SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 7, 2000
(Date of earliest event reported)
PEAPOD, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 0-22557 36-4118175
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation or Organization) Number) Identification Number)
9933 Woods Drive, Skokie, Illinois 60077
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 583-9400
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On September 7, 2000, Registrant entered into an Asset Purchase Agreement
(the "Purchase Agreement') with Streamline.com, Inc., Beacon Home Direct, Inc.
and Streamline Mid-Atlantic, Inc. (collectively, the "Sellers") pursuant to
which Registrant acquired from Sellers substantially all of the assets and
product on hand of two warehouses, located in Lake Zurich, Illinois and
Gaithersburg, Maryland for $11,612,000 in cash and the assumption of capital
leases and other obligations in the amount of $6,659,000. A copy of the Purchase
Agreement is filed as Exhibit 2.1 hereto. A copy of the press release announcing
the transaction is filed as Exhibit 99.1 hereto.
Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Current Report on Form 8-K, originally filed
with the Securities and Exchange Commission on September 12, 2000.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Beacon Home Direct, Inc.:
-------------------------------------------------
Report of Independent Accountants, as of and for the year ended
December 31, 1999
Report of Independent Accountants, as of and for the year ended
December 31, 1998
Balance Sheets at December 31, 1999 and 1998 and June 30, 2000
(unaudited)
Statements of Operations for the years ended December 31, 1998 and
1999 and the six months ended June 30, 1999 (unaudited) and 2000
(unaudited)
Statements of Deficit for the years ended December 31, 1998 and 1999
and the six months ended June 30, 2000 (unaudited)
Statements of Cash Flows for the years ended December 31, 1998 and
1999 and the six months ended June 30, 1999 (unaudited) and 2000
(unaudited)
Notes to Financial Statements
(b) Unaudited Pro Forma Financial Information:
------------------------------------------
Pro Forma Balance Sheet as of June 30, 2000
Pro Forma Statements of Operations for the year ended December 31,
1999 and for the six months ended June 30, 2000
Notes to Pro Forma Financial Statements
(c) Exhibits:
---------
2.1 Asset Purchase Agreement among Peapod, Inc., Streamline.com,
Inc., Beacon Home Direct, Inc. and Streamline Mid-Atlantic, Inc.
dated as of September 7, 2000
23.1 Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP
99.1 Press Release of Registrant dated September 7, 2000*
------------
* Previously filed (incorporated by reference to the Form 8-K dated September 7,
2000 and filed on September 12, 2000).
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of BEACON HOME DIRECT, INC. (an
Illinois corporation), d/b/a Scotty's Home Market, as of December 31, 1999, and
the related statements of operations, deficit and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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 Beacon Home Direct, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
Chicago, Illinois
November 17, 2000
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of BEACON HOME DIRECT, INC. (an
Illinois corporation), d/b/a Scotty's Home Market, as of December 31, 1998, and
the related statements of operations, deficit and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require us to 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 evaluation of the overall financial statement
presentation. We believe that our audit provides 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 Beacon Home Direct, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
March 5, 1999
4
<PAGE>
BEACON HOME DIRECT, INC.
D/B/A SCOTTY'S HOME MARKET
Balance Sheets
December 31, 1998 and 1999,
and year ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
JUNE 30, 2000
ASSETS 1998 1999 (UNAUDITED)
------------ ------------ ------------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 7,240,405 237,719 650,745
Accounts receivable 13,990 33,926 67,409
Inventory 326,960 368,091 471,492
Current portion of deferred loss on sale leaseback -- -- 62,707
Prepaid expenses and other current assets 155,855 542,181 528,779
------------ ------------ ------------
Total current assets 7,737,210 1,181,917 1,781,132
Property and equipment, net 404,908 11,193,385 6,377,300
Purchased and capitalized software, net 208,423 1,519,442 1,034,107
Goodwill, net 94,668 86,436 82,320
Deferred loss on sale leaseback, less current portion -- -- 1,160,616
Other assets 103,519 145,590 485,893
------------ ------------ ------------
Total assets $ 8,548,728 14,126,770 10,921,368
============ ============ ============
LIABILITIES AND DEFICIT
Current liabilities:
Line of credit $ -- 3,600,000 --
Mortgage note payable -- 3,831,658 --
Accounts payable 85,443 217,557 182,373
Accrued expenses 731,408 1,562,017 874,866
Current portion of capital lease obligations 87,009 538,724 843,290
Due to Streamline.com, Inc. -- -- 10,342,511
------------ ------------ ------------
Total current liabilities 903,860 9,749,956 12,243,040
Capital lease obligations, less current portion 108,652 3,269,309 4,494,270
------------ ------------ ------------
Total liabilities 1,012,512 13,019,265 16,737,310
------------ ------------ ------------
Convertible redeemable Series A cumulative
preferred stock, $0.001 par value;
Authorized: 50,000 shares at December 31, 1998 and 1999
and 0 shares at June 30, 2000
Issued and outstanding: 10,000 shares at December 31, 1998
and 1999 and 0 shares at June 30, 2000 9,414,069 9,914,069 --
Deficit:
Common stock, no par value;
Authorized: 20,000,000 shares at December 31, 1998 and 1999
and 0 shares at June 30, 2000
Issued and outstanding: 5,442,384, 5,528,154, and 0 shares
at December 31, 1998, December 31, 1999, and
June 30, 2000, respectively 4,706,603 4,801,808 --
Additional paid-in capital 21,393 122,762 --
Warrants 43,904 380,650 --
Accumulated deficit (6,649,753) (14,111,784) --
Net divisional deficit -- -- (5,815,942)
------------ ------------ ------------
Total deficit (1,877,853) (8,806,564) (5,815,942)
------------ ------------ ------------
Total liabilities and deficit $ 8,548,728 14,126,770 10,921,368
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
BEACON HOME DIRECT, INC.
