1999.
Our revenue decreased approximately $3.9 million for the year
ended December 31, 2000 as compared to the year ended December
31, 1999. Other significant uses of cash in operations for the
year ended December 31, 2000 include losses associated with our
call center and fulfillment operations. With the sale of our
call center and fulfillment businesses, we anticipate our
operating cash requirements will decrease.
Our capital expenditures amounted to approximately $4.6
million for the twelve months ended December 31, 2000 and
approximately $4.3 million for the twelve months ended
December 31, 1999. For the year ended December 31, 2000, capital
expenditures included software development costs as well as the
purchase of technical equipment.
During 2000, our bank credit agreement, which provided for a
$2,000,000 revolving line of credit, expired. The line was not
renewed. We did not attempt to establish another credit facility
during 2000, and there is no assurance that we will be successful
if we attempt to do so in the future.
We anticipate spending over $6 million in connection with
our Omnigy and Omnigy.com software development and applications
during 2001. Actual capital requirements may vary based upon the
timing and success of the expansion of our operations. In
addition, several factors may affect our capital requirements,
including:
* technological and competitive developments;
* the demand for our systems and services or our
anticipated negative cash flows from operations being
more than anticipated;
* the accuracy of our projections relating to the
development and/or acquisition of software applications
* participation in acquisitions or other strategic
transactions; and
* modifications in the schedule of our marketing plans.
-20-
At December 31, 2000 we had approximately $27.9 million of
federal net operating loss carryforwards available to offset
future taxable income which, if not utilized, will fully expire
in 2020. The future benefit of our net operating loss
carryforwards may be limited as a result of the various ownership
changes that have occurred during 1999. Our total deferred tax
assets have been fully reserved as a result of the uncertainty of
future taxable income. Accordingly, no tax benefit has been
recognized in the periods presented.
The Company has introduced new products and has taken other
steps to increase market acceptance and therefore resulting sales
and revenues during 2001. We believe that our working capital at
December 31, 2000 will be sufficient to meet our operating and
capital expenditure requirements for at least the next 12 months.
However, the execution of our business plan will require
substantial additional capital to fund our working capital needs
(including sales and marketing expenses, lease payments and
capital expenditures), and there can be no assurance that the
Company's projected cash resources will be sufficient to fund the
Company's cash requirements. Accordingly, to remain viable, the
Company must substantially increase revenues, raise additional
capital, and/or substantially reduce its operations. In the
event our plans or assumptions change or prove to be inaccurate,
we may be required to raise additional funds through the issuance
of equity securities, in which case the percentage ownership of
the stockholders of the Company will be reduced, stockholders may
experience additional dilution, or such equity securities may
have rights, preferences or privileges senior to common stock.
Further, there can be no assurance that additional financing will
be available when needed on terms favorable to the Company or at
all. If adequate funds are not available or not available on
acceptable terms, the Company may be unable to develop, enhance,
and market products, retain qualified personnel, take advantage
of future opportunities, respond to competitive pressures, or
continue operations, any of which could have a material adverse
effect on the Company's business, operating results, financial
condition and liquidity.
Collection of Accounts Receivable
- - ---------------------------------
Our net accounts receivable balance was approximately $1.4
million at December 31, 2000. Our receivable of approximately
$1.1 million from HBH with whom we are in litigation at December
31, 2000, was reserved in full in the fourth quarter of 2000. We
believe that all of our billings to our clients have been
appropriate, and will make whatever collection efforts are
necessary to collect in full what is due to us. However, there is
a risk that not all of these amounts will be collected in full
and we have therefore reserved this amount in its entirety at
December 31, 2000. Further, there can be no assurance as to the
outcome of the litigation with HBH, which could continue to
require considerable cost and the diversion of management's
attention from other activities required for the successful
operations of our company.
New Accounting Pronouncements
- - -----------------------------
In December 1999, the SEC staff issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), which provided additional guidance and defined certain
basic criteria necessary for proper revenue recognition. SAB 101,
as deferred by SAB 101B, is effective for the fourth fiscal
quarter of fiscal years beginning after December 15, 1999.
Accordingly, the Company adopted SAB 101 effective October 1,
2000. There was no significant effect as a result of the adoption
on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, and its amendments Statements 137 and
138, in June 1999 and June 2000, respectively (collectively,
FAS 133), which is required to be adopted in years beginning
after June 15, 2000. The Company will be required to adopt FAS
133 effective January 1, 2001. Because the Company has had no
historical use of derivatives, management does not anticipate
that the adoption of the new Statement will have a significant
effect on the Company's financial position or results of
operations.
-21-
In March 1998, the American Institute of Certified public
Accountants issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed for or Obtained for
Internal Use". SOP 98-1 requires all costs related to the
development of internal use of software other than those incurred
during the application development stage to be expensed as
incurred. Costs incurred during the application development stage
are required to be capitalized and amortized over the estimated
useful life of the software. SOP 98-1 was first effective for our
fiscal year ended December 31, 1999. Prior to this date, we
expensed such costs as incurred. As a result of adopting SOP
98-1, we capitalized approximately $4.6 million relating to
internal use software development projects in 2000 and
approximately $0.8 million in 1999. Development costs expensed
in 2000, 1999 and 1998 were approximately $0.8 million, $0.0
million and $1.0 million, respectively.
In May 1999, The Emerging Issues Task Force finalized its
EITF 98-5 Issue, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios", which gives guidance on transactions
involving convertible debt and securities arrangements which
contain beneficial conversion features (as defined). According
to the EITF Issue, embedded beneficial conversion features should
be recognized as dividends with an offset to additional paid-in
capital. Further, according to a Securities and Exchange
Commission interpretive release, any recorded discount on
redeemable convertible preferred stock should also be recorded as
a dividend when the accretion of the discount is recognized. Our
Series A and Series B preferred stock transactions in 1999,
including the beneficial conversion feature of warrants attached
to the preferred stock, required us to record dividends and
accretion totaling $7,146,000.
Risks Related to Our Business
- - -----------------------------
We have a history of losses and negative cash flow and
anticipate continued losses.
Since our formation on January 1, 1998, we have incurred
operating losses and negative cash flow. As of December 31,
2000, we had an accumulated deficit of approximately $38.1
million. In addition, for the periods ended October 13, 1997 and
December 31, 1997, predecessors to the Company also experienced
net losses. We have not achieved profitability and expect to
continue to incur operating losses for the foreseeable future.
We anticipate that our business will generate operating losses
until we are successful in generating significant additional
revenues to support our level of operating expenses. We cannot
assure you that we will ever achieve or sustain profitability or
that our operating losses will not increase in the future. If we
do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis
in the future. To the extent we are unable to achieve
profitability in the future, our business, prospects, financial
condition and results of operations will suffer.
Liquidity and capital resources are not assured to be
adequate.
The Company has introduced new products and has taken other
steps to increase market acceptance and therefore resulting sales
and revenues during 2001. We also expect to collect
approximately $1,000,000 during 2001 from the sale of our call
center in February 2001. However, there can be no assurance that
our projected cash resources will be sufficient to fund our cash
requirements. Accordingly, to remain viable, we must
substantially increase revenues, raise additional capital, and/or
substantially reduce its operations. Thus, we may need to raise
additional funds through the issuance of equity securities, in
which case the percentage ownership of the stockholders of the
Company will be reduced, stockholders may experience additional
dilution, or such equity securities may have rights, preferences
or privileges senior to common stock. Further, there can be no
assurance that additional financing will be available when needed
on terms favorable to the Company or at all. If adequate funds
are not available or not available on acceptable terms, we may be
unable to develop, enhance, and market products, retain qualified
personnel, take advantage of future opportunities, respond to
competitive pressures, or continue operations, any of which could
have a material adverse effect on our business, operating
results, financial condition and liquidity.
-22-
Sears has historically represented a significant majority of
our revenues, but cannot be relied upon in the future.
Sears, Roebuck and Co. and Sears Wish Book, Inc., a
subsidiary of Sears, Roebuck and Co., collectively accounted for
approximately 82% of our gross revenues during the year ended
December 31, 2000 and for approximately 54% for the year ended
December 31, 1999. We have used the term "Sears" throughout this
report to refer to both of these affiliated Sears entities.
"Sears Roebuck" has been used to refer to Sears, Roebuck and Co.
which operates the Craftsman Power and Hand Tool catalog and
"Sears Wish Book" has been used to refer to Sears Wish Book,
Inc., which operates the annual holiday catalog. Our contracts
with Sears Roebuck and Sears Wish Book both expire June 30, 2001.
