10-Q 1 e10-q.txt DEMANDSTAR.COM, INCORPORATED 1 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 JUNE 30, 2000 OR Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to____________

Commission File No: 0-28703 DEMANDSTAR.COM, INC. (Exact name of registrant as specified in its charter) ~~FLORIDA 59-3590973 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)~~

1200 PINE ISLAND ROAD SUITE 600 PLANTATION, FLORIDA 33324 (954) 577-3860 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEMANDSTAR.COM, INC. BALANCE SHEETS

The accompanying notes are an integral part of these balance sheets. -2- 3 THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND LIABILITIES ASSUMED BY THE COMPANY. SUCH ACCOUNTING RESULTS IN INCREASED AMORTIZATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT RESULTS OF OPERATIONS AND CASH FLOWS OF THESE TWO SEPARATE ENTITIES. DEMANDSTAR.COM, INC. STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these statements. -3- 4 THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND LIABILITIES ASSUMED BY THE COMPANY. SUCH ACCOUNTING RESULTS IN INCREASED AMORTIZATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT RESULTS OF OPERATIONS AND CASH FLOWS OF THESE TWO SEPARATE ENTITIES. DEMANDSTAR.COM, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these statements. -4- 5 DEMANDSTAR.COM, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 AND 2000 The financial statements included herein have been prepared by DemandStar.com, Inc. (the "Company" or "DemandStar"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, 1999, and the notes thereto, included in the Company's registration statement on Form S-1, as amended (Registration No. 333-93445). The unaudited financial statements included herein include normal recurring adjustments and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. The interim results are not indicative of results for a full year. Information On Demand, Inc. (the "Predecessor") was formed as a Florida corporation in June 1997 and commenced operations in January 1998. The Predecessor was an S corporation. On June 1, 1999, H.T.E., Inc. ("HTE"), formed a wholly-owned subsidiary, HTE-IOD, Inc., by purchasing 1,250,000 shares for $800,000 and advancing $200,000 of cash. On June 18, 1999, HTE-IOD, Inc. purchased the business and certain net assets of the Predecessor. On August 23, 1999, HTE-IOD, Inc. changed its name to Information On Demand, Inc. and on December 21, 1999, its name was changed to DemandStar.com, Inc. The registration statement on Form S-1 filed by the Securities and Exchange Commission (the "SEC") in connection with the Company's public rights offering (File No. 333-93445), as amended, was declared effective by the SEC on March 27, 2000 and expired on May 1, 2000. The offering period for the rights offering commenced on March 27, 2000 and expired on May 1, 2000, with the offering closing May 5, 2000. Each right was exercisable for one share of common stock at an exercise price of $1.00 per share. Upon closing, rights to purchase an aggregate of 4,998,050 registered shares of common stock and an aggregate of 1,376,030 restricted shares of common stock were exercised for an aggregate purchase price of $6,374,080. After deducting reasonable estimated total expenses incurred in connection with the offering of $513,985, the Company's net proceeds from the offering were $5,860,095. The Company is a provider of Internet based procurement systems for business to government eCommerce over the Internet. The Company's electronic marketplace enables governmental agencies to purchase goods and services more efficiently and makes it easier for commercial vendors to do business with government agencies. Membership in the Company's Internet-based procurement network is provided free to governmental agencies that enter into an agreement to distribute all of their formal bids and request for proposals through the Internet site. Businesses pay an annual subscription fee per county to be registered vendors in the Company's procurement network. 1. LOSS PER SHARE The Company's basic and diluted net loss per share are found in the accompanying statement of operations. Basic and diluted per share information are the same as the Company generated a net loss for the period. Options to purchase approximately 3,077,500 shares were outstanding as of June 30, 2000, but were not included in the computation of diluted loss per share because they are antidilutive. Loss per share information for the Predecessor has not been presented as this information is not meaningful given the Predecessor's capital structure. 2. DUE TO HTE Due to HTE represents amounts owed to HTE in excess of the loan agreement discussed below. This amount results from timing of payments and was repaid in full on July 24, 2000. HTE charged the Company a -5- 6 management fee for finance, accounting, management and basic processing services based on a percentage of total expenses for the first quarter and actual hours incurred for the second quarter. The total of these charges was approximately $68,000 and $6,500 for the three months ended March 31, 2000 and June 30, 2000 respectively, which are included in general and administrative expenses in the accompanying statement of operations of the Company. 3. RELATED PARTY TRANSACTIONS The Predecessor used office space owned by the shareholder for which rent of approximately $4,200 was paid for the period January 1, 1999 to June 17, 1999. This rent charge is included in general and administrative expenses in the accompanying statement of operations of the Predecessor. 4. NOTE PAYABLE During 1999 and 2000, the Company borrowed money from HTE to acquire the business and certain net assets of the Predecessor and to fund its operations. On October 31, 1999, the Company issued an unsecured note in the principal amount of $1,750,000 in favor of HTE (the "Loan"). As of June 30, 2000, borrowings under the Loan totaled $1,750,000, with no available balance. Interest at a rate of eight percent, which totaled approximately $63,700, was charged by HTE during the three months ended June 30, 2000, pursuant to the terms of the Loan. Approximately $91,000 related to accrued interest is included in accounts payable and accrued liabilities in the accompanying balance sheet as of June 30, 2000. Principal and interest due under the Loan are payable in annual installments on each anniversary of the note, with the entire remaining outstanding balance due upon the earlier of the maturity date of the Loan or the date of the effectiveness of a secondary public offering of the Company's common stock yielding gross proceeds of at least $10,000,000. Scheduled principal reductions of the Loan were as follows as of June 30, 2000:

5. INCOME TAXES The Predecessor elected to be taxed as an S corporation for both federal and state income tax reporting purposes. Accordingly, the losses related to periods presented for the Predecessor are includable in the personal income tax returns of the Predecessor's shareholder. The operating results of the Company are included in the consolidated federal and state income tax returns of HTE. The Company's income tax provision is computed as if it were filing separate federal and state tax returns. The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates. Changes in tax laws or rates will be recognized in the future years in which they occur. Due to uncertainties regarding the Company's ability to realize the benefits of its deferred tax assets through future operations, a valuation allowance has been established that completely offsets the net operating loss as of June 30, 2000. -6- 7 DEMANDSTAR.COM, INC. JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Management's Discussion and Analysis of Financial Condition and Results of Operations under the captions "Comparison of Three and Six Months Ended June 30, 2000 and June 17, 1999," and "Liquidity and Capital Resources." These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results for future periods could differ materially from those discussed in this Item depending on a variety of important factors. A comprehensive summary of these and other risks and uncertainties can be found in the Company's filings with the Securities and Exchange Commission from time to time, including the Company's registration statement on Form S-1, as amended (Registration No. 333-93445).

Comparison of Three Months Ended June 30, 2000 and the period from April 1, 1999 to June 17, 1999 Revenues Revenues include amounts received from vendors for registration fees and bid document mailings. Total revenues increased by 109% to $145,695 for the three months ended June 30, 2000, from $69,763 for the period April 1, 1999 to June 17, 1999. The increase in revenues is due primarily to the increased marketing effort in late 1999 and 2000 compared to the early and mid-1999 focus on research and development. Operating Expenses Marketing and advertising expenses. Marketing and advertising expenses increased 23349% to $1,264,391 for the three months ended June 30, 2000, from $5,392 for the period April 1, 1999 to June 17, 1999. The increase in marketing and advertising expenses primarily resulted from an increased marketing strategy to promote DemandStar. -7- 8 DEMANDSTAR.COM, INC. JUNE 30, 2000 Research and development expenses. Research and development expenses increased 163% to $167,207 for the three month period ended June 30, 2000, from $63,477 for the period April 1, 1999 to June 17, 1999. In early and mid-1999, the Company was focused on product development. During the three months ended June 30, 2000, the focus was on expanding our products' features and improving the stability and scalability of DemandStar's systems to support the growth that is anticipated. General and administrative expenses. General and administrative expenses, which include the costs of corporate operations, finance and accounting, human resources and other general operations, increased 625% to $771,498 for the three months ended June 30, 2000, from $106,475 for the period April 1, 1999 to June 17, 1999. The increase in general and administrative expenses is necessary to support the growth in operations and infrastructure of DemandStar. Depreciation and amortization. Depreciation and amortization of $121,368 resulted from the acquisition of the Predecessor by DemandStar and the purchase of miscellaneous equipment and leasehold improvements during the three months ended June 30, 2000. There were no comparable expenses for the period April 1, 1999 to June 17, 1999. Interest expense, net. Net interest expense consists of interest income of $14,348, which resulted primarily from the investment of the net proceeds from the rights offering, and interest expense of $35,001 relates to the loan with HTE. There were no comparable expenses for the period April 1, 1999 to June 17, 1999. Comparison of