<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. For the period ended October 2, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-26133
STREAMLINE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3187302
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
27 DARTMOUTH STREET
WESTWOOD, MASSACHUSETTS 02090
(Address of principal executive offices)
(781) 407-1900
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
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)
Yes X No
--- ---
(2) has been subject to such filing requirements for the past 90 days
Yes X No
--- ---
As of October 30, 1999, there were 18,373,796 shares outstanding of the
Company's common stock, $0.01 per value per share.
<PAGE>
STREAMLINE.COM, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1998
and October 2, 1999................................................................. 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 1998 and October 2, 1999 ....................................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and October 2, 1999........................................ 6
Notes to the Unaudited Consolidated Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................... 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................... 16
Item 3. Exhibits and Reports on Form 8-K........................................................ 16
SIGNATURE............................................................................... 17
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 2,
1998 1999
------------ ----------
ASSETS
<S> <C> <C>
Current assets:
Cash, cash equivalents and marketable securities........... $12,593 $43,021
Accounts receivable, net of allowance for doubtful
accounts of $25 at December 31, 1998 and $39 at October
2, 1999................................................. 88 357
Inventory.................................................. 324 737
Prepaid expenses and other current assets.................. 149 731
--- ---
Total current assets............................... 13,153 44,846
Property and equipment, net................................ 3,663 7,210
Purchased and capitalized software, net.................... 2,025 2,836
Goodwill, net of accumulated amortization.................. 992 811
Other assets, net.......................................... 232 412
--- ---
Total assets....................................... $20,066 $56,115
======= =======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Capital lease obligations.................................. $236 $369
Accounts payable........................................... 447 2,582
Accrued expenses........................................... 408 1,279
--- -----
Total current liabilities.......................... 1,092 4,230
----- -----
Long-term portion of capital lease obligations................ 381 752
--- ---
Redeemable convertible preferred stock ($1.00 par value);
Authorized: 680,000 at December 31, 1998, and none at
October 2, 1999
Issued and outstanding: 368,570 shares issued and
outstanding at December 31, 1998 and none at October
2, 1999............................................... 37,186 -
------ -
Stockholders' (deficit) equity:
Preferred stock, $0.01 par value; none authorized or
outstanding at December 31, 1998, and 5,000,000
authorized and none outstanding at October 2, 1999
Common stock, $0.01 par value;
Authorized: 22,700,000 at December 31, 1998, and
50,000,000 at October 2, 1999
Issued and outstanding: 3,699,539 shares issued and
3,665,539 outstanding at December 31, 1998 and
18,407,796 shares issued and 18,373,796 outstanding
at October 2, 1999.................................... 37 184
Additional paid-in capital................................. 5,060 87,278
Treasury stock, at cost: 34,000 shares at December 31,
1998 and October 2, 1999................................ (238) (238)
Accumulated deficit........................................ (23,453) (36,091)
-------- --------
Total stockholders' (deficit) equity............... (18,593) 51,133
-------- ------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity........ $20,066 $56,115
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, OCTOBER 2,
1998 1999
------------- ----------
<S> <C> <C>
Revenue:
Product and service revenue, net........................ $1,409 $3,007
Subscription fees....................................... 105 272
Advertising, research and marketing fees................ 158 345
--- ---
Total revenue.............................................. 1,672 3,624
----- -----
Operating expenses:
Cost of revenue......................................... 1,164 2,543
Fulfillment center operations........................... 946 2,741
Sales and marketing..................................... 376 1,137
Technology systems and development...................... 637 1,004
General and administrative.............................. 884 2,007
--- -----
Total operating expenses................................... 4,007 9,432
----- -----
Loss from operations....................................... (2,335) (5,808)
Other income (expense):
Interest income......................................... 44 504
Interest expense........................................ (249) (24)
----- ----
Total other income (expense), net.......................... (205) 480
----- ---
Loss before minority interest and extraordinary item....... (2,540) (5,328)
Minority interest in net loss of consolidated subsidiary... - -
Loss before extraordinary item (2,540) (5,328)
Extraordinary item--loss on early redemption of debt....... 744 -
--- -
Net loss................................................... $ (3,284) $ (5,328)
======== ========
Dividends on preferred stock............................... 41 -
-- -
Net loss attributable to common stockholders............... $ (3,325) $ (5,328)
======== ========