We have been notified that our agreement with Sears Roebuck and
our arrangement with Sears Wish Book will not be extended beyond
June 30, 2001. This loss of Sears as a client may affect our
relationship with King World Direct, Inc., which is a distributor
of Sears merchandise. The termination by Sears will result in
the loss of an important client reference that could be
instrumental in securing future clients.
Our business is difficult to evaluate because we have an
extremely limited operating history.
We were formed in January 1998 to acquire the order
management and fulfillment business of an affiliated predecessor
entity. During 2000, we discontinued the call center and
fulfillment portions of our business to concentrate on developing
software that is in response to a perceived need in the Internet
procurement marketplace. Accordingly, our current business is
significantly different in focus and scale and therefore has had
an extremely limited operating history, which makes evaluation of
our prospects difficult. In addition, our business prospects and
market are new and unproven. We caution readers of this Form
10-K to consider the risks, uncertainties and difficulties
frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving
markets, including the market of supply chain solutions software
for Internet activities. These risks and difficulties include
our ability to:
* increase awareness of our systems and services;
* offer compelling solutions to our clients' supply chain
and order management requirements;
* implement and improve operational, financial and
management information systems;
* respond effectively to the offerings of competitors;
* expand the scale of our operations to meet client
demands;
* control our software development costs;
* adequately implement our software solutions in client
organizations;
* develop and/or acquire technology that meets the
demands of the marketplace; and
* attract, retain and motivate qualified personnel.
If we fail to adequately address any of these risks or
difficulties, our business would likely suffer and it is likely
that we would not meet our financial projections. We would
expect our business, prospects, operating results and financial
condition to be materially adversely affected if our revenues do
not meet our projections and, in such event, our net losses in a
given period would be even greater than expected.
We are entering into a new business marketplace, and our
quarterly revenues and operating results are difficult to
anticipate.
We expect a substantial portion of our revenues in the
future to come from sources and market areas in which we have
heretofore never participated and therefore we have no operating
history from this line of business. Because of this, period-to-
period comparisons of our results of operations with prior
periods may be inappropriate as indicators of future performance.
-23-
The recent sales of the call center and fulfillment
operations will result in the loss of recurring revenues.
Revenues from our call center and fulfillment operations
amounted to 52% of our total revenues in 2000. We have to date
not replaced these revenues from sales of our new Omnigy and
Omnigy.com software products. Our inability to produce new
revenues will have a significant negative impact on our future
financial condition and results of operations.
Our contracts may be terminated and we may be exposed to
potential liability for actual or perceived failure to
provide required services.
Because our clients will rely on our services to satisfy the
requirements of buying and selling products on Internet
exchanges, we may suffer the loss of client contracts or be
exposed to potential claims for damages caused to an enterprise,
including special or consequential damages, as a result of an
actual or perceived failure of our services. For example, we
believe that the termination by HBH was caused by, among other
things, lower than expected customer satisfaction levels. Our
failure or inability to meet a client's expectations in the
performance of our services or to do so in the time frame
required by the client, regardless of our responsibility for the
failure, could:
* result in a claim for substantial damages against us by
the client;
* discourage other clients from engaging us for these
services;
* damage our business reputation, and
* have a material adverse effect on our business,
prospects, financial condition and results of
operations.
We cannot predict the outcome of any potential legal claims.
We may not be able to satisfy the unique and sophisticated
requirements of our clients.
If we experience difficulties in meeting the needs of our
clients, our business will suffer. Our primary target market,
consisting of large (Fortune 1000) companies that wish to
purchase their products using the Internet, has unique and
sophisticated requirements. Accordingly, our Omnigy software
application may not fit exactly into a new client's operations
and we may be required to customize the software, generally
within a relatively short time frame. Although we believe that
we can be successful in the timely implementation of our systems
to meet the specific needs of our clients, there may be
situations where we are unable or unwilling to customize or
modify our systems to meet these requirements. This could have a
material adverse effect on our business, prospects, financial
condition and results of operations.
Failure of our computer and communications systems could
result in our failure to provide timely and error-free
services to our clients.
Our success largely depends on the efficient and
uninterrupted operation of our computer and communications
hardware and software systems. Our systems and operations may be
vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, the occurrence of
significant human error or similar events. We do not currently
have a formal disaster recovery plan and our business
interruption insurance may be insufficient to compensate us for
losses that may occur. We generally do not maintain redundant
systems. We have contracted with a third party hosting facility
to outsource much of our anticipated storage capacity needs, but
we have no experience in doing this. Any loss of data or our
inability to provide timely and error-free services to our
clients and/or the occurrence of any of the other foregoing risks
could have a material adverse effect on our business, prospects,
financial condition and results of operations.
-24-
If we are unable to respond to rapid changes in technology,
our solution could become obsolete and revenues could be
lost.
The market for Supply Chain Solutions and CommerceDirect
services is characterized by rapid technological change, frequent
new systems enhancements, evolving industry standards and rapidly
changing client requirements. The introduction of systems
incorporating new technologies and the emergence of new industry
standards could render existing systems obsolete which could
ultimately result in lost revenues. Our future success will
depend, in part, on our ability to anticipate changes, enhance
our current systems, develop or acquire, through license or
otherwise, technology solutions from third parties, and/or
introduce new systems that keep pace with technological
advancements and address the increasingly sophisticated needs of
our clients. New systems or enhancements to existing systems may
not adequately meet the requirements of our current and
prospective clients and may never achieve any degree of
significant market acceptance. Even if we successfully address
all of these challenges, we must then work with our current
clients to transition them to any new technology, which could
also create a risk of business disruption.
Our success depends on our ability to protect our
proprietary technology.
We rely on a combination of copyright, trademark, service
mark and trade secret laws and contractual restrictions to
establish and protect the proprietary rights in our software and
services. However, we will not be able to protect our
intellectual property if we are unable to enforce our rights or
if we do not detect unauthorized use of our intellectual
property. In addition, these legal protections only provide us
with limited protection. If it becomes necessary to litigate to
enforce our rights, it will be expensive, divert management
resources and may not be adequate to protect our business. Our
inability to protect our proprietary technology could have a
material adverse effect on our business, prospects, financial
condition and results of operations.
We have not filed any United States patent applications with
respect to our systems, nor do we have any patent applications
pending. As a result, we currently do not have patented
technology that would preclude or inhibit competitors from
entering our market. Moreover, none of our technology is
patented abroad, nor do we currently have any international
patent applications pending. As of March 31, 2001, we had
secured registration on certain of our service marks in the
United States, but we had not pursued registration in any foreign
country. We cannot be assured that future patents, registered
trademarks or registered service marks, if any, will be granted
or that any future patent, trademark or service mark will not be
challenged, invalidated or circumvented, or that rights granted
under any patents, trademarks or service marks that may be issued
in the future will actually provide a competitive advantage to
us.
We generally enter into confidentiality agreements with our
employees and consultants and with our clients and corporations
with whom we have strategic relationships. We attempt to
maintain control over access to and distribution of our software
documentation and other proprietary information. However, the
steps we have taken to protect our technology and intellectual
property may be inadequate. Our competitors may independently
develop technologies that are substantially equivalent or
superior to ours or may have jointly developed such technologies
under agreements giving them co-equal rights to exploit those
technologies.
Our success depends on retaining our key personnel and
attracting additional personnel, particularly in the areas
of software development and implementation.
We depend on a limited number of executive officers and
senior management personnel. Consequently, our success will
depend largely on our ability to retain and incentivize them.
Our business may be adversely affected if the services of any one
or more of our key personnel become unavailable to us. As of
March 31, 2001 we have entered into employment agreements with
certain key personnel. Even with these employment agreements,
there is a risk that these individuals will not continue to serve
for any particular period of time. We have not obtained a key
person life insurance policy on the lives of any of our key
officers.
We may add additional groups of key personnel particularly
in our software development and implementation organizations.
Hiring technical personnel is very competitive in our industry
because of the limited number of people available with the
necessary technical skills and understanding of our systems and
services. Our inability to attract, train or retain the number
of highly qualified technical services personnel that our
business needs, or the inability to hire qualified outside
consultants to perform these tasks, may cause our business and
prospects to suffer.
-25-
If we are successful in implementing our new business plan,
we may add additional groups to perform implementation services
quickly and efficiently. We anticipate the need to engage
outside consultants to satisfy the requirements of our
implementation schedule. The failure to engage qualified
consultants at reasonable rates could seriously damage our
reputation and ability to secure further sales.
The integration of officers and key new employees into our
management team may interfere with our operations.