D/B/A SCOTTY'S HOME MARKET
Statements of Operations
Years ended December 31, 1998 and 1999,
and six months ended June 30, 1999 (unaudited) and 2000 (unaudited)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Product and service revenue, net $ 5,429,990 7,295,833 3,364,419 4,810,773
Delivery fees 151,864 155,600 74,213 72,044
------------ ------------ ------------ ------------
Total revenue 5,581,854 7,451,433 3,438,632 4,882,817
------------ ------------ ------------ ------------
Operating expenses:
Cost of revenue 3,972,863 5,121,513 2,372,566 3,318,339
Fulfillment center operations 2,323,830 2,470,665 1,288,704 2,071,449
Sales and marketing 699,951 1,931,356 1,035,203 2,205,583
Technology systems and development 498,282 1,114,801 391,524 1,129,690
General and administrative 1,762,755 3,615,452 1,482,062 2,672,879
------------ ------------ ------------ ------------
Total operating expenses 9,257,681 14,253,787 6,570,059 11,397,940
------------ ------------ ------------ ------------
Loss from operations (3,675,827) (6,802,354) (3,131,427) (6,515,123)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 89,239 148,897 116,889 39
Interest expense (56,715) (312,221) (16,938) (409,633)
Other 1,609 3,647 1,913 1,270
------------ ------------ ------------ ------------
Total other income (expense), net 34,133 (159,677) 101,864 (408,324)
------------ ------------ ------------ ------------
Net loss (3,641,694) (6,962,031) (3,029,563) (6,923,447)
============
Dividends on preferred stock 117,808 500,000 250,000
------------ ------------ ------------
Net loss attributable to common stockholders $ (3,759,502) (7,462,031) (3,279,563)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
BEACON HOME DIRECT, INC.
D/B/A SCOTTY'S HOME MARKET
Statements of Deficit
Unaudited for the six months ended June 30, 2000
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ADDITIONAL NET
NO PAR PAID-IN ACCUMULATED DIVISIONAL TOTAL
SHARES VALUE CAPITAL WARRANTS DEFICIT DEFICIT DEFICIT
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,980,434 $ 2,778,375 11,142 40,000 (2,890,251) -- (60,734)
Dividends on preferred stock -- -- -- (117,808) -- -- (117,808)
Exercise of warrants 150,000 111,500 -- -- -- -- 111,500
Issuance of options and warrants
for the purchase of common stock -- -- 10,251 3,904 -- -- 14,155
Sale of common and preferred stock 1,311,950 1,816,728 -- -- -- -- 1,816,728
Net loss -- -- -- -- (3,641,694) -- (3,641,694)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 5,442,384 $ 4,706,603 21,393 43,904 (6,649,753) -- (1,877,853)
Options exercised 85,770 95,205 -- -- -- -- 95,205
Dividends on preferred stock -- -- -- -- (500,000) -- (500,000)
Stock-based compensation -- -- 101,369 336,746 -- -- 438,115
Net loss -- -- -- -- (6,962,031) -- (6,962,031)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 5,528,154 $ 4,801,808 122,762 380,650 (14,111,784) -- (8,806,564)
Conversion of common and
preferred stock in connection
with merger (unaudited) (5,528,154) (4,801,808) (122,762) (380,650) 14,111,784 1,107,505 9,914,069
Net loss (unaudited) -- -- -- -- -- (6,923,447) (6,923,447)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 (unaudited) -- $ -- -- -- -- (5,815,942) (5,815,942)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
BEACON HOME DIRECT, INC.