Basic and diluted net loss per common share................ $ (0.95) $ (0.29)
Shares used in computing basic and diluted net loss per
common share............................................ 3,498,866 18,236,676
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, OCTOBER 2,
1998 1999
------------- ----------
<S> <C> <C>
Revenue:
Product and service revenue, net......................... $3,882 $8,694
Subscription fees........................................ 276 693
Advertising, research and marketing fees................. 370 855
--- ---
Total revenue............................................... 4,528 10,242
----- ------
Operating expenses:
Cost of revenue.......................................... 3,266 7,016
Fulfillment center operations............................ 2,901 5,978
Sales and marketing...................................... 989 2,595
Technology systems and development....................... 1,937 2,808
General and administrative............................... 2,798 5,066
----- -----
Total operating expenses.................................... 11,891 23,463
------ ------
Loss from operations........................................ (7,363) (13,221)
Other income (expense):
Interest income.......................................... 83 731
Interest expense......................................... (537) (150)
----- -----
Total other income (expense), net........................... (454) 582
----- ---
Loss before minority interest and extraordinary item........ (7,817) (12,639)
Minority interest in net loss of consolidated subsidiary.... 138 -
----- -
Loss before extraordinary item.............................. (7,679) (12,639)
Extraordinary item--loss on early redemption of debt........ 744 -
--- -
Net loss.................................................... $(8,423) $(12,639)
======== =========
Dividends on preferred stock................................ 41 549
-- ---
Net loss attributable to common stockholders................ $(8,464) $(13,188)
======== =========
Basic and diluted net loss per common share................. $(2.42) $(1.39)
Shares used in computing basic and diluted net loss per
common share............................................. 3,497,875 9,493,994
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, OCTOBER 2,
1998 1999
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $(8,423) $(12,639)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 1,109 1,799
Amortization of discount on notes payable.................... 525 -
Amortization of goodwill and other assets.................... 154 264
Minority interest in net loss of consolidated subsidiary..... (138) -
Changes in assets and liabilities
Accounts receivable, net................................... - (269)
Inventory.................................................. 35 (413)
Prepaid expenses and other current assets.................. 311 (582)
Other assets............................................... (120) (180)
Accounts payable........................................... (552) 2,135
Accrued expenses........................................... 30 871
-- ---
Net cash used in operating activities.............................. (7,069) (9,014)
------- -------
Cash flows from investing activities:
Purchase of marketable securities............................... (10,620)
Purchases of property and equipment............................. (387) (3,668)
Additions to purchased and capitalized software................. (1,030) (1,722)
------- -------
Net cash used in investing activities.............................. (1,416) (16,010)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock.............................. - 44,991
Proceeds from the exercise of stock options..................... 2 56
Proceeds from the exercise of warrants.......................... 47
Dividend payments on preferred stock............................ - -
Issuance of preferred stock..................................... 22,857
Issuance of notes receivable.................................... (28)
Proceeds from notes payable-related party....................... 600 -
Proceeds from notes payable..................................... 7,000 -
Payments on notes payable....................................... (7,000) -
Principal payments on capital lease obligations................. (173) (263)
----- -----
Net cash provided by financing activities.......................... 23,158 44,831
------ ------
Net increase in cash and cash equivalents.......................... 14,673 19,807
Cash, cash equivalents and marketable securities, beginning of
period.......................................................... 1,446 12,593
----- ------
Cash and cash equivalents, end of period........................... $16,119 $32,400
======= =======
Supplemental non-cash transactions:
Assets acquired with capital lease obligations.................. $315 $767
Accrual of preferred stock dividends............................ 41 -
Issuance and remeasurement of warrants in connection with
capitalized assets .......................................... (32) -
Issuance of warrants in connection with debt 525 -
Issuance of common stock for services provided.................. 35 -
Dividends accrued on preferred stock ........................... - 549
Issuance of warrants in connection with financing commitment... - 472
Reduction in deferred financing costs related to rescission of
warrants in connection with financing commitment............. - (387)
Conversion of preferred stock into common stock................. - 37,731
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
STREAMLINE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 October 2,1999, 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 Prospectus dated
June 17, 1999, filed with the Securities and Exchange Commission.
2. Reclassifications. Certain prior year balances have been reclassified to
conform to the current year presentation.