We intend to hire certain key employees and officers to
support our business growth. To integrate into our company, such
individuals must spend a significant amount of time learning our
business model and management system, in addition to performing
their regular duties. If we fail to complete this integration in
an efficient manner, our business and prospects will suffer.
If we fail to properly manage our future growth, our
business could be adversely affected.
Assuming the successful implementation of our new business
plan, we intend to expand our operations to pursue existing and
potential market opportunities. If we do not manage the growth
of our business effectively, our results of operations or
financial condition would be materially adversely affected.
Rapid growth places significant demands on our management and
operational resources. In order to manage our growth
effectively, we must continue to invest in our systems and
continue to expand, train and manage our work force.
Risks Related to Our Industry
- - -----------------------------
We cannot accurately predict the size of our market, and if
our market is not as large as we expect, our business
prospects will suffer.
Our business was originally developed to manage the commerce-
related operations of direct marketing companies. We are
currently transitioning our business to meet the growing demands
of companies seeking to automate their buying and selling of
products via the Internet. Further, we believe that much of our
future growth, if any, will come from companies desiring Internet-
based commerce solutions. Accordingly, our growth will largely
depend on the development and widespread acceptance of the
Internet as a medium for commerce. Use of the Internet by
companies as well as consumers is at an early stage of
development, and market acceptance of the Internet as a medium
for commerce is subject to a high level of uncertainty. Our
estimates of the size of our market or the potential demand for
our services may turn out to be inaccurate. If use of the
Internet as a medium for commerce stops growing, our business
prospects will be harmed.
Our systems and services will need to achieve widespread
market acceptance for us to succeed.
Even if the Internet grows at the rate we anticipate, our
systems and services must achieve widespread market acceptance
for us to succeed. We believe that our potential to grow and
increase our market acceptance depends principally on the
following factors, some of which are beyond our control:
* our ability to develop or otherwise acquire a
technology solution that meets with widespread market
acceptance;
* the differentiation and quality of our systems and
services;
* the extent of outside consultants to provide
implementation services;
* our ability to provide timely and effective client
support;
* our pricing strategies as compared to our competitors;
* our industry reputation;
* the effectiveness of our marketing strategy;
* concerns about transaction security;
* our ability to locate, negotiate, close and integrate
strategic acquisitions and/or alliances; and
* general economic conditions, such as downturns in the
systems markets.
-26-
The failure of our systems and services to achieve
widespread market acceptance could have a material adverse effect
on our business, prospects, financial condition and results of
operations.
The relationships with our clients would likely be
compromised if our security measures were to fail.
The relationships with our clients may be adversely affected
if the security measures that we use to protect their proprietary
or confidential information, such as sales information, or the
confidential information of their customers, such as credit card
numbers, are ineffective. 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. In addition, security breaches could expose us to a
risk of litigation and possible liability. Our security measures
may be inadequate to prevent security breaches, and our business
would be harmed if we do not prevent them.
Government regulation and legal uncertainties could increase
the cost and add additional burdens to our doing business on
the Internet.
Due to the increasing popularity of the Internet, laws and
regulations applicable to Internet communications, commerce,
advertising and direct marketing are becoming more prevalent.
The adoption or modification of such laws or regulations could
inhibit the growth of Internet use and decrease the acceptance of
the Internet as a communications and commercial medium, which
could have a material adverse effect on our business, results of
operations and financial condition.
Further, because of the global nature of the Internet,
governments of states or foreign countries may attempt to
regulate Internet transmissions. We cannot be certain that
violations of domestic or foreign laws or regulations will not be
alleged by applicable governments or that we will not violate
such laws or regulations or new laws or regulations will not be
enacted in the future. Moreover, the applicability of existing
laws or regulations governing issues such as intellectual
property ownership, libel, consumer protection, personal privacy,
taxation, quality of services, and distribution is uncertain
regarding the Internet. Legal compliance may prove difficult for
us and may harm our business, operating results and financial
condition.
Other Risks
- - -----------
Our stock will continue to be subject to substantial price
and volume fluctuations resulting from a number of factors,
some of which are beyond our control.
Throughout 2000, our stock price steadily declined to a
value of under $1.00 at December 31, 2000. Stock prices and
trading volumes for many Internet-related companies have
fluctuated and declined during that period for a number of
reasons, including some reasons that may be unrelated to their
businesses or results of operations. This market volatility, as
well as general domestic or international economic, market and
political conditions, could materially adversely affect the price
of our common stock in the future without regard to our operating
performance. In addition, our operating results may be below the
expectations of public market analysts and investors. If this
were to occur, it may be difficult for our stock price to
increase to an amount considered adequate for investors.
Our stock may be delisted from the Nasdaq Stock Market.
We received a Nasdaq Staff Determination on March 27, 2001
that the Company failed to comply with the minimum bid price
requirement for continued listing set forth in Marketplace Rule
4450(a)(b), and that its securities are, therefore subject to
delisting from The Nasdaq National Market. Further, on March 16,
the Company received notification from Nasdaq that it failed to
meet the Market Value of Public Float requirement for continued
listing also set forth in Marketplace Rule 4450(a)(b) and that
the Company has until June 14, 2001 to comply with this
requirement.
-27-
We have requested a hearing before a Nasdaq Listing
Qualifications Panel to review the Staff Determination. The
hearing date has been set for May 11, 2001, and our stock will
continue to trade on The Nasdaq National Market pending the
Panel's decision. There can be no assurance the Panel will
grant our request for continued listing or that we will be
able to timely comply with the various maintenance
requirements for continued listing. If we are unable to reach
a successful conclusion with regard to continued listing on
The Nasdaq National Market, we intend for our stock to be
traded via the OTC Bulletin Board(RegisteredTrademark) (OTCBB).
The inability to maintain listing of our stock on the Nasdaq
National Market would likely adversely affect the ability or
willingness of investors to purchase our stock. In addition, the
market liquidity of our securities would likely be severely
affected.
We are currently in litigation and may be subject to
additional litigation in the future.
We have been sued by a former client for alleged non-
performance under our contract, and we have been sued in class
actions relating to the disclosure in our initial public offering
(see Item 3: Legal Proceedings). In the future we may again be
the target of similar litigation. Our current litigation, plus
any future claims, with or without merit, may result in
substantial costs and divert management's attention and
resources, which may seriously harm our business, prospects,
financial condition and results of operations and may also harm
our reputation, all of which may have a material adverse effect
on our stock price.
We have anti-takeover defenses that could delay or prevent a
takeover that shareholders may consider favorable.
Certain provisions of our amended and restated articles of
incorporation and bylaws and the provisions of Delaware law could
have the effect of delaying, deterring or preventing an
acquisition of Ascendant Solutions. For example, our board of
directors is divided into three classes to serve staggered three-
year terms, we may authorize the issuance of "blank check"
preferred stock, our shareholders may take action only by a vote
at a meeting or by unanimous written consent, and our
shareholders are limited in their ability to make proposals at
shareholder meetings.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We currently do not engage in commodity futures trading or
hedging activities and do not enter into derivative financial
instrument transactions for trading or other speculative
purposes. We also do not currently engage in transactions in
foreign currencies or in interest rate swap transactions that
could expose us to market risk.
We may be exposed, in the normal course of doing business,
to market risk through changes in interest rates. We currently
minimize such risk by investing our temporary cash primarily in
repurchase obligations collateralized by commercial mortgages. As
a result, we do not believe that we have a material interest rate
risk to manage.
-28-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
ASCENDANT SOLUTIONS, INC.
Report of Independent Auditors........................ 30
Balance Sheets as of December 31, 2000 and 1999....... 31
Statements of Operations for the Years Ended
December 31, 200, 1999 and 1998..................... 32
Statements of Stockholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998.............. 33
Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.................... 34
Notes to Financial Statements......................... 35-45
-29-
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Ascendant Solutions, Inc.
We have audited the accompanying balance sheet of Ascendant
Solutions, Inc. (the "Company") as of December 31, 2000 and
1999, and the related statements of operations, stockholders
equity and cash flows for the years ended December 31, 2000,
1999 and 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 financial position
of Ascendant Solutions, Inc. at December 31, 2000 and 1999, and
the results of its operations and its cash flows for the years
ended December 31, 2000, 1999 and 1998, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Dallas, Texas
March 19, 2001
-30-
ASCENDANT SOLUTIONS, INC.
