SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22557
PEAPOD, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-4118175
----------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
9933 Woods Drive, Skokie, Illinois 60077
(Address of principal executive offices) (ZIP Code)
(847) 583-9400
(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of the registrant's common stock,
$0.01 par value ("Common Stock") as of April 22, 1999 was 17,484,112.
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PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
PEAPOD, INC.
BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
1999 1998
----------------- ----------------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 4,943 $ 4,341
Marketable securities.............................................. 17,796 15,836
Receivables, net of bad debt allowance of $279 and $287 as
of March 31, 1999 and December 31, 1998.......................... 1,814 2,516
Prepaid expenses................................................... 142 186
Other current assets............................................... 851 974
----------------- -----------------
Total current assets.......................................... 25,546 23,853
Property and equipment:
Computer equipment and software.................................... 4,439 4,010
Service equipment and other........................................ 3,165 2,147
----------------- ------------------
Property and equipment, at cost......................................... 7,604 6,157
Accumulated depreciation........................................... (2,723) (2,252)
----------------- ------------------
Net property and equipment.............................................. 4,881 3,905
Non-current marketable securities 7,633 15,213
----------------- ------------------
Total assets.................................................. $38,060 $42,971
================= ==================
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable................................................... $ 3,685 $ 3,442
Accrued compensation............................................... 864 802
Other accrued liabilities.......................................... 1,616 2,688
Current deferred revenue........................................... 1,064 1,000
Current obligations under capital lease............................ 599 590
----------------- ------------------
Total current liabilities..................................... 7,828 8,522
Deferred revenue........................................................ 360 448
Obligations under capital lease, less current portion................... 681 395
----------------- ------------------
Total liabilities............................................. 8,869 9,365
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000
shares, none issued and outstanding............................. -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
17,469,363 and 17,245,828 shares issued at March 31, 1999
and December 31, 1998....................................... 175 172
Additional paid-in capital......................................... 65,332 64,319
Accumulated other comprehensive income -
Unrealized gain (loss) on available-for-sale securities....... (16) 83
Accumulated deficit................................................ (35,129) (30,060)
Treasury stock, at cost, 141,749 and 117,476 shares at March 31,
1999 and December 31, 1998..................................... (1,171) (908)
----------------- ------------------
Total stockholders' equity.................................... 29,191 33,606
================= ==================
Total liabilities and stockholders' equity.................... $38,060 $42,971
================= ==================
See accompanying notes to financial statements.
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<CAPTION>
PEAPOD, INC.
STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
(unaudited)
Three months ended March 31,
-------------------------------------------
------------------ ------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net sales .................................................. $ 18,008 $ 18,864
Cost of sales.................................................. 14,366 14,573
------------------ ------------------
Gross profit ................................................. 3,642 4,291
Operating expenses:
Fulfillment operations.................................... 5,152 4,518
General and administrative................................ 1,554 1,737
Marketing and selling..................................... 1,238 1,672
System development and maintenance........................ 723 610
Depreciation and amortization............................. 474 463
------------------ ------------------
Total operating expenses............................. 9,141 9,000
------------------ ------------------
Operating loss................................................. (5,499) (4,709)
Other income (expense):
Investment income......................................... 478 783
Interest expense.......................................... (48) (56)
================== ==================
Net loss....................................................... $ (5,069) $ (3,982)
================== ==================
Net loss per share:
Basic..................................................... $ (0.29) $ (0.24)
Diluted................................................... $ (0.29) $ (0.24)
Shares used to compute net loss per share:
Basic..................................................... 17,188,508 16,859,437
Diluted................................................... 17,188,508 16,859,437
See accompanying notes to financial statements.
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<CAPTION>
PEAPOD, INC.
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended March 31,
-----------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Net loss............................................. $ (5,069) $ (3,982)
Other comprehensive income:
Unrealized loss on available-for-sale securities......... (99) (71)
-------------- ---------------
Comprehensive income (loss).................................... $ (5,168) $ (4,053)
============== ===============
See accompanying notes to financial statements.