3. Initial Public Offering. On June 17, 1999 Streamline completed an initial
public offering of its common stock (the "IPO"). A total of 4,500,000
shares of the Company's common stock were sold at a price of $10.00 per
share, generating gross offering proceeds of $45.0 million. After deducting
$3.15 million in underwriting discounts and approximately $1.55 million in
other related expenses, the net proceeds to the Company were approximately
$40.3 million. Concurrent with the IPO, all of the shares of Series A,
Series B, Series C and Series D redeemable convertible preferred stock
("Preferred Stock") and accrued dividends on the Series D Preferred Stock
were converted into 9,673,121 shares of Streamline's common stock.
Exercise of Over Allotment Option. On July 16, 1999 the underwriters of the
initial public offering exercised their over-allotment option to purchase
an additional 498,492 shares of common stock from the company at a price of
$10.00 per share, generating gross proceeds of approximately $5.0 million.
The net proceeds to the Company, after deducting the underwriter's
discount, was approximately $4.6 million.
4. Subsequent Events. On October 18, 1999, the company signed a merger
agreement with Beacon Home Direct d/b/a Scotty's Home Market. The
transaction, which is subject to shareholder approval, regulatory
approval, and other typical conditions is expected to be completed in
early 2000 and to be accounted for as a pooling of interests. Under
the terms of the agreement the Company expects to issue 4.3 million
shares to acquire all of the outstanding shares and equity interests of
Beacon Home Direct.
5. Retail Calendar Adopted. As of October 2, 1999, the Company began reporting
its earnings on a retail calendar, using four thirteen week periods. The
Company's year end will be on the Saturday closest to the 31st day of
December. This change would not have a material impact on prior reported
results.
7
<PAGE>
6. Net Loss Per Share. Net loss per share is presented under Statement of
Financial Accounting Standards No. 128, "Earnings per Share." In accordance
with this pronouncement, the net loss applicable to common stockholders
includes the accretion of dividends on the Series D Preferred Stock through
the date of conversion to common stock. Weighted average shares outstanding
includes the common stock resulting from the conversion of the Preferred
Stock from the date of conversion through the end of the period.
The following is the calculation of the net loss per share:
<TABLE>
<CAPTION>
Three months ended
September 30, October 2,
1998 1999
------------- ----------
(in thousands, except for
share and per share data)
<S> <C> <C>
Numerator:
Loss before extraordinary item.................... $ (2,540) $ (5,328)
Dividends on preferred stock...................... 41 --
-- --
Loss attributable to common stockholders before
extraordinary item............................. (2,581) (5,328)
Extraordinary item................................ 744 --
---------- -----------
Net loss attributable to common stockholders...... $ (3,325) $ (5,328)
========== ===========
Denominator:
Weighted average common shares outstanding........ 3,498,866 18,236,676
Basic and diluted net loss per common share:
Loss per common share before extraordinary item... $ (0.74) $ (0.29)
Extraordinary item................................ (0.21) --
---------- -----------
Net loss per common share......................... $ (0.95) $ (0.29)
========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30, October 2,
1998 1999
------------- ---------
(in thousands, except for
share and per share data)
<S> <C> <C>
Numerator:
Loss before extraordinary item................. $ (7,679) $ (12,639)
Dividends on preferred stock................... 41 549
---------- -----------
Loss attributable to common stockholders
before extraordinary item................... (7,720) (13,188)
Extraordinary item............................. 744 --
---------- -----------
-- ---
Net loss attributable to common stockholders.... $ (8,464) $ (13,188)
========== ===========
Denominator:
Weighted average common shares outstanding...... 3,497,875 9,493,994
Basic and diluted net loss per common share:
Loss per common share before extraordinary item. $ (2.21) $ (1.39)
Extraordinary item.............................. (0.21) --
---------- -----------
Net loss per common share....................... $ (2.42) $ (1.39)
========== ===========
</TABLE>
Outstanding options of 596,500 and 1,803,495 as of September 30,
1998, and October 2, 1999, respectively, were not included in the diluted
loss per share computation because their effect would be anti-dilutive.