BALANCE SHEETS
(000'S omitted, except per share amounts)
December 31,
----------------------------
Assets 2000 1999
------------- -------------
Current assets:
Cash and cash equivalents $ 16,837 $ 37,278
Accounts receivable, less allowance for doubtful accounts of
$1,254 at December 31, 2000 and $100 at December 31, 1999 1,376 2,378
Prepaid expenses 440 64
----------- -----------
Total current assets 18,653 39,720
Property and equipment, net 5,781 4,680
Assets held for sale 1,000 -
Other assets 48 53
----------- -----------
Total assets $ 25,482 $ 44,453
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,583 $ 1,648
Accrued liabilities 1,211 737
Deferred revenue 380 -
Current portion of long-term debt 340 340
----------- -----------
Total current liabilities 3,514 2,725
Long-term debt 340 680
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value:
Authorized shares--7,500,000
Issued and outstanding-none - -
Class A common stock, $0.0001 par value:
Authorized shares--50,000,000
Issued and outstanding shares-21,230,900 at
December 31, 2000 and 21,097,400 at
December 31, 1999 2 2
Class B common stock, $.0001 par value:
Issued and outstanding-none - -
Additional paid-in capital 59,718 59,604
Accumulated deficit (38,092) (18,558)
----------- -----------
Total stockholders' equity 21,628 41,048
----------- -----------
Total liabilities and stockholders' equity $ 25,482 $ 44,453
=========== ===========
-31-
ASCENDANT SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(000'S omitted, except per share amounts)
Year Ended December 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
Revenues $ 8,405 $ 12,313 $ 8,020
Cost of revenues 5,279 9,701 5,051
--------- --------- ---------
Gross profit 3,126 2,612 2,969
Operating expenses:
Selling, general, and administrative expenses 18,835 10,035 4,258
Depreciation and amortization 2,473 1,482 1,084
Restructuring Costs 2,460 - -
--------- --------- ---------
Total operating expenses 23,768 11,517 5,342
--------- --------- ---------
Operating income (loss) (20,642) (8,905) (2,373)
Interest income (expense), net 1,589 98 (233)
Loss on sale of assets (481) - -
--------- --------- ---------
Net loss (19,534) (8,807) (2,606)
Preferred stock dividend - (6,000) --
Accretion of preferred stock discount - (1,145) --
--------- --------- ---------
Net loss attributable to common shareholders $ (19,534) $ (15,952) $ (2,606)
========= ========= =========
Basic and diluted net loss per share $ (0.92) $ (1.39) $ (0.43)
========= ========= =========
Shares used in computing basic and diluted
net loss per share 21,173 11,464 6,000
========= ========= =========
-32-
ASCENDANT SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(000'S omitted)
Series A Common Stock Total
Convertible Class A Additional Stockholders
Partners' Preferred -------------------------- Paid-in Accumulated Equity
Capital Stock Shares Amount Capital Deficit (Deficit)
------------ ------------ ------------ ------------ ------------ ------------- -------------
Balance at December 31, 1997 $ 943 -- -- -- -- -- --
===========
Conversion from a partnership
to a corporation through the
issuance of common stock -- 6,000 1 942 -- 943
Net loss -- -- -- -- (2,606) (2,606)
----------- ----------- ----------- ----------- ------------ ------------
Balance at December 31, 1998 -- 6,000 1 942 (2,606) (1,663)
Issuance of common stock in a
private transaction -- 4,500 -- 4,145 -- 4,145
Issuance of series A convertible
preferred stock 5,745 -- -- -- -- 5,745
Issuance of warrants -- -- -- 636 (636) --
Issuance of common stock in a
public offering -- 5,750 1 41,882 41,883
Conversion of series A convertible
stock to common stock (5,745) 2,250 -- 6,000 (255) --
Preferred stock dividend resulting
from beneficial conversion 6,000 (6,000) --
Accretion of preferred stock
discount (255) (255)
Conversion of warrants into common
stock -- 2,597 -- (1) (1)
Net loss -- -- -- -- (8,806) (8,806)
----------- ----------- ----------- ----------- ------------ ------------
Balance at December 31, 1999 $ -- 21,097 $ 2 $ 59,604 $ (18,558) $ 41,048
Exercise of options 134 -- 134 134
Cashless exercise of warrants -- -- (20) (20)
Net loss (19,534) (19,534)
----------- ----------- ----------- ----------- ------------ ------------
Balance at December 31, 2000 $ -- 21,231 $ 2 $ 59,718 $ (38,092) $ 21,628
=========== =========== =========== =========== ============ ============
-33-
ASCENDANT SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(000'S omitted, except per share amounts)
Year Ended December 31,
------------------------------------
2000 1999 1998
----------- ---------- -----------
Operating Activities
Net Loss $ (19,534) $ (8,807) $ (2,606)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,473 1,482 1,084
Provision for doubtful accounts 1,154 50 50
Write-off of accounts receivable - 1,528 -
Changes in operating assets and liabilities:
Accounts receivable (151) (2,622) (626)
Prepaid expenses and other assets (372) (63) (33)
Accounts payable (65) 952 202
Accrued liabilities 472 264 (47)
Deferred Revenue 380 - -
----------- ---------- -----------
Net cash (used in) operating activities (15,643) (7,216) (1,976)
----------- ---------- -----------
Investing Activities
Purchases of property and equipment (4,572) (4,284) (181)
Cash required through stock issuances - - 97
----------- ---------- -----------
Net cash (used in) investing activities (4,572) (4,284) (84)
----------- ---------- -----------
Financing Activities
Borrowings (payments) on revolving line of credit - (2,400) 2,400
Proceeds from issuances of common stock - 46,028 -
Exercise of stock options and warrants 114 - -
Net proceeds from issuance of series A convertible
preferred stock - 5,745 -
Net proceeds from issuance of series B mandatorily
redeemable preferred stock - 5,745 -
Redemption of series B mandatorily redeemable
preferred stock - (6,000) -
Borrowings of long-term debt - 1,796 -
Payments of long-term debt (340) (2,136) (340)
----------- ---------- -----------
Net cash provided by (used in) financing activities (226) 48,778 2,060
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (20,441) 37,278 -
Cash and cash equivalents at beginning of year 37,278 - -
----------- ---------- -----------
Cash and cash equivalents at end of year 16,837 $ 37,278 $ -
=========== ========== ===========
Noncash Investing and Financing Activities:
Assets acquired under capital leases - $ - $ 33
=========== ========== ===========
Preferred stock dividends - $ (6,000) -
=========== ========== ===========
Accretion of preferred stock discount - $ (1,146) -
=========== ========== ===========
-34-
ASCENDANT SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Description of Business
-----------------------
Ascendant Solutions, Inc. ("Ascendant" or the "Company") is
a solution service provider ("SSP") offering supply chain
solutions for three business process areas: Supplier Enablement
(e-procurement environment), Sell Side Demand Management and
CommerceDirect. The Company offers professional services and
outsourced software. Omnigy, the Company's solutions platform,
provides an order management, fulfillment management, e-procure
supplier enablement and customer relationship management (CRM)
system on a hosted basis to multiple industries.
The Company has introduced new products and has taken other steps
to increase market acceptance and therefore resulting sales and
revenues during 2001. We also expect to collect approximately
$1,000,000 during 2001 from the sale of the Company's call center
assets in February 2001. Management of the Company believes that
working capital at December 31, 2000 will be sufficient to meet
the Company's operating and capital expenditure requirements for
at least the next 12 months. However, the execution of the
Company's business plan will require substantial additional
capital to fund our working capital needs (including sales and
marketing expenses, lease payments and capital expenditures), and
there can be no assurance that the Company's projected cash
resources will be sufficient to fund the Company's cash
requirements. Accordingly, to remain viable, the Company must
substantially increase revenues, raise additional capital, and/or
substantially reduce its operations. In the event that plans or
assumptions change or prove to be inaccurate, the Company may be
required to raise additional funds through the issuance of equity
securities, debt or other sources of financing. There can be no
assurance that additional financing will be available when needed
on terms favorable to the Company or at all. If adequate funds
are not available or not available on acceptable terms, the
Company may be unable to develop, enhance, and market products,
retain qualified personnel, take advantage of future
opportunities, respond to competitive pressures, or continue
operations, any of which could have a material adverse effect on
the Company's business, operating results, financial condition
and liquidity.
Management believes the cash on hand will enable the Company to
continue to meet its current debt and other obligations.
Business Formation and Background
---------------------------------
On October 19, 2000, shareholders of the Company approved a
corporate name change and redomestication effected by merging ASD
Systems, Inc., a Texas corporation, into Ascendant Solutions,
Inc., a Delaware corporation and wholly-owned subsidiary of ASD
Systems, Inc. The redomestication merger became effective
October 20, 2000.