D/B/A SCOTTY'S HOME MARKET
Statements of Cash Flows
Years ended December 31, 1998 and 1999,
and six months ended June 30, 1999 (unaudited) and 2000 (unaudited)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1998 1999 1999 2000
------------ ------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss $ (3,641,694) (6,962,031) (3,029,563) (6,923,447)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 169,097 334,898 120,995 995,720
Non-cash loss and impairment on fixed assets 324,909 30,817 30,817 --
Amortization of goodwill and other assets 25,871 8,232 4,116 4,116
Non-cash expense for options and warrants 10,251 438,115 336,746 --
Amortization of loss on sale leaseback -- -- -- 30,817
Changes in assets and liabilities:
Accounts receivable (349) (19,936) 6,891 (33,483)
Inventory (118,035) (41,131) (138,658) (103,401)
Prepaid expenses and other current assets (75,005) (386,326) 1,148 13,402
Other assets (71,560) (42,071) (48,941) (340,303)
Accounts payable (85,207) 132,114 102,466 (35,184)
Accrued expenses 555,835 830,609 584,462 (687,151)
------------ ------------ ------------ ------------
Net cash used in operating activities (2,905,887) (5,676,710) (2,029,521) (7,078,914)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (171,344) (7,285,138) (2,438,422) (253,374)
Additions to purchased and capitalized software (181,950) (1,380,493) (457,967) (88,924)
Net proceeds from sale leaseback -- -- -- 1,445,019
------------ ------------ ------------ ------------
Net cash used in investing activities (353,294) (8,665,631) (2,896,389) 1,102,721
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of
issuance costs 1,816,728 -- -- --
Proceeds from sale of preferred stock and
warrant, net of issuance costs 9,300,165 -- -- --
Proceeds from the exercise of warrants 111,500 -- -- --
Proceeds from the exercise of stock options -- 95,205 -- --
Net borrowings (repayments) under line of credit -- 3,600,000 1,500,000 (3,600,000)
Proceeds from mortgage note payable -- 5,200,000 -- --
Payments on mortgage note payable -- (1,368,342) -- --
Proceeds from notes payable 925,719 -- -- --
Payments on notes payable (1,618,293) -- -- --
Advances from Streamline.com, Inc. -- -- -- 10,342,511
Principal payments on capital lease obligations (36,906) (187,208) (24,184) (353,292)
------------ ------------ ------------ ------------
Net cash provided by financing activities 10,498,913 7,339,655 1,475,816 6,389,219
------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 7,239,732 (7,002,686) (3,450,094) 413,026
Cash and cash equivalents, beginning of period 673 7,240,405 7,240,405 237,719
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 7,240,405 237,719 3,790,311 650,745
============ ============ ============ ============
Supplemental disclosure of cash flow information -
cash paid for interest $ 56,715 297,856 16,602 405,833
Supplemental disclosure of non-cash investing and
financing activities:
Assets acquired with capital lease obligations $ 181,684 3,799,580 23,471 1,943,354
Proceeds of sale leaseback remitted directly to
repay mortgage note -- -- -- 3,831,658
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Beacon Home Direct, Inc. d/b/a/ Scotty's Home Market (the Company) was
incorporated in November 1994, and is the successor to a business originally
founded in 1991. The Company is an interactive on-line grocery shopping and home
delivery service that provides its customers time savings, convenience and
personalized consumer direct services. The Company markets both branded and
proprietary products for sale to its customers. All orders are fulfilled at the
Company's distribution center, located in suburban Chicago, Illinois, and
delivered to customers in the Company's own specialized fleet of delivery
vehicles.
On October 18, 1999, the Company entered into an Agreement and Plan of Merger
and Reorganization (the Agreement) with a wholly owned subsidiary of
Streamline.com, Inc. (Streamline). The merger was consummated on January 5,
2000, at which time each share of the Company's common stock and convertible
preferred stock (on an as-converted basis) issued and outstanding immediately
prior to the consummation of the merger automatically converted into .3884
shares of Streamline common stock. As a result of the merger, 3,710,456 shares
of Streamline common stock were issued to the former holders of the Company's
common stock and convertible preferred stock. Additionally, outstanding warrants
and options to acquire the Company's common stock were converted into warrants
and options to acquire approximately 597,595 shares of Streamline common stock.
Prior to the closing of the merger, the holder of 10,000 shares of the Company's
Series A preferred stock converted those shares into 3,787,879 shares of the
Company's common stock. As part of this conversion, all dividends previously
accrued for the Series A preferred stock were cancelled pursuant to the
Company's Articles of Incorporation.
Following the combination, which was approved by the board of directors of both
companies, the Company operated as a division of Streamline.com, Inc. The
combination was accounted for by Streamline as a pooling of interests. The
accompanying unaudited interim financial information as of and for the period
from January 5, 2000 to June 30, 2000 reflect only the financial position,
operations, and cash flows of the Scotty's Home Market division of Streamline.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
INVENTORY
The Company uses the first-in, first-out method for costing its inventory,
which consists of grocery products held for resale.
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided on a straight-line basis over
the estimated useful lives of the assets. Major repairs, which extend the
useful life of an asset, are charged to the property and equipment
accounts. Routine maintenance and repairs are charged against earnings. The
cost of property and equipment retired or sold and the related accumulated
depreciation are removed from the accounts and any related gain or loss is
included in earnings.
Depreciation and amortization are provided over the following estimated
service lives:
ASSET DESCRIPTION LIFE
--------------------------------- ----------
Computer equipment 5 years
Furniture and fixtures 7-10 years
Refrigeration equipment 7-10 years
Vehicles 5 years
The cost and accumulated depreciation for equipment leased under
capitalized leases are included in property and equipment. Depreciation is
recorded over the life of the lease or the service life of the asset.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The costs of internally developed software are capitalized in accordance
with Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," and begins when the
conceptual formulation, evaluation and testing of possible software project
alternatives have been completed. Pilot projects and projects where
expected future economic benefits are less than probable are not
capitalized. Internally developed software costs include the cost of
software licenses used in the development of the Company's systems, as well
as payroll and consulting costs. Capitalized costs totaled $147,135 and
$1,370,481 and $88,924 for the years ended December 31, 1998 and 1999, and
for the six months ended June 30, 2000, respectively.