Outstanding warrants were 788,714 as of September 30, 1998, and October 2,1999,
respectively, and were not included in the diluted loss per share calculation
because their effect would be anti-dilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY
REPORT ON FORM 10-Q MAY CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, BUT NOT LIMITED TO, (i) STATEMENTS ABOUT THE
ADEQUACY OF THE COMPANY'S CASH, CASH EQUIVALENTS, OTHER CAPITAL RESOURCES,
INTEREST INCOME AND COSTS ASSOCIATED WITH EXPANSION, AND (ii) CERTAIN STATEMENTS
IDENTIFIED OR QUALIFIED BY WORDS SUCH AS "LIKELY," "WILL," "SUGGESTS," "MAY,"
"WOULD," "COULD," "SHOULD," "EXPECTS," "ANTICIPATES," "ESTIMATES," "PLANS,"
"PROJECTS," "BELIEVES," OR SIMILAR EXPRESSIONS (AND VARIANTS OF SUCH WORDS OR
EXPRESSIONS). THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN REPRESENT THE
COMPANY'S JUDGMENT AS OF THE DATE OF THIS QUARTERLY REPORT ON FORM 10-Q, AND THE
COMPANY CAUTIONS READERS NOT TO PLACE UNDUE RELIANCE ON SUCH STATEMENTS.
INVESTORS ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN. ACTUAL PERFORMANCE AND RESULTS OF OPERATIONS MAY DIFFER MATERIALLY
FROM THOSE PROJECTED OR SUGGESTED IN THE FORWARD-LOOKING STATEMENTS DUE TO
CERTAIN RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THE RISKS AND
UNCERTAINTIES DESCRIBED OR DISCUSSED IN THE SECTION "RISK FACTORS" IN THE
COMPANY'S PROSPECTUS DATED JUNE 17, 1999. THESE RISKS INCLUDE, AMONG OTHERS, THE
FOLLOWING:
- RISKS RELATING TO STREAMLINE'S LIMITED OPERATING HISTORY AND
HISTORY OF LOSSES
- RISKS PERTAINING TO OUR ABILITY TO EXECUTE OUR EXPANSION
STRATEGY
- RISKS THAT WE MAY HAVE DIFFICULTY RAISING ADDITIONAL CAPITAL
- RISKS ASSOCIATED WITH OUR RELIANCE ON THE GROWTH OF E-COMMERCE
AND THE INFRASTRUCTURE OF THE INTERNET
- RISKS OF INCREASED COMPETITION
- RISKS RELATING TO OUR DEPENDENCE ON CUSTOMER ACCEPTANCE OF
DIRECT, UNATTENDED DELIVERY OF GOODS AND SERVICES OVERVIEW
Streamline.com, Inc. ("Streamline" or the "Company") simplifies the
lives of busy suburban families by providing Internet-based ordering and home
delivery of a wide range of consumer goods and services such as groceries,
household goods, health and beauty care items, dry cleaning, video rentals and
film processing. Our typical customer tends to be a dual income household with
at least one child and access to the Internet. We also provide consumer packaged
goods companies insight into consumer Internet purchasing behavior to help
facilitate the development of their Internet merchandising capabilities and to
broaden other research and marketing programs.
Streamline has grown rapidly, with revenue increasing to $6.9 million
in 1998 from $922,000 in 1996. During this same period, our net loss increased
to $11.4 million in 1998 from $1.8 million in 1996. We expect to continue to
incur losses as we increase expenditures in all areas of operations in order to
execute our business plan. In particular, we expect to incur costs related to:
- expanding into new markets
- increasing our sales and marketing efforts
- continuing our investment in technology
Due to our history of net operating losses, we currently pay no federal
or state income tax. As of December 31, 1998, we had federal and state net
operating loss carry forwards of approximately $22.6 million and $22.4 million,
respectively. These net operating losses are available to offset future income
tax obligations unless federal or state tax law restrictions, such as those
related to an ownership change as defined in the Internal Revenue Code, limit us
from doing so.