The Company was formed as a Texas corporation January 1,
1998 by the issuance of 6,000,000 shares of Series A Common Stock
to ASD Partners, Ltd., a Texas limited partnership (the
"Partnership") in exchange for substantially all of the assets
and liabilities of the Partnership. The transaction was recorded
as a merger of companies under common control similar to a
pooling. The recorded value of the total assets acquired and
liabilities assumed amounted to $3,624,187 and $2,681,270,
respectively.
-35-
The Partnership was formed effective October 14, 1997 to
purchase certain assets (including software, call center and
fulfillment facilities) and assume certain liabilities of
Athletic Supply of Dallas, LLC, a wholly owned subsidiary of
Genesis Direct, Inc. ("Genesis"), for $2,700,000. The
Partnership funded the acquisition by (1) issuing a promissory
note for $1,700,000 to Genesis and (2) causing the majority
partner of the Partnership and former employee of Athletic Supply
of Dallas, LLC to forgive $1,000,000 of a note receivable due
from Genesis. The original note due to the majority partner of
the Partnership was for approximately $3,400,000 with an interest
rate of 6.35%. The forgiveness of the $1,000,000 represents the
September 1997, June 1998 and March 1999 payments due on the note
which were canceled. The forgiveness was recorded as a
contribution to the Partnership. This acquisition was recorded
as a purchase.
Initial Public Offering
-----------------------
In November 1999, the Company completed its initial public
offering (the "IPO") of 5,750,000 shares (including the
underwriters' overallotment) of its common stock at $8.00 per
share. Net proceeds to the Company aggregated approximately
$41,883,000. As of the closing date of the IPO, all of the
Series A convertible preferred stock outstanding was converted
into 2,250,000 shares of common stock (See note 11).
Reclassifications
-----------------
Certain amounts have been reclassified from prior years'
classifications to conform with the current year's presentation.
Cash and Cash Equivalents
-------------------------
The Company classifies all highly liquid investments with
original maturities of three months or less to be cash
equivalents. Cash equivalents are stated at cost, which
approximates fair value.
Concentration of Credit Risk
----------------------------
At December 31, 2000 and 1999, 56% and 27%, respectively, of
accounts receivable were due from one customer. The Company
generally does not require collateral. The Company maintains an
allowance for doubtful accounts for potential credit losses.
The Company's allowance for bad debts was $1,254,000 and
$100,000 at December 31, 2000 and 1999, respectively. The
Company recorded a provision for doubtful accounts of $1,154,000
in 2000 and $50,000 in each of the years 1999 and 1998. The
Company wrote off receivables of $1,527,715 during 1999. There
were no write-offs of receivables during 2000 or 1998.
Significant Customers
---------------------
During 2000, 1999 and 1998 the Company provided services to
two major clients, which are related through common control.
Sales to the combined entities amounted to 82%, 54%, and 84% for
the years ended December 31, 2000, 1999 and 1998, respectively.
Accounts receivable due from the combined entities amounted to
56% and 27% of total receivables at December 31, 2000 and 1999,
respectively.
The Company's current contracts with the customers expire in
June 2001. Management of the Company does not expect these
contracts to be renewed.
-36-
Property and Equipment
----------------------
Property and equipment are stated at cost. Equipment
acquired under capital leases is stated at the lower of the
present value of future minimum lease payments or fair value of
the equipment at the inception of the lease. Depreciation and
amortization of property and equipment, other than leasehold
improvements, are provided over the estimated useful lives of the
assets (ranging from three to seven years) using the straight-
line method. Leasehold improvements are amortized on a straight-
line basis over the shorter of the respective lease term or
estimated useful life of the asset. See discussion of sale of
assets in Note 3.
Revenue Recognition
-------------------
Revenues relate primarily to order management and
fulfillment services and have been recognized on a per
transaction basis as the services were rendered.
Cost of revenues has consisted primarily of direct labor
costs for providing order management and fulfillment services
and, to a lesser extent, the cost of contracting for third party
call center and fulfillment center services.
Software Development
--------------------
Software development costs were expensed as incurred through
December 31, 1998. Since January 1, 1999, with the adoption of
SOP 98-1 as discussed in note 4, software application development
costs have been capitalized.
Advertising Costs
-----------------
Product advertising costs are expensed as incurred. Amounts
expensed were approximately $840,000, $366,000 and $100,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.
Use of Estimates
----------------
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
financial statements and accompanying notes. Actual results
could differ from those estimates.
Income Taxes
------------
Since its incorporation on January 1, 1998, the Company has
accounted for income taxes under the liability method.
Long-Lived Assets
-----------------
The Company evaluates the carrying values of long-lived
assets to determine if the facts and circumstances suggest that
they may be impaired. If this review indicates that long-lived
assets will not be recoverable, as determined based on the
undiscounted cash flows of the entity over the remaining
amortization period, the carrying value of the long-lived assets
will be reduced accordingly based on discounted cash flow
analyses.
Net Loss Per Share
------------------
Basic and diluted net loss per share is computed based on
the loss applicable to common shareholders divided by the
weighted average number of shares of common stock outstanding
during each period. Potentially dilutive securities consisting
of warrants and stock options were not included in the
calculation as their effect is antidilutive. If the Company had
reported net income for the years ended December 31, 2000 and
1999 the dilutive shares calculation would have included 0 and
1,734,000 additional shares, respectively, before applying the
treasury stock method. The number of dilutive shares resulting
from assumed conversion of stock options would be determined by
using the treasury stock method.
-37-
Stock Based Compensation
------------------------
The Company has elected to follow Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees," in accounting for its employee stock options and
stock based awards. Under APB 25, if the exercise price of an
employee's stock option equals or exceeds the market price of the
underlying stock on the date of the grant, no compensation
expense is recognized. The additional disclosures required under
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock Based Compensation," are included in note
12.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments include cash, accounts
receivable, accounts payable, loans payable and capital lease
obligations that are carried at cost which approximates fair
value.
Effects of New Accounting Pronouncements
----------------------------------------
In December 1999, the SEC staff issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), which provided additional guidance and defined certain
basic criteria necessary for proper revenue recognition. SAB 101,
as deferred by SAB 101B, is effective for the fourth fiscal
quarter of fiscal years beginning after December 15, 1999.
Accordingly, the Company adopted SAB 101 effective October 1,
2000. There was no significant effect as a result of the adoption
on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, and its amendments Statements 137 and
138, in June 1999 and June 2000, respectively (collectively,
FAS 133), which is required to be adopted in years beginning
after June 15, 2000. The Company will be required to adopt FAS
133 effective January 1, 2001. Because the Company has had no
historical use of derivatives, management does not anticipate
that the adoption of the new Statement will have a significant
effect on the Company's financial position or results of
operations.
In March 1998, the American Institute of Certified public
Accountants issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed for or Obtained for
Internal Use". SOP 98-1 requires all costs related to the
development of internal use of software other than those incurred
during the application development stage to be expensed as
incurred. Costs incurred during the application development stage
are required to be capitalized and amortized over the estimated
useful life of the software. SOP 98-1 was first effective for our
fiscal year ended December 31, 1999. Prior to this date, we
expensed such costs as incurred. As a result of adopting SOP
98-1, we capitalized approximately $4.6 million relating to
internal use software development projects in 2000 and
approximately $0.8 million in 1999. Development costs expensed
in 2000, 1999 and 1998 were approximately $0.8 million, $0.0
million and $1.0 million, respectively.
In May 1999, The Emerging Issues Task Force finalized its
EITF 98-5 Issue, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios", which gives guidance on transactions
involving convertible debt and securities arrangements which
contain beneficial conversion features (as defined). According
to the EITF Issue, embedded beneficial conversion features should
be recognized as dividends with an offset to additional paid-in
capital. Further, according to a Securities and Exchange
Commission interpretive release, any recorded discount on
redeemable convertible preferred stock should also be recorded as
a dividend when the accretion of the discount is recognized. Our
Series A and Series B preferred stock transactions in 1999,
including the beneficial conversion feature of warrants attached
to the preferred stock, required us to record dividends and
accretion totaling $7,146,000.
-38-
2. Modification of services
During 2000, the Company announced its intention to modify
its service offering by concentrating solely on a new software
platform identified as Omnigy. Certain clients have been
converted from the Company's previous software platform, Lynx,
and this transition is expected to be complete by June 30, 2001.
Costs relating to Lynx have been completely amortized. See Note
3 for a summary of the sales of the assets related to the
services which the Company has discontinued.
Through December 31, 2000 costs of approximately $4,933,000
were incurred to develop Omnigy, and the Company expects to incur
approximately $6,000,000 in additional costs in 2001 to complete
the initial development of the platform.