GOODWILL
Goodwill is being amortized on a straight-line basis over its estimated
useful life of 15 years. Accumulated amortization as of December 31, 1998
and 1999 and June 30, 2000, was $28,812, $37,044, and $41,160,
respectively. The Company periodically evaluates the carrying value of
goodwill for possible impairment based upon expected future undiscounted
operating cash flows. Amortization expense for the years ended December 31,
1998 and 1999 and for the six months ended June 30, 1999 and 2000 was
$8,232 and $8,232 and $4,116 and $4,116, respectively.
INCOME TAXES
Prior to October 6, 1998, the Company elected to be taxed as an S
Corporation. As a result, income (loss) of the Company was taxable to the
shareholders. On October 6, the Company's S Corporation status was
terminated and the Company became a C Corporation. Income taxes are
accounted for in accordance with the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
9
<PAGE>
STOCK OPTION PLANS
The Company accounts for its option plans in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As such, compensation expense would be recorded on the date of
grant only if the fair market value of the stock exceeded the exercise
price. The Company provides pro forma disclosure of net income as required
under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options and other equity instruments based on the fair value
method of accounting.
REVENUE RECOGNITION
Grocery sales are recognized when the grocery order is delivered to the
customer. Grocery sales are recorded net of discounts of $142,343 in 1998,
$195,689 in 1999, $69,478 for the six months ended June 30, 1999 and
$46,323 for the six months ended June 30, 2000. The delivery fee, if any,
is also recognized upon delivery to the customer.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL STATEMENTS
The financial statements of the Company for the six months ended June 30,
1999 and as of and for the six months ended June 30, 2000 and related
footnote information are unaudited. All adjustments consisting only of
normal recurring adjustments have been made which, in the opinion of
management, are necessary for a fair presentation of the interim financial
information. Results of operations for the six months ended June 30, 2000
are not necessarily indicative of the results that may be expected for any
future period.
10
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
DECEMBER 31, JUNE 30,
1998 1999 2000
(unaudited)
------------ ------------ ------------
Computer equipment $ 183,364 $ 904,272 $ 1,184,859
Furniture and fixtures 116,466 2,029,084 3,244,376
Vehicles 215,351 634,615 1,215,867
Refrigeration equipment 13,845 877,575 1,380,853
Construction in progress 0 6,950,704 0
------------ ------------ ------------
529,026 11,396,250 7,025,955
Accumulated depreciation
and amortization (124,118) (202,865) (648,655)
------------ ------------ ------------
$ 404,208 $ 11,193,385 $ 6,377,300
============ ============ ============
At December 31, 1998 and 1999 and June 30, 2000, the costs of fixed assets held
under capital leases and included above amounted to $268,775, $3,972,722 and
$5,916,076, respectively, and accumulated amortization related to such assets
amounted to $20,624, $118,695 and $421,719, respectively.
4. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1998 and 1999 and the six months ended June 30,
1999 and 2000, the Company purchased $538,852 and $557,630 and $251,819 and
$330,737, respectively, of product from a vendor that is owned by a relative of
a management employee and option holder of the Company.
A director of the Company, who is also a shareholder, is employed by the
Company's investment advisory firm. In October 1998, this firm was paid
approximately $600,000 for fees relating to the sale of the Company's Series A
preferred stock.
The due to Streamline.com, Inc. liability balance reflects net advances received
from Streamline to fund operating activities and capital expenditures during the
six months ended June 30, 2000.
11
<PAGE>
5. DEBT
The Company maintained a line of credit arrangement with a bank that provided
for maximum borrowings of $1,500,000 and $4,800,000 for the years ended December
31, 1998 and 1999, respectively. Borrowings were secured by substantially all of
the Company's assets. Interest on borrowings accrued at 0.25% above the bank's
prime interest rate (7.75% and 8.75% at December 31, 1998 and 1999,
respectively). As of December 31, 1998 and 1999, the Company's outstanding
borrowings under the line of credit were $0 and $3,600,000, respectively. The
line of credit was terminated in 2000, upon consummation of the merger described
in Note 1.
In August 1999, the Company borrowed $5,120,000 under a mortgage note agreement
with a bank to finance construction of a new distribution center near Chicago,
Illinois. The mortgage note and accrued interest thereon was payable at the
later of: (i) December 31, 1999, or (ii) upon closing of the sale leaseback
transaction described in Note 11, but in no event later than February 29, 2000.
Interest on the principal balance accrued at 0.5% above the bank's prime
interest rate (8.75% at December 31, 1999). As of December 31, 1999, the
Company's unpaid balance under this mortgage note was $3,831,658. The mortgage
note was repaid in 2000 with proceeds from the sale leaseback described in Note
11.