COMPONENTS OF REVENUE
Streamline has three primary sources of revenue. The majority of our
revenue is generated by the sale of consumer products and services that we
aggregate in our fulfillment center and deliver to our customers' homes on a
weekly basis. We charge our customers set retail prices for the products and
services we supply. Our product and service revenue is comprised of the retail
prices we charge our customers for these products and services. The wholesale
prices we pay our distributors and suppliers for such products and services are
included as a cost of revenue. Our customers also pay us a monthly subscription
fee of $30 which we prorate based on the week of installation or discontinuance
if services are provided for less than a full month. In addition, we receive
advertising, research and marketing fees through arrangements with consumer
packaged goods companies and e-commerce companies. Revenue from products and
services is recognized upon delivery to the customer; subscription fees are
recognized monthly; and advertising, research and marketing fees are recognized
over the life of the applicable arrangement or as services are performed.
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
TOTAL REVENUE. Total revenue increased to $3.6 million in the three months ended
October 2, 1999 from $1.7 million in the comparable period ended September 30,
1998, an increase of 116.8%. This increase was primarily due to the continuing
expansion of our customer base, a corresponding increase in subscription fees,
and an increased number of participants in advertising, research and marketing
programs.
PRODUCT AND SERVICE REVENUE, NET. Product and service revenue, net is
comprised of the retail prices our customers pay us for the products and
services we sell to them, net of returns. Sale of products and services, net of
returns increased to $3.0 million in the three months ended October 2, 1999 from
$1.4 million in the comparable period ended September 30, 1998, an increase of
113.4%. The increase in revenue was the result of:
- an increase in our customer base to approximately 3,700 at
October 2, 1999 from approximately 1,500 at September 30, 1998.
- an increase in the number of invoices for product and service
revenue to approximately 32,000 in the three months ended October
2, 1999 from approximately 14,000 in the comparable period ended
September 30, 1998, an increase of 114%.
- the increase in revenue was partially offset by a decrease in
average product and service revenue per invoice to approximately
$93 in the three months ended October 2, 1999 from approximately
$96 in the comparable period ended September 30, 1998. We
typically experience seasonality in the summer months when our
customers take vacations. With Labor day falling later in
September, as compared to last year, we experienced five weeks
of lower order frequency as compared to four weeks in the prior
year.
Product and service revenue, net as a percentage of total revenue, decreased to
83.0% in the three months ended October 2, 1999 from 84.3% in the comparable
period ended October 2, 1999.
SUBSCRIPTION FEES. Streamline customers pay monthly subscription fees
in addition to the amounts paid for the products and services we deliver to
their homes. Revenue from these fees increased to $272,000 in the three months
ended October 2, 1999 from $105,000 in the comparable period ended September 30,
1998, an increase of 159%, due to our expanded customer base. Subscription fees
as a percentage of total revenue increased to 7.5% in the three months ended
October 2, 1999 from 6.2% in the comparable period ended September 30, 1998.
ADVERTISING, RESEARCH AND MARKETING FEES. Revenue from advertising,
research and marketing fees includes Consumer Learning Center membership fees
paid by consumer packaged goods companies for the opportunity to participate in
research and marketing programs. Advertising, research and marketing fees
increased to $345,000 in the three months ended October 2, 1999 from $158,000 in
the comparable period ended September 30, 1998, an increase of 118.6%. The
increase in advertising, research and marketing fees is primarily due to an
increase in the number of consumer packaged goods companies that became members
of the Consumer Learning Center.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $9.4 million, or
260.2% of total revenues, in the three months ended October 2, 1999 from $4.0
million, or 239.7% of total revenues, in the comparable period ended September
30, 1998, an increase of 135.4%. The increase in operating expenses is a result
of an increase in order volume, expenses related to the opening of our second
facility in the Washington D.C. area, and an increase in infrastructure and
general and administrative costs incurred to support our continued expansion.
COST OF REVENUE. The cost of revenue is comprised of wholesale costs of
products and services we sell to our customers and the costs associated with
generating advertising, research and marketing fees. The cost of revenue
increased to $2.5 million, or 70.2% of total revenues, in the three months ended
October 2, 1999 from $1.2 million, or 69.6% of total revenues in the comparable
period ended September 30, 1998.