The Omnigy platform has been designed for a different client
base than was serviced by the Lynx platform. While a version of
Omnigy will continue to be marketed to "business to consumer"
clients, the Company expects a substantial portion of Omnigy
related services will be sold to "business to business"
enterprises. As of December 31, 2000, Omnigy was still in
development and the Company had not completed the sale of Omnigy
services to any "business to business" clients.
3. Sale of Assets
On September 28, 2000, the Company announced that it would
transition out of its fulfillment and call center services
operations and concentrate on providing only systems solutions
services.
On December 14, 2000, the Company completed the sale of its
fulfillment service assets, and on February 1, 2000, the Company
completed the sale of its call center service assets. Details of
the transactions follow:
Fulfillment Call Center
Services Services
----------- -----------
Carrying value of net assets sold $ 167,000 $ 1,397,000
Net sales price 83,000 1,000,000
---------- -----------
Loss on sale $ 84,000 $ 397,000
========== ===========
The loss on the sale of assets has been recorded in the
statement of operations and the call center assets are carried on
the balance sheet at December 31, 2000 at their net realizable
value based on the February 2000 sale.
4. Software Development Costs
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 (SOP 98-1),
"Accounting For the Costs of Computer Software Developed For or
Obtained For Internal Use." SOP 98-1 requires all costs related
to the application development stage to be capitalized and
amortized over the estimated useful life of the software. All
other development costs are to be expensed as incurred. The
Company implemented SOP 98-1 as of January 1, 1999 and,
accordingly, capitalized approximately $4,555,000 and $789,000 of
related costs during 2000 and 1999, respectively.
Prior to January 1, 1999, the Company expensed all software
development costs. Such amounts were approximately $1,000,000
for the year ended December 31, 1998.
-39-
5. Details of Certain Balance Sheet Accounts
Property and equipment consist of the following:
December 31
---------------------------
2000 1999
------------ ------------
Software $ 5,719,000 $ 1,953,000
Furniture, fixtures and equipment 4,299,000 4,565,000
Leasehold improvements 846,000 492,000
----------- -----------
10,864,000 7,010,000
Less accumulated depreciation and 4,082,000 2,330,000
amortization ----------- -----------
Net property and equipment $ 6,782,000 $ 4,680,000
=========== ===========
Accrued liabilities consist of the following:
December 31,
-------------------------
2000 1999
---------- ----------
Accrued vacation expense $ 235,000 $ 354,000
Accrued salary expense 102,000 219,000
Accrued property taxes 104,000 85,000
Accrued other operating expenses 446,000 79,000
Other 323,000 --
---------- ----------
Total accrued liabilities $1,210,000 $ 737,000
6. Revolving Credit Line
In June 1999, the Company amended its credit agreement with
a bank to provide the Company with a $2,000,000 revolving line of
credit, which matured on May 13, 2000. The line was not renewed.
The weighted average interest rate in 1999 was 9.25%.
7. Long-term Debt
Long-term debt relates to a long-term note due to Genesis
(see Note 1) for $1,460,000. The note bears interest at a rate
of 6% and principal and interest payments are due quarterly
beginning January 14, 1998. The note is collateralized by all
the assets acquired from Genesis. The note is payable in
quarterly installments of $85,000 ($340,000 annually) until its
final maturity on October 14, 2002.
Interest expense under the revolving line of credit and long-
term debt was approximately $60,000, $320,000 and $214,000 for
the years ended December 31, 2000, 1999 and 1998.
8. Restructuring Costs
In May 2000, the Company terminated the development of its
browser based software known as Mercury and eliminated its
internal software development department. In addition, the
Company completed a thorough reorganization and eliminated
positions. The write-off of Mercury, plus the severance and
other costs related to these events, amounted to $2,460,000.
9. Income Taxes
The provision (benefit) for income taxes is reconciled with
the statutory rate for the years ended December 31, 2000, 1999
and 1998 as follows:
2000 1999 1998
------------- ------------- -------------
Provision (benefit) computed at federal $ (6,642,000) $ (2,994,000) $ (886,000)
statutory rate
State income taxes, net of federal $ (560,000) (261,000) (76,000)
tax effect
Change in deferred tax assets valuation 6,975,000 3,253,000 947,000
allowance
Other (227,000) 2,000 15,000
------------ ------------- ------------
Total Income Taxes $ - $ - $ -
============ ============= ============
-40-
Significant components of the deferred tax asset at December
31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
------------- ------------- -------------
Deferred tax assets:
Net operating loss carryforward $ 10,336,000 $ 4,114,000 $ 793,000
Property and equipment 179,000 (59,000) 129,000
Accrued expenses 221,000 131,000 7,000
Prepaid insurance (25,000) (23,000) -
Allowance for doubtful accounts 464,000 37,000 18,000
------------ ------------ -----------
Total deferred tax assets 11,175,000 4,200,000 947,000
Less valuation allowance (11,175,000) 4,200,000 (947,000)
------------ ------------ -----------
Net deferred taxes $ - $ - $ -
============ ============ ===========
The Company has federal net operating loss carryforwards of
$27.9 million at December 31, 2000 which begin to expire in 2018.
The Company has approximately $27.9 million of state net
operating losses as of December 31, 2000. The Company's total
deferred tax assets have been fully reserved because of the
uncertainty of future taxable income. Accordingly, no tax
benefit has been recognized in the accompanying financial
statements.
10. Leases
As of December 31, 2000 the Company was obligated under
various noncancelable operating lease agreements for office and
warehouse facilities. A summary of those future minimum lease
commitments, plus the commitment under a lease for new office
space signed in February 2001, follows:
2001 $1,735,000
2002 953,000
2003 586,000
2004 586,000
2005 586,000
Thereafter 195,000
-
----------
$4,641,000
Less subleases 641,000
----------
Net $4,000,000
==========
Rental expense under noncancelable operating leases for
facilities and equipment approximated $1,009,000, $820,000, and
$503,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. Until February 2000, the Company leased an
office/warehouse building from a significant shareholder for an
annual rental expense of $100,000. In connection with the sale
of the Call Center assets described in Note 3, the buyer assumed
the obligation under this lease and in turn subleased back to the
Company that portion of the building in which the Company
operates its data center for a monthly amount of approximately
$3,300 through July 31, 2001.
In connection with the Company's lease of its former
corporate office and warehouse facility, a significant
shareholder has executed a limited guaranty with respect to
payments by the Company under such lease. Such guaranty is
presently for a maximum amount of $400,000 and decreases by
$100,000 increments on January 1 of each year from January 1,
1999. This significant shareholder is not entitled to receive a
fee or any other remuneration for his agreement to guaranty this
obligation.
-41-
11. Stockholders' Equity
Common Stock
- - ------------
In February 1999, the Company completed a private placement
of 4,500,000 shares of its common stock for a gross amount of
$4,500,000. A third party was engaged to assist with the
transaction, and was paid a commission of $281,250 plus warrants
to purchase an aggregate of 1,000,000 shares of common stock at
prices ranging from $1.00 to $3.00 per share. The warrants
expire in February 2004.
In November 1999, the Company completed an IPO of 5,750,000
common shares (including underwriters' overallotment) for $8 per
share. Net proceeds to the Company aggregated approximately
$41,883,000. As of the closing date of the offering, all of the
Series A convertible preferred stock outstanding was converted
into 2,250,000 shares of common stock.
In December 1999, the Company issued 2,597,400 common shares
as a result of the cashless conversion of the aforementioned
warrants. The total number of warrants converted was 2,925,000
at $2.94 per share. In accordance with the terms of the original
preferred stock purchase and sale agreement (see below), the
number of shares issued was reduced by 327,600, which when
multiplied by the then market price of the shares ($26.25),
yielded an amount equal to the total exercise price of all the
warrants. No cash proceeds were received from this transaction.
Preferred Stock
- - ---------------
The Company has authorized preferred stock as follows:
Series A convertible preferred stock,
$.0001 par value 1,111,111 shares
Series B redeemable preferred stock,
$.0001 par value 1,111,111 shares
Series C non-voting preferred stock,
$.0001 par value 3,200,000 shares
"Blank check" preferred stock,
$.0001 par value 2,077,778 shares
----------------
Total 7,500,000 shares
================
In August 1999, the Company sold to outside investors,
1,111,111 shares of its Series A convertible preferred stock and
1,111,111 shares of its Series B redeemable preferred stock for
gross proceeds of $12,000,000. The Series A preferred stock was
convertible into common stock at a conversion price of $5.40 per
share. However, in the event of an IPO, the conversion price was
defined as the lesser of $5.40 or one-third of the issue price of
the stock in the IPO. Therefore, upon the closing of the IPO,
all of the Series A preferred stock was converted at $2.67. In
addition, a deemed $6,000,000 non-cash preferred stock dividend
related to the embedded beneficial conversion feature of the
Series A convertible preferred stock has been recorded in
accordance with "EITF 1998-5: Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios."