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<CAPTION>
PEAPOD, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
---------------------------------------
1999 1998
----------------- ----------------
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Cash flows from operating activities:
Net loss....................................................... $ (5,069) $ (3,982)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................. 474 463
Stock issued for services rendered......................... -- 45
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net................ 702 (281)
(Increase) decrease in prepaid expenses................ 44 292
(Increase) decrease in other current assets............ 123 (343)
Increase (decrease) in accounts payable................ 243 (3,900)
Increase (decrease) in accrued compensation............ 62 (356)
Increase (decrease) in other accrued liabilities....... (1,072) (172)
Increase (decrease) in deferred revenue................ (24) (553)
----------------- ----------------
Net cash used in operating activities.............. (4,517) (8,787)
Cash flows from investing activities:
Property and equipment purchased............................... (956) (462)
Capitalized software development costs......................... -- (308)
Purchases of marketable securities............................. (4,976) (34,291)
Sales of marketable securities................................. 10,497 --
----------------- ----------------
Net cash provided by (used in) investing activities 4,565 (35,061)
Cash flows from financing activities:
Proceeds from issuance of stock upon exercise of warrants...... 50 --
Proceeds from issuance of stock upon exercise of options and
employee stock purchase plan................................ 703 67
Payments on capital lease obligations.......................... (199) (237)
----------------- ----------------
Net cash provided by (used in) financing activities 554 (170)
----------------- ----------------
Net increase (decrease) in cash and cash equivalents............... 602 (44,018)
Cash and cash equivalents at beginning of period................... 4,341 54,079
================= ================
Cash and cash equivalents at end of period......................... $ 4,943 $ 10,061
================= ================
Supplemental disclosure of cash flows information--interest paid... $ 37 $ 65
Supplemental disclosures of noncash investing and financing activity:
Options exercised by sale of stock to the Company........ 263 --
Equipment on capital leases.............................. 494 40
================= ================
See accompanying notes to financial statements.
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PEAPOD, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation. The unaudited interim financial statements included
herein have been prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain notes and
other information normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from the interim financial statements presented in
this quarterly report on Form 10-Q in accordance with such rules and
regulations. In the opinion of the Company's management, the accompanying
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to state fairly the financial position of
the Company as of March 31, 1999, and the results of its operations,
comprehensive income and cash flows for the periods indicated. The results
of operations for the periods covered are not necessarily indicative of the
results to be expected for the full year. These financial statements should
be read in conjunction with the audited financial statements and notes
thereto of the Company for the year ended December 31, 1998, which are
included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
2. Reclassifications. Certain prior year balances have been reclassified to
conform with the current year presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited financial information
from the Statements of Operations as a percentage of total revenues:
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<CAPTION>
Three Months Ended
March 31,
--------------------------------
------------- ---------------
1999 1998
------------- ---------------
<S> <C> <C>
Net sales ................................ 100 % 100 %
Cost of sales................................ 80 77
---------------- ---------------
Gross profit ................................ 20 23
Operating expenses:
Fulfillment operations.................. 28 24
General and administrative.............. 9 9
Marketing and selling................... 7 9
System development and maintenance...... 4 3
Depreciation and amortization........... 3 3
---------------- ---------------
Total operating expenses........... 51 48
---------------- ---------------
Operating loss............................... (31) (25)
Other income (expense):
Interest income......................... 3 4
Interest expense........................ * *
================ ===============
Net loss..................................... (28) % (21) %
================ ===============
* - Less than 1%
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Comparison of Three Months Ended March 31, 1999 and March 31, 1998
Net sales. Net sales include (i) revenue from the sale of groceries and
related products, (ii) fees paid by customers and retail partners, (iii) fees
from consumer goods companies for interactive advertising, promotion and
research, and (iv) revenues from maintenance and licensing fees relating to
licensing of the Company's software to Coles Myer Ltd. Net sales decreased by 5%
from $18,864,000 in the quarter ended March 31, 1998 to $18,008,000 in the
quarter ended March 31, 1999.
Revenues from the sale of groceries increased from $15,495,000 in the
quarter ended March 31, 1998 to $15,743,000 in the quarter ended March 31, 1999.
Although orders decreased from 136,600 in the quarter ended March 31, 1998 to
135,200 in the quarter ended March 31, 1999, average order size increased by 3%.
Fees paid by customers and retail partners decreased from $2,793,000 in the
quarter ended March 31, 1998 to $2,059,000 in the quarter ended March 31, 1999.
This decrease is attributable to (1) reduced shopping and delivery fees, (2)
lower subscription fees resulting from reduced customer pricing in centralized
markets, and (3) to reduced lower contractual fees due to less reliance on
retailers in centralized markets. Customers, measured as customers transacting
within the last 12 months, decreased 11% from 103,800 at March 31, 1998 to
92,600 at March 31, 1999. Reductions in the Company's customer base resulted
largely from a mid-1998 decision to scale back marketing programs in order to
focus resources on the new service model and on initiatives to centralize
fulfillment operations in a number of markets.
Fees from consumer goods companies for interactive advertising,
promotion and research decreased from $526,000 in the quarter ended March 31,
1998 to $206,000 in the quarter ended March 31, 1999. This reduction is largely
the result of the Company's temporarily cutting back on marketing and new
customer initiatives while transitioning its fulfillment model to centralized
distribution.
