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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, 2005

 

OR

 

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

 

For the transition period from              to             

 

Commission File Number 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 classes of common stock, as of the latest practicable date:

 

The number of shares outstanding of the registrant’s common stock as of May 3, 2005 was 42,891,092 (includes 702,927 shares subject to an escrow agreement in connection with a recent acquisition).

 

Table of Contents

VERTICALNET, INC.

 

FORM 10-Q

 

For the Quarterly Period Ended March 31, 2005

 

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

  16
   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  29
   

Item 4. Controls and Procedures

  29

Part II.

  

OTHER INFORMATION

   
   

Item 1. Legal Proceedings

  30
   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  30
   

Item 3. Defaults Upon Senior Securities

  31
   

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

  31
   

Item 5. Other Information

  31
   

Item 6. Exhibits

  31

SIGNATURES

  32

Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

VERTICALNET, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

    

March 31,

2005

    

December 31,

2004

  
     (Unaudited)        

Assets

                 

Current assets:

                 

Cash and cash equivalents

    $ 6,675     $ 9,370  

Accounts receivable, net

      5,020       5,902  

Prepaid expenses and other current assets

      1,605       802  
    
 

Total current assets

      13,300       16,074  

Property and equipment, net

      1,221       1,173  

Other investments

      606       606  

Goodwill

      16,319       16,364  

Other intangible assets, net

      5,053       5,603  

Other assets

      519       525  
    
 

Total assets

    $ 37,018     $ 40,345  
    
 

Liabilities and Shareholders’ Equity

                 

Current liabilities:

                 

Current portion of long-term debt

    $ 651     $ 71  

Accounts payable and accrued expenses

      4,038       4,993  

Deferred revenues

      3,259       3,147  
    
 

Total current liabilities

      7,948       8,211  

Non-current portion of deferred revenues

      108       204  

Long-term debt

      134       42  
    
 

Total liabilities

      8,190       8,457  
    
 

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, 2005 and December 31, 2004

      —         —    

Common stock $.01 par value, 100,000,000 shares authorized, 42,956,728 shares issued at March 31, 2005 and 42,702,941 shares issued at December 31, 2004

      430       427  

Additional paid-in capital

      1,222,429       1,222,210  

Deferred compensation

      (1,067 )     (1,067 )

Accumulated other comprehensive loss

      (347 )     (254 )

Accumulated deficit

      (1,191,812 )     (1,188,623 )
    
 
       29,633       32,693  

Treasury stock at cost, 65,636 shares at March 31, 2005 and December 31, 2004

      (805 )     (805 )
    
 

Total shareholders’ equity

      28,828       31,888  
    
 

Total liabilities and shareholders’ equity

    $ 37,018     $ 40,345  
    
 

 

See accompanying notes to consolidated financial statements.

 

1

Table of Contents

VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

    

Three months ended

March 31,

  
     2005
     2004
  

Revenues:

                 

Software and software related

    $ 1,515     $ 549  

Services

      3,761       3,987  
    
 

Total revenues

      5,276       4,536  
    
 

Cost of revenues:

                 

Cost of software and software related

      699       256  

Cost of services

      1,947       1,540  

Amortization of acquired technology and customer contracts

      239       325  
    
 

Total cost of revenues

      2,885       2,121  
    
 

Gross profit

      2,391       2,415  
    
 

Operating expenses:

                 

Research and development

      1,711       1,197  

Sales and marketing

      1,853       1,066  

General and administrative

      1,512       1,495  

Stock-based compensation (a)

      220       470  

Amortization of other intangible assets

      324       131  
    
 

Total operating expenses

      5,620       4,359  
    
 

Operating loss

      (3,229 )     (1,944 )

Interest and other expense (income), net

      (40 )     285  
    
 

Net loss

    $ (3,189 )   $ (2,229 )
    
 

Basic and diluted loss per common share

    $ (0.08 )   $ (0.10 )
    
 

Weighted average common shares outstanding:

                 

Basic and diluted

      41,966       23,401  
    
 
(a) For the three months ended March 31, 2005 and 2004, stock-based compensation expense, net of the effects of cancellations, is attributable to various expense categories as follows (in thousands):

 

Cost of revenues

    $ 12    $ 200

Research and development

      14      70

Sales and marketing

      91      70

General and administrative

      103      130
    
  

Total

    $ 220    $ 470
    
  

 

See accompanying notes to consolidated financial statements.

 

2

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VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

    

Three months ended

March 31,

  
     2005
     2004
  
Operating activities:                 

Net loss

    $ (3,189 )   $ (2,229 )

Adjustments to reconcile net loss to net cash used in operating activities:

                 

Depreciation and amortization

      705       549  

Stock-based compensation, net of cancellations

      220       470  

Other non-cash items

      —         281  

Change in assets and liabilities, net of effect of acquisition:

                 

Accounts receivable

      882       (205 )

Prepaid expenses and other assets

      (143 )     86  

Accounts payable and accrued expenses

      (977 )     192  

Deferred revenues

      17       153  
    
 

Net cash used in operating activities

      (2,485 )     (703 )
    
 

Investing activities:

                 

Capital expenditures

      (48 )     (42 )

Acquisition, net of cash acquired

      —         (3,714 )

Proceeds from sale of short-term investments

      —         2  

Restricted cash

      —         (311 )
    
 

Net cash used in investing activities

      (48 )     (4,065 )
    
 

Financing activities:

                 

Principal payments on long-term debt and obligations under capital leases

      (102 )     (172 )

Proceeds from exercise of stock options and warrants

      2       547  

Proceeds from issuance of common stock and warrants, net

      —         7,062  
    
 

Net cash provided by (used in) financing activities

      (100 )     7,437  
    
 

Effect of exchange rate fluctuation on cash and cash equivalents

      (62 )     —    
    
 

Net increase (decrease) in cash and cash equivalents

      (2,695 )     2,669  

Cash and cash equivalents - beginning of period

      9,370       4,408  
    
 

Cash and cash equivalents - end of period

    $ 6,675     $ 7,077  
    
 

Supplemental disclosure of cash flow information:

                 

Cash paid during the period for interest

    $ 5     $ 25  

Supplemental schedule of non-cash investing and financing activities:

                 

Capital expenditures financed through capital lease arrangements

    $ 141     $ —    

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.

 

3

Table of Contents

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, 2005

    42,703    $ 427    $ 1,222,210    $ (1,067 )   $ (254 )   $ (1,188,623 )   $ (805 )   $ 31,888  

Exercise of stock options

    177      2      —        —         —         —         —         2  

Deferred stock-based compensation

    77      1      219      (220