the Six Months Ended June 30, 2000 and the period from January 1, 1999 to June 17, 1999 Revenues Revenues include amounts received from vendors for registration fees and bid document mailings. Total revenues increased by 73% to $228,596 for the six months ended June 30, 2000, from $132,135 for the period January 1, 1999 to June 17, 1999. The increase in revenues is due primarily to the increased marketing effort in late 1999 and 2000 compared to the early and mid-1999 focus on research and development. Operating Expenses Marketing and advertising expenses. Marketing and advertising expenses increased 11094% to $1,776,044 for the six months ended June 30, 2000, from $15,866 for the period January 1, 1999 to June 17, 1999. The increase in marketing and advertising expenses primarily resulted from an increased marketing strategy to promote DemandStar. Research and development expenses. Research and development expenses increased 74% to $237,459 for the six month period ended June 30, 2000, from $136,279 for the period January 1, 1999 to June 17, 1999. In early and mid-1999, the Company was focused on product development. During the six months ended June 30, 2000, the focus was on expanding our products' features and improving the stability and scalability of DemandStar's systems to support the growth that is anticipated. General and administrative expenses. General and administrative expenses, which include the costs of corporate operations, finance and accounting, human resources and other general operations, increased 546% to $1,618,452 for the six months ended June 30, 2000, from $250,349 for the period January 1, 1999 to June 17, 1999. The increase in general and administrative expenses is directly related to the growth in the volume of revenues and expenses. This growth was necessary to support the general operations and infrastructure of DemandStar. Depreciation and amortization. Depreciation and amortization of $230,523 resulted from the acquisition of the Predecessor by DemandStar and the purchase of miscellaneous equipment and leasehold improvements during the six months ended June 30, 2000. There were no comparable expenses for the period January 1, 1999 to June 17, 1999. -8- 9 DEMANDSTAR.COM, INC. JUNE 30, 2000 Interest expense, net. Net interest expense consists of interest income of $14,348 which resulted primarily from the investment of the net proceeds from the rights offering, and interest expense of $64,514 which relates to the loan with HTE. There were no comparable expenses for the period January 1, 1999 to June 17, 1999. LIQUIDITY AND CAPITAL RESOURCES Prior to the purchase of the Predecessor by DemandStar in June 1999, the operations were funded primarily through cash generated from operations and capital contributed from the sole shareholder of the Predecessor. In conjunction with the purchase of the Predecessor, HTE purchased 1,250,000 shares of DemandStar's common stock for $800,000. In the first quarter of 2000, HTE purchased 750,000 shares of Series A preferred stock for $1,500,000. In addition to the stock purchases, HTE also loaned DemandStar $200,000 to purchase the business and specified net assets of the Predecessor and $1,550,000 to fund operations, the terms of which loan were evidenced by a five-year term promissory note payable to HTE and dated October 31, 1999. As of June 30, 2000, the balance under the note was $1,750,000. With completion of the Company's rights offering of its common stock, which provided gross proceeds of $6,374,080, the Company believes that it has sufficient funds to continue its planned operational, growth and development activities for the remainder of the year 2000. In addition, based on current operating projections for the year 2000, the Company believes its cash balances and cash generated from operations will satisfy the Company's working capital and capital expenditure requirements for at least 12 months. However, the Company may seek additional sources of funds through debt financing or an equity offering to increase its cash reserves and to fund additional projects not reflected in its current operating projections. In the event the Company's