Licensing revenues were $50,000 in the quarter ended March 31, 1998.
The licensing division was spun-off as a separate entity on December 31, 1998
and no such revenues are anticipated in the future.
Cost of sales. Cost of sales are the cost of groceries and other
products sold to customers. Cost of sales decreased 1% from $14,573,000 in the
quarter ended March 31, 1998 to $14,366,000 in the quarter ended March 31, 1999
due to increasing profit margins in markets with centralized distribution.
Fulfillment operations. Fulfillment operations expenses include (i) the
direct costs relating to the shopping, packing and delivery of customer orders,
(ii) salaries and overhead expenses of each fulfillment center, (iii) salaries
and overhead expenses for each metropolitan market and (iv) salaries and
overhead expenses for certain field support functions such as recruiting and
customer support. Fulfillment operations expenses increased 14% from $4,518,000
for the quarter ended March 31, 1998 to $5,152,000 for the quarter ended March
31, 1999. The increase is primarily attributable to increases in the direct
costs of delivering grocery orders resulting from start-up costs in Chicago,
Long Island and San Francisco and to duplicative resources required to
transition operations into the new centralized distribution facility in
Chicago. These increases were offset, in part, by decreases in customer support
and zone overhead functions.
At March 31, 1999, the Company fulfilled customer orders from 32
fulfillment centers across eight metropolitan markets covering 7,109,600
households. This compares to 40 fulfillment centers across seven metropolitan
markets at March 31, 1998 covering 6,105,000 households. While the Company has
incurred start-up costs related to opening the centralized facilities, the
evolution of its fulfillment model has resulted in economies of scale as
fulfillment centers have been consolidated into more centralized or dedicated
facilities.
General and administrative. General and administrative expenses, which
include corporate staff, accounting and human resources, occupancy and other
fixed expenses, decreased 11% from $1,737,000 in the quarter ended March 31,
1998 to $1,554,000 in the quarter ended March 31, 1999. The decrease is
primarily attributable to a decrease in compensation related expenses as the
Company's corporate structure has not expanded during 1999.
Marketing and selling. Marketing and selling expenses include the cost
of customer marketing, such as radio advertising and direct mail, as well as
certain costs relating to public relations and the sale of interactive marketing
products. The Company expenses all such costs as incurred. Marketing and selling
expenses decreased by 26% from $1,672,000 for the quarter ended March 31, 1998
to $1,238,000 for the quarter ended March 31, 1999. The decrease is primarily
attributable to the Company's mid-1998 decision to limit marketing expenditures
in order to focus on modifying its service model and centralizing fulfillment
operations in a number of markets.
System development and maintenance. System development and maintenance
expenses, which include new product development as well as the maintenance and
enhancement of existing systems, increased 19% from $610,000 for the quarter
ended March 31, 1998 to $723,000 for the quarter ended March 31, 1999. The
increase is primarily attributable to compensation expenses for additional
resources to support the Company's new website technology. No development costs
were capitalized in the first quarter of 1999 while $308,000 of development
costs were capitalized in the first quarter of 1998.
Depreciation and amortization. Depreciation and amortization increased
2% from $463,000 for the quarter ended March 31, 1998 to $474,000 for the
quarter ended March 31, 1999. This increase is the result of equipment added to
support new centralized distribution facilities offset by a fourth quarter 1998
reduction in the depreciable lives of various fixed assets.
Other income (expense). Other income (expense) includes interest paid
on capital leases and investment earnings. Interest expense decreased from
$56,000 for the quarter ended March 31, 1998 to $48,000 in the quarter ended
March 31, 1999. Investment income decreased from $783,000 in the quarter ended
March 31, 1998 to $478,000 in the quarter ended March 31, 1999 due primarily to
a reduction in invested principal.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities decreased from $8,787,000 in the
first three months of 1998 to $4,517,000 in the first three months of 1999. The
decrease in cash used in operating activities was primarily attributable to a
$3,900,000 decrease in accounts payable early in 1998, an increase in other
receivables relating to the spin-off of Split Pea Software, Inc. at December 31,
1998 and an increase in other current assets in the first three months of 1999
offset by an increase in the net loss in the first three months of 1999. As of
March 31, 1999, the Company had $4,943,000 in cash and cash equivalents and
$25,429,000 in marketable securities. The Company uses its working capital to
fund ongoing operations, marketing programs, geographic expansion and to further
develop its products and services.
The Company anticipates that existing cash and marketable securities
will be sufficient to fund the Company's operations and capital requirements for
the foreseeable future. However, no assurance can be given that changing
business circumstances will not require additional capital for reasons that are
not currently anticipated or that the necessary capital will then be available
to the Company on favorable terms, or at all.