6. INCOME TAXES
The Company's federal and state tax net operating losses, generated since
October 6, 1998, were approximately $8,117,000 as of December 31, 1999. If not
used, the net operating losses expire through 2019. The Company has established
a valuation allowance of approximately $392,000 and $3,053,000, at December 31,
1998 and 1999, respectively, against the deferred tax asset associated with its
net operating losses. The Company has also recorded a valuation allowance of
approximately $215,000 at December 31, 1998 and 1999, respectively, against the
deferred tax asset related to expenses associated with relocating the operations
which were not deductible for tax purposes until 2000. Realization of deferred
tax assets is dependent upon generating sufficient future taxable income to
absorb the tax benefits. The amount of deferred tax assets considered to be
realizable could be increased if estimates of future taxable income during the
carry-forward period increase. The difference between the total tax provision
and the amount computed by applying statutory rates is primarily due to the
change in the deferred tax asset valuation allowance.
7. EQUITY
On October 6, 1998, the Company received $10 million from an investor in
exchange for 10,000 Series A preferred shares that grant the investor certain
preferential rights and a nondetachable warrant to purchase 390,430 common
shares at an exercise price, subject to adjustment, of $2.64 per share. The
warrant vests based on the achievement of certain performance criteria by the
investor. The warrant is exercisable after the vesting date until October 6,
2008, or the effective date of a registration statement. The preferred shares
may be converted into the Company's common stock at the earlier of (a) April,
2000, or (b) a conversion event (e.g., merger, sale of assets), as defined. The
number of common shares into which the Series A preferred stock is convertible
is $10 million divided by the Series A conversion price (currently $2.64), as
defined. The Series A preferred shareholders can require the corporation to
purchase their shares at the redemption price, as defined, if a fundamental
change, as defined (e.g., change in control, merger, sale of assets or change in
the composition of the Board), occurs.
Subsequent to October, 2001, the Company may redeem all the Series A preferred
shares upon 60-day notice at the redemption price, as defined. Upon such notice,
the Series A preferred shareholders have the right to convert their shares into
common shares. An annual cumulative dividend of $50 per preferred share accrues
to the benefit of Series A preferred shareholders, until such dividends are paid
by the Board.
12
<PAGE>
The convertible redeemable Series A cumulative preferred stock balance on the
accompanying balance sheets includes such accrued dividends. The purchase
agreement with the investor contains covenants including restrictions on
indebtedness, loans or advances and transactions with holders of more than 10%
of the stock of the Company. The Company was in compliance with all covenants as
of December 31, 1998 and 1999.
The common stock entitles the holders to one vote per share. The Series A
preferred shareholders have no voting rights.
A common stock restriction agreement provides that prior to transferring shares,
a shareholder must first notify the Company and other shareholders and give them
the option to purchase the shares that are being offered to the third party. The
purchase price of these shares would be the lesser of the price offered by the
proposed transferee or the applicable book value per share (book value is
defined as the difference between the Company's assets and liabilities as of the
close of the applicable calendar year, but not less than $1.00). The agreement
also states that if a shareholder involuntarily has to transfer his shares to a
third party (i.e., due to bankruptcy, notice of a judgment against or other
indebtedness of the shareholder, etc.), the shareholder must notify the Company
in writing of his intent. The Company will have the option to purchase the
shares before they could be transferred at the applicable book value per share.
Effective January 5, 2000, upon consummation of the merger described in Note 1,
each share of the Company's outstanding common stock automatically converted
into 0.3884 shares of Streamline common stock. Each share of the Company's
convertible preferred stock automatically converted into shares of Streamline
common stock, based on the 0.3884 common stock conversion ratio, as if the
Company's convertible preferred stock had been converted into the Company common
stock immediately prior to consummation of the merger.
8. STOCK OPTION PLAN
In October 1997, the Company adopted the Restated and Amended Beacon Home
Direct, Inc. 1997 Stock Option Plan (the Plan). As of December 31, 1999,
approximately 864,000 shares are reserved for issuance under the plan. The Plan
provides that awards may be granted to employees, officers, directors and
certain consultants of the Company. Awards may consist of non-statutory stock
options and incentive stock options to purchase shares of the common stock.
Incentive stock options generally vest over a three-year period and certain
stock options vest immediately upon an initial public offering of the Company's
common stock. The stock option grants generally expire 10 years after the date
of grant. As of December 31, 1999, there were approximately 79,380 shares
available for future grants under the plan. The Plan was terminated effective
January 5, 2000, upon consummation of the merger described in Note 1, at which
time all outstanding stock options to acquire the Company's common stock were
converted into options to acquire Streamline common stock.