operating projections do not materialize, and the Company is not successful in obtaining additional funds, the Company will be required to reduce or cut back its operations. Net cash used in operating activities totaled $2,751,642 for the six months ended June 30, 2000, compared to net cash provided used in operating activities of $60,156 for the period January 1, 1999 to June 17, 1999. The increase in net cash used in the 2000 period primarily resulted from the increased operations and loss experienced in 2000. Net cash used in investing activities, comprised of capital expenditures, totaled $455,462 for the six months ended June 30, 2000 and $3,064 for the period January 1, 1999 to June 17, 1999. The increase in net cash used in the 2000 period resulted from increased purchases of equipment to expand the infrastructure and prepare for increased operations. Net cash provided by financing activities totaled $7,803,210 for the six months ended June 30, 2000 and $50,441 for the period January 1, 1999 to June 17, 1999. The cash provided during 2000 reflects the sale of common stock through the Company's rights offering, the sale of Series A preferred stock to HTE and amounts borrowed under the Loan with HTE. The cash provided during 1999 includes contributions of the sole shareholder of the Predecessor. YEAR 2000 COMPLIANCE Prior to January 1, 2000, there was considerable concern regarding the ability of computers to adequately recognize 21st century dates from 20th century dates due to the two-digit date fields used by many systems. Most reports today, however, are that computer systems and software programs are functioning normally and the compliance and remediation work accomplished during the years leading up to 2000 was effective to prevent any problems. The Company is a provider of Internet-based procurement systems for governmental agencies. As of the date of this Report, the Company has not experienced any significant disruption in its services as a result of any failure of any of its systems to function properly as of January 1, 2000 or February 29, 2000. The Company also has not experienced any Year 2000 failures related to any of its vendors, suppliers or government clients. -9- 10 DEMANDSTAR.COM, INC. JUNE 30, 2000 Based on present trends, the Company does not expect to incur any significant costs in 2000 related to Year 2000 activities. Year 2000 compliance has many elements and potential consequences, some of which may not be foreseeable or may be realized in future periods. In addition, unforeseen circumstances may arise, and we may not, in the future, adequately identify equipment or systems that are not Year 2000 compliant. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No information has been presented pursuant to Item 3 as the Company does not have any financial instruments outstanding as of June 30, 2000, requiring market risk disclosure or material foreign currency exposure requiring market risk disclosure. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) The registration statement on Form S-1 filed by the Company with the Securities and Exchange Commission (the "SEC") in connection with the Company's public rights offering (File No. 333-93445), as amended was declared effective by the SEC on March 27, 2000. Since the completion of the public offering on May 5, 2000, the Company used the net proceeds for working capital purposes, capital expenditures and investments which totaled $747,900, $121,305 and $4,990,890 respectively. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. -10- 11 DEMANDSTAR.COM, INC. JUNE 30, 2000 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS

(b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2000. -11- 12 DEMANDSTAR.COM, INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEMANDSTAR.COM, INC. Date: August 11, 2000 /s/ O. F. RAMOS ----------------------------------- O. F. Ramos, Chief Executive Officer and President /s/ GERTRUDE J. SULZER ----------------------------------- Gertrude J. Sulzer., Controller and Chief Accounting Officer -12- 13 EXHIBIT INDEX

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DEMANDSTAR COM INC 10-Q