The Series B redeemable preferred stock, in accordance with
its terms, was redeemed at $5.40 per share by the Company upon
the closing of the IPO.
In connection with the Series A preferred stock sale, the
investors were issued warrants to purchase additional shares of
common stock equal to 1.3 times the number of shares of common
stock issuable with respect to the Series A preferred stock at an
exercise price equal to 110% of the conversion price as described
above. The fair value of the warrants on the date of grant was
$635,555 and has been recorded as accretion of preferred stock
discounts.
In December 1999, the Company issued 2,597,400 common shares
as a result of the cashless conversion of the aforementioned
warrants. The total number of warrants converted was 2,925,000
at $2.94 per share. In accordance with the terms of the original
preferred stock purchase and sale agreement (see below), the
number of shares issued was reduced by 327,600, which when
multiplied by the then market price of the shares ($26.25),
yielded an amount equal to the total exercise price of all the
warrants. No cash proceeds were received from this transaction.
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Also in connection with the sale of the Series A and B
preferred stock, the Company amended and restated its Articles of
Incorporation to establish Series A voting common stock as the
sole class of outstanding common stock, and to convert Series B
non-voting common stock into shares of Series C non-voting
preferred stock.
No preferred stock was outstanding at December 31, 2000 or
1999.
As part of the sale of the Series A and B preferred stock,
the Company paid commissions of $420,000 to an entity affiliated
with a director of the Company.
12. Stock Option Plan
The Company's Long-Term Incentive Plan (the "Plan"),
approved in May 1999 and last amended in October 2000, provides
for the issuance to qualified participants options to purchase up
to 2,500,000 of common stock. As of December 31, 2000 options to
purchase 1,785,000 shares of common stock were outstanding under
the Plan.
The exercise price of the options is determined by the
administrators of the Plan, but cannot be less than the fair
market value of the Company's common stock on the date of the
grant. Options vest ratably over periods of two to five years
from the date of the grant.
Following is a summary of the activity of the Plan:
Weighted
Number of Average
Options Exercise Price
------------- --------------
Outstanding, December 31, 1998 -- --
Granted in 1999 879,500 $ 3.36
Exercised in 1999 -- --
Canceled in 1999 133,000 2.16
-----------
Outstanding, December 31, 1999 746,500 3.57
Granted in 2000 2,047,500 $ 2.69
Exercised in 2000 76,000 $ 1.00
Canceled in 2000 933,000 $ 3.29
-----------
Outstanding, December 31, 2000 1,785,000 $ 2.81
===========
Additional information regarding options outstanding as of
December 31, 2000 is as follows:
Options Outstanding Options Exercisable
----------------------------------------- -------------------------------
Exercise Number Weighted Average Remaining Number Weighted Average
Price Outstanding Contractual Life (Yrs.) Exercisable Exercise Price
--------------- ----------- -------------------------- ----------- ----------------
$ 0.70-1.91 516,000 9.62 56,000 $1.00
2.66 959,000 9.46 -- --
5.40-8.25 310,000 9.09 -- --
--------- --------
1,785,000 56,000
========= ========
The Company applies APB Opinion No. 25 and related
interpretations in accounting for the Plan. Had compensation
cost been recognized consistent with SFAS No. 123, the Company's
net loss attributable to common shareholders and loss per share
would have been increased to pro forma amounts indicated below
for the year ended December 31, 2000:
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Net loss attributable to common shareholders:
As reported $ (19,534,000)
Pro forma $ (19,985,000)
Basic and diluted net loss per share:
As reported $ (0.92)
Pro forma $ (0.94)
The Company used the Black-Scholes option pricing model to
determine the fair value of grants made during 2000. The
following weighted average assumptions were applied in
determining the pro forma compensation cost:
Risk-free interest rate 5.0%
Expected option life in years 4.5
Expected stock price volatility 1.613
Expected dividend yield 0.0%
In February 1999, in a separate transaction outside of the
Plan, an executive of the Company was granted options exercisable
for 957,500 shares of common stock. The stock options are
exercisable at any time at a price of $1.00 per share which
equaled the fair value of the common stock on the date of the
grant. The term of the options is five years.
13. Employee Benefit Plan
In October 1998, the Company adopted the ASD Systems
Employees Profit Sharing Plan & Trust (the "401k Plan") to
provide retirement and incidental benefits for the Company's
employees. The 401k Plan covers substantially all employees who
meet minimum age and service requirements. Employees vest at 20%
per year, for five years of service, to share in the Company's
matching contribution. As allowed under Section 401(k) of the
Internal Revenue Code, the 401k Plan provides tax deferred salary
reductions for eligible employees.
Employees may contribute from 1% to 19% of their annual
compensation to the 401k Plan, limited to a maximum amount set by
the Internal Revenue Service. The Company matches employee
contributions at the rate of $0.25 per each $1.00 of contribution
on the first 4% of deferred compensation. Company matching
contributions to the 401k Plan were approximately $34,000 in
2000, $23,000 in 1999 and $6,000 in 1998.
14. Computations of Basic and Diluted Net Loss Per Common Share
December 31, December 31, December 31,
2000 1999 1998
------------- ------------- -------------
Numerator:
Numerator for basic and diluted net
Loss per common share $(19,533,327) $ (8,806,526) $ (2,605,957)
Preferred stock dividend -- (6,000,000) --
Accretion of preferred stock discount -- (1,145,815) --
------------ ------------ ------------
$(19,533,327) $(15,952,341) $ (2,605,957)
============ ============ ============
Denominator:
Denominator for basic net loss per common
share-weighted-average shares 21,173,196 11,464,285 6,000,000
============ ============ ============
Effect of dilutive securities:
Employee stock options -- -- --
Warrants -- -- --
------------ ------------ ------------
Basic and diluted net loss per common share $ (.92) $ (1.39) $ (.43)
============ ============ ============
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15. Transactions with Certain Clients
In October 1999, a client advised the Company that it wished
to terminate its relationship with the Company. Shortly
thereafter, the client presented the Company with a summary of
amounts representing lost revenues and other costs that the
client asserted were caused by the Company. In February 2000,
the Company and the client agreed to a settlement of the client's
claims, and the amount owed by the client to the Company was
adjusted to $350,000, resulting in total bad debts and claims
costs of approximately $1,500,000. Sales to this client amounted
to approximately $2,688,000 in 1999.
In January 2000, The Original Honey Baked Ham Company of
Georgia, Inc. (HBH) advised the company that it would no longer
be requiring the Company's services. Sales to HBH amounted to
approximately $1,142,000 in 1999. HBH has identified certain
claims against the Company resulting from an alleged lack of
performance under the contract. See Note 16 for a further
discussion.
16. Legal Proceedings
On April 21, 2000 HBH filed suit against the Company in the
United States District Court of the Northern District of Georgia
for alleged injuries sustained as a result of the Company's
alleged breach of contract. HBH claims it is entitled to
compensatory, incidental and consequential damages in an amount
HBH alleges to be in excess of $10,000,000. The Company has
denied any liability, and in February 2001 filed a counterclaim
against HBH to collect approximately $1,100,000 in outstanding
receivables from HBH. The receivable was fully reserved during
the fourth quarter of 2000. The Company expects discovery in
this matter to begin in the Spring of 2001.
Management has reviewed the terms of the contract and is of
the opinion that the Company has performed as required under
terms of the contract. Management further believes that none of
the claims alleged by the client relate to services actually
performed by the Company and the related billings. Management
believes that the Company has sound defenses against the claims
asserted by the client. Management is unable to ascertain the
ultimate aggregate amount of monetary liability or financial
impact with respect to this matter.
Between January 23, 2001 and February 21, 2001, five
putative class action lawsuits were filed in the United States
District Court for the Northern District of Texas, against
Ascendant Solutions, Inc., certain of its directors, and a
limited partnership of which a director is a partner. The five
lawsuits assert causes of action under Sections 10(b) and 20(a)
of the Securities Exchange Act for an unspecified amount of
damages on behalf of a putative class of individuals who
purchased the Company's common stock between various periods
ranging from November 11, 1999 to January 24, 2000. The lawsuits
claim that the Company and the individual defendants made
misstatements and omissions concerning the Company's products and
customers. The Company denies the plaintiffs' allegations and
intends to vigorously defend the lawsuits.
