VERTICALNET INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-25269

VERTICALNET, INC.

(Exact name of registrant as specified in its charter)


Pennsylvania		23-2815834
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

400 CHESTER FIELD PARKWAY MALVERN, PENNSYLVANIA		19355
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (610) 240-0600

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the registrant’s class of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant’s common stock as of May 3, 2004 was 25,665,522.

VERTICALNET, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2004

TABLE OF CONTENTS


			Page
Part I.	FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements	1

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	27

Part II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	28

	Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	29

	Item 3.	Defaults Upon Senior Securities	29

	Item 4.	Submission of Matters to a Vote of Security Holders	29

	Item 5.	Other Information	29

	Item 6.	Exhibits and Reports on Form 8-K	30

SIGNATURES			31

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

VERTICALNET, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	March 31, 2004			December 31, 2003
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	7,077		$	4,408
Accounts receivable, net		5,618			2,457
Prepaid expenses and other current assets		1,097			520

Total current assets		13,792			7,385

Property and equipment, net		1,113			116
Other investments		606			606
Goodwill		5,078			—
Other intangible assets, net		4,014			900
Other assets		483			116

Total assets	$	25,086		$	9,123

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt and convertible notes	$	1,252		$	757
Accounts payable and accrued expenses		3,909			2,806
Deferred revenues		1,187			992
Other current liabilities		—			147

Total current liabilities		6,348			4,702

Long-term debt		87			—

Total liabilities		6,435			4,702

Commitments and contingencies (see Notes 2, 6, and 7)

Shareholders’ equity:
Preferred stock $.01 par value, 10,000,000 shares authorized, none issued at March 31, 2004 and December 31, 2003		—			—
Common stock $.01 par value, 100,000,000 shares authorized, 25,676,814 shares issued at March 31, 2004 and 19,454,126 shares issued at December 31, 2003		257			195
Additional paid-in capital		1,203,131			1,184,691
Deferred compensation		(2,448	)		(405	)
Accumulated other comprehensive loss		(783	)		(783	)
Accumulated deficit		(1,180,701	)		(1,178,472	)

		19,456			5,226
Treasury stock at cost, 65,636 shares at March 31, 2004 and December 31, 2003		(805	)		(805	)

Total shareholders’ equity		18,651			4,421

Total liabilities and shareholders’ equity	$	25,086		$	9,123

See accompanying notes to consolidated financial statements.

VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended March 31,
	2004			2003
Revenues:
Software license	$	139		$	239
Services and maintenance		4,397			3,192

Total revenues		4,536			3,431

Cost of revenues:
Cost of software license		10			28
Cost of services and maintenance		1,786			637
Amortization of acquired technology and customer contracts		325			225

Total cost of revenues		2,121			890

Gross profit		2,415			2,541

Operating expenses:
Research and development		1,197			1,119
Sales and marketing		1,066			658
General and administrative		1,495			1,488
Restructuring reversal		—			(6	)
Stock-based compensation (a)		470			91
Amortization of other intangible assets		131			—

Total operating expenses		4,359			3,350

Operating loss		(1,944	)		(809	)

Interest and other expense, net		285			384

Net loss	$	(2,229	)	$	(1,193	)

Basic and diluted loss per common share	$	(0.10	)	$	(0.09	)

Weighted average common shares outstanding:
Basic and diluted		23,401			13,400

(a)	For the three months ended March 31, 2004 and 2003, stock-based compensation expense, net of the effects of cancellations, is attributable to various expense categories as follows (in thousands):


	Three Months Ended March 31,
	2004		2003
Cost of revenues	$	200	$	18
Research and development		70		—
Sales and marketing		70		9
General and administrative		130		64

Total	$	470	$	91

See accompanying notes to consolidated financial statements.

VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2004			2003
Operating activities:
Net loss	$	(2,229	)	$	(1,193	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		549			390
Loss on disposal of property and equipment		—			9
Realized gain on investments		—			(113	)
Other non-cash charges		751			91

*Change in assets and liabilities, net of effect of acquisition:*
Accounts receivable		(205	)		(251	)
Prepaid expenses and other assets		86			(564	)
Accounts payable and accrued expenses		192			(2,788	)
Deferred revenues		153			449

Net cash used in operating activities		(703	)		(3,970	)


Investing activities:
Acquisition, net of cash acquired		(3,714	)		—
Proceeds from sale of short-term investments		—			979
Proceeds from sale of available-for sale investments		2			—
Restricted cash		(311	)		837
Proceeds from sale of assets		—			292
Capital expenditures		(42	)		(35	)

Net cash provided by (used in) investing activities		(4,065	)		2,073

Financing activities:
Principal payments on long-term debt and obligations under capital leases		(172	)		—
Proceeds from issuance of common stock and warrants, net		7,062			—
Proceeds from exercise of stock options and warrants		547			1

Net cash provided by financing activities		7,437			1

Effect of exchange rate fluctuation on cash and cash equivalents		—			7

Net increase (decrease) in cash and cash equivalents		2,669			(1,889	)
Cash and cash equivalents - beginning of period		4,408			7,979

Cash and cash equivalents - end of period	$	7,077		$	6,090

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	25		$	187
Supplemental schedule of non-cash investing and financing activities

Issuance of common stock as consideration for the Tigris acquisition	$	5,740		$	—
Assumption of stock option plan as consideration for the Tigris acquisition	$	2,212		$	—

See accompanying notes to consolidated financial statements.

VERTICALNET, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands)

Common Stock

Additional

Paid-In

Capital

Deferred

Compensation

Accumulated

Other

Comprehensive

Loss

Accumulated

Deficit

Treasury

Stock

Total

Shareholders’

Equity

Shares

Amount

Balance, January 1, 2004

19,454

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