13
<PAGE>
Stock option activity for the Company's plan is as follows:
------------------------------------------------
December 31, December 31,
------------------------------------------------
1998 1999
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ---------- ---------- ----------
Outstanding at
beginning of period 262,500 $ 1.10 618,090 $ 1.16
Granted 368,240 $ 1.21 450,400 $ 3.02
Exercised -- -- (85,770) $ 1.11
Cancelled (12,650) $ 1.11 (197,870) $ 1.38
---------- ----------
Outstanding at end of
period 618,090 $ 1.16 784,850 $ 1.91
========== ========== ========== ==========
Options exercisable at
end of period 111,566 $ 1.41 208,449 $ 1.28
========== ========== ========== ==========
The following summarizes the options outstanding at December 31, 1999:
WEIGHTED
TOTAL AVERAGE
NUMBER OF REMAINING NUMBER OF
OPTIONS CONTRACTUAL OPTIONS
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE
-------------- ------------- -------------------- -----------
$0.55 7,000 7.75 7,000
$1.11 339,550 8.27 192,049
$3.00 417,400 9.43 1,000
$3.65 12,500 9.92 --
$5.50 8,400 8.71 8,400
------------- -----------
784,850 8.91 years 208,449
============= ==================== ===========
Had the Company accounted for its stock options in accordance with SFAS No. 123,
the net loss for the years ended December 31, 1998 and 1999 would have been
approximately $21,000 and $129,000 higher, respectively. The pro forma
disclosure is not likely to be indicative of pro forma results which may be
expected in future years because of the fact that options vest over several
years, compensation expense is recognized as the options vest and additional
awards may also be granted. For the years ended December 31, 1998 and 1999, the
Company recorded compensation expense of $10,251 and $101,369, respectively,
associated with stock options, which is included in sales and marketing and
technology systems and development expenses in the accompanying statements of
operations.
For purposes of determining the pro forma effects of options granted, the fair
value of each option is estimated on the date of grant based on the
Black-Scholes option pricing model assuming, among other things, no dividend
yield, expected volatility of 5% for 1998 and 1999, risk-free interest rates of
4.7% in 1998 and 5.5% in 1999 and an expected life of three years.
14
<PAGE>
9. ASSET IMPAIRMENT AND OTHER CHARGES
The highly competitive and rapidly evolving industry that the Company operates
in requires continual improvement in order fulfillment. In October 1998,
management developed a plan to relocate its operations during 1999. As a result,
the Company incurred $220,000 in costs associated with the termination of its
existing leases. This event and the expectation for continued operating losses
triggered an impairment review of other long-lived assets associated with this
facility. As a result, the Company adjusted the carrying value of certain
long-lived assets, primarily warehouse and office equipment, to their estimated
fair value of approximately $70,000, resulting in a non-cash impairment loss of
approximately $320,000. These costs, which total $540,000, are included in
fulfillment center operations and general and administrative expenses in the
accompanying statement of operations for the year ended December 31, 1998.
10. WARRANTS
The following table summarizes the activity related to warrants for the years
ended December 31, 1998 and 1999:
-----------------------------------------------
December 31 December 31
-----------------------------------------------
1998 1999
----------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ---------- ---------- ----------
Outstanding at
beginning of period 400,000 $ 1.09 640,430 $ 2.12
Granted 390,430 2.64 -- --
Exercised (150,000) .74 -- --
---------- ----------
Outstanding at end of
period 640,430 $ 2.12 640,430 $ 2.12
========== ========== ========== ==========
Warrants exercisable
at end of period 250,000 $ 1.30 445,215 $ 1.89
========== ========== ========== ==========
The weighted average fair value of the warrant granted during 1998 and vested in
1999 was calculated using the Black-Scholes option pricing model using an
expected volatility of 80%, a risk-free interest rate of 4.5% and a term of nine
years. This warrant, referred to in Note 7, was vested due to the achievement in
May 1999 of certain performance criteria by an investor. The Company recorded
$336,746 of sales and marketing costs associated with this warrant. There are
approximately 190,000 additional shares that vest upon the achievement of
certain performance criteria. Once these performance criteria are met, the
related fair value will be calculated and the cost recorded in the year of
vesting. Upon consummation of the January 5, 2000 merger described in Note 1,
all outstanding warrants to acquire the Company's common stock were converted
into warrants to acquire Streamline common stock.
15
<PAGE>
11. LEASES
The Company leases its office facility and various equipment under
non-cancelable operating lease arrangements. Rent expense for the years ended
December 31, 1998 and 1999 and the six months ended June 30, 1999 and 2000, was
$108,011 and $337,665, and $189,291 and $398,287, respectively.
Future annual minimum rental payments under non-cancelable lease agreements are
as follows:
CAPITAL LEASES OPERATING
FISCAL YEAR ENDING DECEMBER 31, LEASES
------------------------------- ------------ ------------
2000 $ 915,476 803,243
2001 949,006 728,545
2002 864,793 717,839
2003 805,293 673,280
2004 804,167 666,250
Thereafter 938,638 13,302,930
------------ ------------
5,277,373 16,892,087
============
Less amount representing interest (1,469,340)
------------
Present value of net minimum lease payments 3,808,033
Less current portion of capital lease obligations (538,724)
------------
Capital lease obligation, less current portion $ 3,269,309
============
On January 5, 2000 the Company entered into a sale and leaseback transaction
with an unrelated third party for its newly constructed distribution center near
Chicago, Illinois. The initial gross selling price of $6.5 million was reduced
by approximately $1.2 million for additional construction work performed after
consummation of the sale leaseback. Concurrent with the sale, the Company leased
the property back through an operating lease with an initial term of 20 years.
The $1,254,000 loss on the sale has been deferred and is being amortized on a
straight-line basis over the term of the lease. The Company recognized
approximately $31,000 of expense on the sale leaseback for the six months ended
June 30, 2000, which is reflected in fulfillment center operations expense.