10
<PAGE>
FULFILLMENT CENTER OPERATIONS. Expenses attributable to fulfillment
center operations include all costs associated with installing the customer,
managing the facility and processing orders including salaries and wages,
employee benefits, facility rent, utility costs, vehicle expenses and order
processing fees. These expenses increased to $2.7 million, or 75.6% of total
revenue, in the three months ended October 2, 1999 from $946,000, or 56.6% of
total revenue, in the comparable period ended September 30, 1998, an increase
of 189.7%. The increase in fulfillment center expenses as a percentage of
total revenue resulted primarily from increases in costs associated with
higher order volumes and the opening of our consumer resource center in the
Washington D.C. market in the fourth quarter of 1999. During the second
quarter Genco I, assumed the warehouse management functions in our facilities
under a test outsourcing arrangement. The costs incurred under this agreement
were higher than expected and as a result the agreement has been terminated
in the fourth quarter 1999.
SALES AND MARKETING. Sales and marketing expenses include general
marketing expenses and the sale and marketing costs associated with acquiring
customers including related salaries and wages, benefits and administrative
costs. Sales and marketing expenses increased to $1.1 million, or 31.4% of total
revenue, for the three months ended October 2, 1999 from $376,000, or 22.5% of
total revenue, for the comparable period ended September 30, 1998, an increase
of 202.4%. This increase, as well as the higher percentage of total revenue was
due to additional advertising and promotional activities undertaken to acquire
new customers.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to
technology systems and development include costs associated with development
of technology prior to capitalization, maintenance, implementation of minor
enhancements, information system personnel and consultants, and amortization
of purchased and capitalized software costs. These expenses increased to $1.0
million for the three months ended October 2, 1999 from $637,000, for the
comparable period ended September 30, 1998, an increase of 57.6%, primarily
due to the costs associated with maintaining, enhancing and integrating our
technology systems. In August, 1999 we implemented an SAP financial system.
The majority of the costs associated with the implementation have been
capitalized. However, certain expenses related to software maintenance and
post-implementation expenses have been expensed as incurred.
GENERAL AND ADMINISTRATIVE. General and administrative costs include
corporate salaries and wages, employee benefits, corporate facility costs and
depreciation, amortization and general and administrative expenses including
office equipment and supplies, telephone expenses, travel costs and legal, audit
and other consulting fees. These costs increased to $2.0 million, or 55.4% of
total revenues, for the three months ended October 2, 1999 from $884,000, or
52.9% of total revenues, for the comparable period ended September 30, 1998, an
increase of 127%, primarily due to the addition of necessary infrastructure to
support continued corporate growth and planned expansion.
OTHER INCOME (EXPENSE), NET. Other income/(expense), net, increased to
$480,000 income in the three months ended October 2, 1999 from an expense of
$205,000 in the comparable period ended September 30, 1998 primarily due to
increased interest income from higher cash balances from the IPO in June, 1999.
NINE MONTHS ENDED OCTOBER 2, 1999 AND 1998
TOTAL REVENUE. Total revenue increased to $10.2 million in the nine months ended
October 2, 1999 from $4.5 million in the comparable period ended September 30,
1998, an increase of 126.2%. This increase was primarily due to the continuing
expansion of our customer base, a corresponding increase in subscription fees,
and an increase in fees derived from advertising, research and marketing.
PRODUCT AND SERVICE REVENUE, NET. Sale of products and services, net of
returns increased to $8.7 million in the nine months ended October 2, 1999 from
$3.9 million in the comparable period ended September 30, 1998, an increase of
124%. The increase in revenue was the result of:
- an increase in our customer base to approximately 3,700 at
October 2, 1999 from approximately 1,500 at September 30, 1998.
- an increase in the number of invoices for product and service
revenue to approximately 88,000 in the nine months ended October
2, 1999 from approximately 39,000 in the comparable period ended
September 30, 1998, an increase of 125.6%.
11
<PAGE>
- an increase in the average product and service revenue per invoice
to approximately $99 in the nine months ended October 2, 1999 from
approximately $98 in the comparable period ended September 30,
1998.
Product and service revenue, net as a percentage of total revenue decreased to
84.8% in the nine months ended October 2, 1999 from 85.7% in the comparable
period ended October 2, 1999.
SUBSCRIPTION FEES. Revenue from subscription fees increased to $693,000
in the nine months ended October 2, 1999 from $276,000 in the comparable period
ended September 30, 1998, an increase of 151.1%, due to our expanded customer
base. Subscription fees as a percentage of total revenue increased to 6.8% in
the nine months ended October 2, 1999 from 6.1% in the comparable period ended
September 30, 1998.