The Company is also occasionally involved in other claims
and proceedings which are incidental to its business. We cannot
determine what, if any, material affect these matters will have
on our future financial position and results of operations.
17. Commitments
In connection with the development of its new Omnigy
platform, the Company has entered into contractual agreements to
acquire software and engage contract developers. Substantially
all of the committed costs will be incurred in 2001. The total
amount committed at December 31, 2000 was approximately
$6,000,000.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
Certain information required by Part III is incorporated by
reference in this report from our definitive Proxy Statement for
our 2001 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by
reference from the sections of the Proxy Statement captioned
"Election of Directors -- Class A Directors - Nominees for
Election to a Three Year Term Ending with the 2004 Annual
Meeting," "-- Class C Directors - Nominees for Election to a
Three Year Term Ending with the 2003 Annual Meeting," "-- Class B
Directors - Nominees for Election to a Three Year Term Ending
with the 2002 Annual Meeting," and "Management -- Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference from the sections of the Proxy Statement captioned
"Election of Directors -- Compensation of Directors," "Management
- - -- Executive Compensation," "-- Long-Term Incentive Plan," "--
401(k) Plan," "--Compensation Committee Interlocks and Insider
Participation," "Board Report on Executive Compensation" and
"Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference from the sections of the Proxy Statement captioned
"Stock Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference from the sections of the Proxy Statement captioned
"Management -- Certain Transactions."
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this
report:
1. Financial Statements - Ascendant
Solutions, Inc. The following Financial
Statements of the Company are included at Part II,
Item 8, of this Annual Report on Form 10-K.
Independent Auditors' Report
Balance Sheets as of December 31, 2000 and 1999
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998
Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 2000, 1999 and
1998
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Financial Statements
3. Financial Statement Schedules. All
required schedules are omitted because the
required information is not present in amounts
sufficient to require submission of the schedule
or because the information required is included in
the financial statements or notes thereto.
4. Exhibits. The exhibits listed on the
accompanying Index to Exhibits immediately
following the signature page are filed as part of,
or incorporated by reference into, this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
The following Current Report was filed on Form 8-K
during the quarter ended December 31, 2000.
* Current Report on Form 8-K, dated
October 19, 2000, reporting that ASD Systems, Inc.
d/b/a Ascendant Solutions, a Texas corporation,
had completed its reincorporation from the State
of Texas to the State of Delaware through a merger
transaction with Ascendant Solutions, Inc., a
Delaware corporation
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 27, 2001.
ASCENDANT SOLUTIONS, INC.
By: /s/ David E. Bowe
---------------------------
David E. Bowe
CEO, President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, this report has been signed on the 27th day
of March, 2000, below by the following persons in the capacities
indicated.
Signature Title
/s/ Kevin P. Yancy Chairman of the Board
- - ------------------------
Kevin P. Yancy
/s/ David E. Bowe Director, Chief Executive Officer,
- - ------------------------ President and Chief Financial Officer
David E. Bowe (Principal Executive, Financial and
Accounting Officer)
/s/ Jonathan R. Bloch Director
- - ------------------------
Jonathan R. Bloch
/s/ Paul G. Sherer Director
- - ------------------------
Paul G. Sherer
-48-
INDEX TO EXHIBITS
Exhibit
Number Description
- - ------- ------------------------------------------------------
2.1 Agreement and Plan of Merger by and between ASD
Systems, Inc. d/b/a Ascendant Solutions, a Texas
corporation, and Ascendant Solutions, Inc., a Delaware
corporation (Exhibit 2.1) (1)
3.1 Certificate of Incorporation of Ascendant Solutions,
Inc. (Exhibit 3.1) (1)
3.2 Bylaws of Ascendant Solutions, Inc. (Exhibit 3.2) (1)
Specimen of Ascendant Solutions, Inc. Common Stock
Certificate (Exhibit 4.1) (1)
4.2 1999 Long-Term Incentive Plan for ASD Systems, Inc.
(Exhibit 4.2) (2)
4.3 Form of Stock Option Agreement under 1999 Long-Term
Incentive Plan (Exhibit 4.3) (2)
4.4 401(k) Plan for ASD Systems, Inc. (Exhibit 4.4) (2)
10.1 Agreement, dated January 4, 1995, between Sears,
Roebuck and Co. and ASD Systems, Inc., as amended
June 11, 1998 and April 20, 1999 + (Exhibit 10.1) (2)
10.2 Form of ASD Certified Service Provider Agreement
(Exhibit 10.2) (2)
10.3 Credit Agreement between ASD Systems, Inc. and Comerica
Bank-Texas, dated May 13, 1999 (Exhibit 10.3) (2)
10.4 Forms of Employee Nondisclosure Agreements (Exhibit
10.4) (2)
10.5 Net Commercial Lease Agreement, dated November 1, 1986,
between Norman Charney and ASD Systems, Inc., as
amended May 31, 1991 and March 15, 1996 (Exhibit 10.5)
(2)
10.6 Multi-Tenant Industrial Triple Net Lease Agreement,
dated January 1, 1998, between ASD Systems, Inc. and
Catellus Development Corporation (Exhibit 10.6) (2)
10.7 Real Property Lease Agreement, dated May 1, 1999,
between ASD Systems, Inc. and AMB Property II, L.P.
(Exhibit 10.7) (2)
10.8 Employment Agreement, dated as of December 14, 1998,
between ASD Systems, Inc. and Norman Charney (Exhibit
10.8) (2)
10.9 Employment Agreement, dated as of October 14, 1997,
between ASD Partners, Inc. and Paul M. Jennings
(Exhibit 10.9 (2)
10.10 Form of Indemnification Agreements with directors
(Exhibit 10.10) (2)
10.11 Stock Option Agreement dated as of February 10, 1999
between ASD Systems and Paul M. Jennings
(Exhibit 10.11) (2)
10.12 Amended and Restated Shareholders' Agreement, dated as
of August 23, 1999, between ASD Systems, Inc., and
certain holders of equity securities of ASD Systems,
Inc. (Exhibit 10.12) (2)
10.13 Form of Warrant granted to affiliates of CKM Capital
LLC (Exhibit 10.15) (2)
10.14 First Amendment to Credit Agreement between ASD
Systems, Inc. and Comerica Bank-Texas, dated June 24,
1999 (Exhibit 10.16) (2)
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10.15 Second Amendment to Credit Agreement between ASD
Systems, Inc. and Comerica Bank-Texas, dated
September 2, 1999 (Exhibit 10.17) (2)
10.16 Third Amendment to Lease Agreement, dated May 15, 2000,
between Norman Charney and ASD Systems, Inc. (Exhibit
10.16) (3)
10.17 Offer Letter, dated December 13, 1999, by and between
ASD Systems, Inc. and Gregg L. Young (Exhibit 10.17)
(4)
10.18 Amendment No. 1 to Offer Letter, dated January 11,
2000, by and between ASD Systems, Inc. and Gregg L.
Young (Exhibit 10.18) (4)
10.19 Pledge Agreement, dated January 11, 2000, by and
between ASD Systems, Inc. and Gregg L. Young (Exhibit
10.19) (4)
10.20 $80,000 Promissory Note, dated January 11, 2000, by
Gregg L. Young in favor of ASD Systems, Inc. (Exhibit
10.20) (4)
10.21 $65,000 Promissory Note dated January 11, 2000, by
Gregg L. Young in favor of ASD Systems, Inc. (Exhibit
10.21) (4)
10.22 Letter Agreement, dated September 15, 2000, by and
among Ascendant Solutions, Inc., Sears Roebuck and Co.
and Sears Wishbook, Inc. + (Exhibit 10.22) (5)
23.1 Consent of Ernst and Young LLP
- - ---------------
(1) Incorporated by reference to the exhibits shown in
parenthesis filed in our current report on Form 8-K filed
October 23, 2000.
(2) Incorporated by reference to the exhibits shown in
parenthesis filed in our Registration Statement on Form S-1,
File No. 333-85983.
(3) Incorporated by reference to the exhibits shown in
parenthesis filed in our annual report on Form 10-K for the
fiscal year ended December 31, 1999.
(4) Incorporated by reference to the exhibits shown in
parenthesis filed in our quarterly report on Form 10-Q for
the quarter ended March 31, 2000.
(5) Incorporated by reference to the exhibit shown in
parenthesis filed in our quarterly report on Form 10-Q for
the quarter ended September 30, 2000.
+ Portions of this exhibit have been omitted pursuant to a
request for confidential treatment.
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