The Company believes that inflation has not had a material effect on
its operations.
YEAR 2000 DISCLOSURE
The "Year 2000" problem concerns the inability of information systems
to properly recognize and process date-sensitive information beyond December 31,
1999. The Company has evaluated the impact of the Year 2000 issue on its
business and does not expect to incur significant costs associated with its own
Year 2000 compliance or that internal Year 2000 issues will have a material
impact on the Company's business, results of operations or financial condition.
The Company's software systems and applications are currently Year 2000
compliant. In addition, with respect to the Company's ability to obtain product
information, to the extent that any of the Company's retail partners' computer
systems are not Year 2000 compliant, the Company will establish alternative
procedures for obtaining relevant retailer information at a minimal cost to the
Company. The Company has not incurred to date, and does not expect to incur,
material costs with respect to its initiatives mentioned above.
Nonetheless, failure of certain third party systems could have a
material adverse impact on the Company. Because of the range of possible issues
and the large number of variables involved, it is impossible to quantify the
potential cost of problems should remediation efforts of third parties with whom
the Company does business not be successful. For example, the Company relies on
its retail partners and on other third party vendors for inventory that the
Company sells. The Company is addressing whether these third parties in its
supply chain are adequately addressing their Year 2000 compliance issues. The
Company has initiated communications with its significant suppliers and other
vendors to determine and monitor the Year 2000 issue and to evaluate the impact
on the Company. Failure by such parties to timely address the Year 2000 issue
could impact the Company's ability to obtain inventory, among other things,
which could have a material adverse impact on the Company's business, financial
condition or results of operations.
Furthermore, the Company utilizes third party equipment, software and
content, including non-information technology systems (such as building
equipment and security systems) that may not be Year 2000 compliant. The Company
is in the process of assessing whether critical third-party systems and
equipment and critical non-information technology systems and equipment are
adequately addressing the Year 2000 issue. For example, certain operating
systems of third party vendors on which certain Company software resides are not
yet Year 2000 compliant. Several of these vendors have indicated to the Company
that Year 2000 compliant upgrades are available and the Company intends to
install these upgrades in the first half of 1999. Failure of third-party
equipment, software or content to operate properly with regard to the Year 2000
issue could require the Company to incur unanticipated expense to remedy
problems, which could have a material adverse effect on the Company's business,
results of operation and financial condition.
PART II
OTHER INFORMATION
Item 5. Other Information
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995.
Certain statements in this report relative to markets for the
Company's products and trends in the Company's operations or
financial results, as well as other statements including words
such as "anticipate," "believe," "plan," "estimate," "expect,"
"intend" or other similar expressions, constitute
"forward-looking statements" under The Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
are contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in other
portions of this report. Such forward-looking statements are
subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially
different from those contemplated by the forward-looking
statements. Such factors include, among other things: (1) the
developing nature of the markets for the Company's services
and the rapid technological change relating thereto; (2) the
Company's relationship with its retail partners and its
interactive marketing services and research customers; (3) the
Company's ability to execute its growth strategies, including
effectively implementing a centralized fulfillment
distribution model; (4) the extent to which the Company is
able to attract and retain key personnel; (5) competition; (6)
general economic conditions; (7) regulations; and (8) the risk
factors or uncertainties listed from time to time in the
Company's filings with the Securities and Exchange Commission.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - The following exhibits are filed herewith or are incorporated
herein:
Exhibit
No. Description
27 -- Financial Data Schedule
(b) Reports on Form 8-K - The Registrant filed no Current Reports on Form
8-K during the quarter ended March 31, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Peapod, Inc.
(Registrant)
/s/ Dan Rabinowitz
April 29, 1999 -----------------------
Dan Rabinowitz
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US DOLLARS
<MULTIPLIER> 1,000
<CIK> 0001036992
<NAME> PEAPOD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,943
<SECURITIES> 17,796
<RECEIVABLES> 1,814
<ALLOWANCES> (279)
<INVENTORY> 0
<CURRENT-ASSETS> 25,546
<PP&E> 7,604
<DEPRECIATION> (2,723)
<TOTAL-ASSETS> 38,060
<CURRENT-LIABILITIES> 7,828
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 29,016
<TOTAL-LIABILITY-AND-EQUITY> 38,060
<SALES> 18,008
<TOTAL-REVENUES> 18,008
<CGS> 14,366
<TOTAL-COSTS> 9,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> (5,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,069)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
<FN>
This schedule contains summary financial information extracted from the
balance sheet as of March 31, 1999 and the statement of operations for the three
months ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</FN>
</TABLE>