Future rental payments on the lease are approximately $16.6 million and are
reflected above within the disclosure of future minimum rental payments under
non-cancelable operating leases.
12. EMPLOYEE BENEFIT PLAN
Effective January 1, 1999, the Company established a contributory 401(k)
profit-sharing plan covering substantially all full time employees with a
service period greater than 180 days. The plan allows participants to contribute
up to 15% of their total compensation on a pretax basis, up to a specified
amount. The Company is not required to contribute to the plan and did not make
any discretionary contributions during 1999.
13. SUBSEQUENT EVENT
On September 7, 2000, Streamline sold the assets, exclusive of cash, of certain
operations, including the Scotty's Home Market division, to Peapod, Inc.
(Peapod). Under the terms of the purchase agreement between Peapod and
Streamline, Peapod paid approximately $11.6 million in cash and assumed
approximately $6.7 million of capital lease obligations.
16
<PAGE>
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) OF
PEAPOD, INC. AND ACQUIRED BUSINESS
The following unaudited pro forma balance sheet as of June 30, 2000 and the
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1999 and six months ended June 30, 2000 give effect to the
Company's acquisition of certain assets and the assumption of liabilities from
Streamline.com, Inc. The pro forma information is based on the respective
historical financial statements of Peapod, Inc., giving effect to the assets
acquired and liabilities assumed from Streamline.com, Inc. as of September 7,
2000 under the purchase method of accounting using the assumptions and
adjustments described in the accompanying notes to unaudited pro forma financial
statements. The unaudited pro forma statements of operations for the year ended
December 31, 1999 and the six months ended June 30, 2000 reflect adjustments as
if the acquisition had occurred on January 1, 1999. The unaudited pro forma
balance sheet as of June 30, 2000 gives effect to the acquisition as if it had
occurred on June 30, 2000. The financial effects of the acquisition as presented
in the unaudited pro forma financial statements are not necessarily indicative
of either financial position or results of operations that would have been
obtained had the acquisition actually occurred on the dates set forth above, nor
are they necessarily indicative of the results of future operations.
17
<PAGE>
PEAPOD, INC.
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
JUNE 30, 2000
(in thousands)
<TABLE>
<CAPTION>
ASSETS
ACQUIRED AND
LIABILITIES
ASSUMED FROM
STREAMLINE.COM, PRO FORMA
PEAPOD, INC. INC. ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ............... $ 61,942 $ -- $ (11,612)(a) $ 50,330
Receivables, net ........................ 669 56 725
Merchandise inventory ................... 643 731 1,374
Prepaid expenses ........................ 733 171 904
Other current assets .................... 3,148 85 3,233
------------ ------------ ------------ ------------
Total current assets ................ 67,135 1,043 (11,612) 56,566
Property and equipment, net .................. 6,960 11,653 18,613
Restricted cash .............................. 1,288 -- 1,288
Goodwill and other intangibles ............... -- -- 5,884(a) 5,884
Other non-current assets ..................... 3,017 236 3,253
------------ ------------ ------------ ------------
Total assets ........................ $ 78,400 $ 12,932 $ (5,728) $ 85,604
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ........................ $ 6,431 $ -- $ $ 6,431
Accrued compensation .................... 870 -- 870
Other accrued liabilities ............... 10,551 545 388(a) 11,484
Current deferred revenue ................ 439 -- 439
Current obligations under capital lease . 662 933 1,595
------------ ------------ ------------ ------------
Total current liabilities ........... 18,953 1,478 388 20,819
Obligations under capital lease,
less current portion ....................... 917 5,338 6,255
------------ ------------ ------------ ------------
Total liabilities ................... 19,870 6,816 388 27,074
Redeemable preferred stock, $.01 par value;
authorized 10,000,000 shares; 726,371
shares of Series B convertible
redeemable preferred stock issued at
June 30, 2000 ........................... 64,428 64,428
Total stockholders' deficit .................. (5,898) (5,898)
------------ ------------ ------------ ------------
Total liabilities and stockholders'
deficit ........................... $ 78,400 $ 6,816 $ 388 $ 85,604
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
18
<PAGE>
PEAPOD, INC.
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
ASSETS
ACQUIRED AND
LIABILITIES
ASSUMED FROM
STREAMLINE.COM, PRO FORMA
PEAPOD, INC. INC. ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 73,134 $ 7,960 $ $ 81,094
Cost of sales ...................................... 55,585 5,581 61,166
------------ ------------ ------------ ------------
Gross profit ....................................... 17,549 2,379 19,928
Operating expenses:
Fulfillment operations ........................ 23,580 3,311 26,891
General and administrative, including
system development and maintenance,
depreciation and amortization and
pre-opening costs ........................... 16,451 6,158 1,677(b) 24,286
Marketing and selling ......................... 7,168 2,306 9,474
------------ ------------ ------------ ------------
Total operating expenses ................. 47,199 11,775 1,677 60,651
------------ ------------ ------------ ------------
Operating loss ..................................... (29,650) (9,396) (1,677) (40,723)
Other income (expense):
Net investment income (expense) ............... 1,197 (190) (639)(c) 368
------------ ------------ ------------ ------------
Net loss ........................................... (28,453) (9,586) (2,316) (40,355)
Dividend on preferred stock ........................ (500) (500)
------------ ------------ ------------ ------------
Net loss available to common stockholders .......... $ (28,453) $ (10,086) $ (2,316) $ (40,855)
============ ============ ============ ============
Net loss per share available to common stockholders:
Basic and diluted ............................. $ (1.62) $ (2.33)
Shares used to compute net loss per share:
Basic and diluted ............................. 17,542,990 17,542,990
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
19
<PAGE>
PEAPOD, INC.
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
ASSETS
ACQUIRED AND
LIABILITIES
ASSUMED FROM
STREAMLINE.COM, PRO FORMA
PEAPOD, INC. INC. ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 47,646 $ 8,195 $ $ 55,841
Cost of sales ...................................... 36,790 5,651 42,441
------------ ------------ ------------ ------------
Gross profit ....................................... 10,856 2,544 13,400
Operating expenses:
Fulfillment operations ........................ 16,727 4,716 21,443
General and administrative, including
system development and maintenance,
depreciation and amortization and
pre-opening costs ........................... 8,248 4,189 838(b) 13,275
Marketing and selling ......................... 2,427 3,883 6,310
Nonrecurring expenses ......................... 5,608 5,608
------------ ------------ ------------ ------------
Total operating expenses ................. 33,010 12,788 838 46,636
------------ ------------ ------------ ------------
Operating loss ..................................... (22,154) (10,244) (838) (33,236)
Other income (expense):
Net investment income (expense) ............... (361) (468) (319)(c) (1,148)
Non-cash interest expense ..................... (616) (616)
------------ ------------ ------------ ------------
Net loss ........................................... (23,131) (10,712) (1,157) (35,000)
Non-cash deemed dividend on preferred stock ........ (56,953) (56,953)
------------ ------------ ------------ ------------
Net loss available to common stockholders .......... $ (80,084) (10,712) $ (1,157) $ (91,953)
============ ============ ============ ============
Net loss per share available to common stockholders:
Basic and diluted ............................. $ (4.42) $ (5.07)
Shares used to compute net loss per share:
Basic and diluted ............................. 18,125,842 18,125,842
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS. On September 7, 2000, the
Company acquired certain assets and assumed liabilities from Streamline.com,
Inc., located in Lake Zurich, Illinois (the Beacon Home Direct, Inc. facility),
and Gaithersburg, Maryland (the "Maryland Warehouse"). The unaudited pro forma
financial statements combine the unaudited balance sheet of Peapod, Inc. (the
"Company") as of June 30, 2000 and the assets and liabilities acquired from
Streamline.com, Inc. on September 7, 2000. The unaudited pro forma statement of
operations for the year ended December 31, 1999 combines the audited statements
of operations of the Company and Beacon Home Direct, Inc. and the unaudited
statement operations of the Maryland Warehouse. The unaudited pro forma
statement of operations for the six months ended June 30, 2000 combines the
unaudited statements of operations of the Company, Beacon Home Direct, Inc. and
the Maryland Warehouse.
2. PRO FORMA ADJUSTMENTS.
(a) The Company acquired from Streamline.com, Inc. substantially all of the
assets of Streamline's operations in Lake Zurich, Illinois, and a warehouse
located in Gaithersburg, Maryland, for $11,612,000 in cash and the
assumption of capital leases and other obligations in the amount of
$6,659,000. The acquisition was accounted for under the purchase method.
Accordingly, the purchase price has been allocated to identifiable tangible
and intangible assets and liabilities assumed based on their estimated fair
values. The excess of cost over net tangible assets acquired has been
allocated on a preliminary basis to customer lists and employee workforce
(approximately $2.5 million) which will be amortized over two to three
years and to goodwill (approximately $3.4 million) which will be amortized
over five years. The Company also assumed an unrelated obligation of
Streamline.com, Inc. totaling $388,000 that reduced the payment for
acquisition.
The following summary presents information concerning the purchase
price allocation for the warehouse acquisitions.
Tangible assets $ 12,387,000
Goodwill and other intangibles 5,884,000
-------------
Purchase price 18,271,000
Less liabilities assumed (6,659,000)
-------------
Payment for acquisitions $ 11,612,000
=============
(b) Represents the adjustment necessary to reflect amortization of the goodwill
and other intangibles acquired, as if the acquisition had occurred on
January 1, 1999.
(c) Represents the adjustment necessary to reflect the additional interest
expense that the Company would have incurred had the purchase occurred on
January 1, 1999.
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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 hereunto duly authorized.
PEAPOD, INC.
By: /s/ Dan Rabinowitz
---------------------
Dan Rabinowitz
Senior Vice President and Chief
Financial Officer
Date: November 21, 2000
22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Asset Purchase Agreement among Peapod, Inc., Streamline.com, Inc.,
Beacon Home Direct, Inc. and Streamline Mid-Atlantic, Inc. dated as of
September 7, 2000
23.1 Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP
99.1 Press Release of Registrant dated September 7, 2000*
------------
* Previously filed (incorporated by reference to the Form 8-K dated September 7,
2000 and filed on September 12, 2000).
23