ADVERTISING, RESEARCH AND MARKETING FEES. Advertising, research and
marketing fees increased to $855,000 in the nine months ended October 2, 1999
from $370,000 in the comparable period ended September 30, 1998, an increase of
131.1%. These fees as a percentage of total revenue increased to 8.4% in the
nine months ended October 2, 1999 from 8.2% in the comparable period ended
September 30, 1998. The increase in advertising, research and marketing fees is
primarily due to an increase in the number of consumer packaged goods companies
that became members of the Consumer Learning Center.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $23.5 million,
or 229.1% of total revenues, in the nine months ended October 2, 1999 from $11.9
million, or 262.6% of total revenues, in the comparable period ended September
30, 1998, an increase of 97.3%. The increase in operating expenses is a result
of an increase in order volume, expenses related to the opening of our second
facility in the Washington D.C. area, and an increase in infrastructure and
general and administrative costs incurred to support our continued expansion.
These costs decreased as a percentage of total revenues due to achieving
operational efficiencies and offsetting fixed costs with higher order volumes.
COST OF REVENUE. The cost of revenue increased to $7.0 million, or
68.5% of total revenues, in the nine months ended October 2, 1999 from $3.3
million, or 72.1% of total revenues in the comparable period ended September 30,
1998, an increase of 114.8%. The decline in cost of revenue as a percentage
of total revenues is primarily a result of improved purchasing in the product
and service category and a higher percentage of subscription fees as a
percentage of total revenue.
FULFILLMENT CENTER OPERATIONS. Expenses attributable to fulfillment
center operations increased to $6.0 million, or 58.4% of total revenue, in
the nine months ended October 2, 1999 from $2.9 million, or 64.1% of total
revenue, in the comparable period ended September 30, 1998, an increase of
106.1%, primarily as a result of increased order volume, the opening of our
second facility in the Washington D.C. area and higher than anticipated costs
resulting from the Genco I outsourcing agreement.
SALES AND MARKETING. Sales and marketing expenses increased to $2.6
million, or 25.3% of total revenue, for the nine months ended October 2, 1999
from $989,000, or 21.8% of total revenue, for the comparable period ended
September 30, 1998, an increase of 162.4%. This increase was due to additional
advertising and promotional activities undertaken to acquire new customers.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to
technology systems and development increased to $2.8 million, or 27.4% of
total revenue, for the nine months ended October 2, 1999 from $1.9 million,
or 42.8% of total revenue, for the comparable period ended September 30,
1998, an increase of 45.0%, primarily due to the costs associated with
maintaining, enhancing and integrating our technology systems.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased
to $5.1 million, or 49.5% of total revenues, for the nine months ended October
2, 1999 from $2.8 million, or 61.8% of total revenues, for the comparable period
ended September 30, 1998, an increase of 81.1%, primarily due to the addition of
necessary infrastructure to support continued corporate growth and planned
expansion.
12
<PAGE>
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased to
income of $582,000 in the nine months ended October 2, 1999 from an expense of
$454,000 in the comparable period ended September 30, 1998 primarily due to
increased interest income from higher cash balances from the IPO in June, and
reduced interest costs associated with the pay down of debt.
MINORITY INTEREST. At September 30, 1998 we held a majority interest in
Streamline Mid-Atlantic, Inc. A portion of Streamline Mid-Atlantic's net losses
were allocated to the minority interest. In November of 1998, we acquired the
remaining minority interest in Streamline Mid-Atlantic and now report its income
or loss in our consolidated results of operations.
EXTRAORDINARY LOSS. On September 18, 1998, the Company redeemed all
of its outstanding discount notes at a price of $7.0 million, plus
approximately $334,000 of interest and $257,000 for a call premium with the
proceeds from the issuance of the Company's Series D Preferred Stock. The
redemption resulted in the Company recording an extraordinary loss on the
extinguishment of debt of approximately $744,000.
LIQUIDITY AND CAPITAL RESOURCES
At October 2, 1999, we had cash, cash equivalents and marketable
securities of $43.0 million, which we currently believe will be sufficient to
fund our planned expansion and working capital needs for at least the next 12
months. We expect that we will require additional capital financing to
support our further expansion.
Operating activities used cash of $9.0 million in the nine months ended
October 2, 1999, primarily due to the net loss incurred in the period. Investing
activities used cash of $5.4 million in the nine months ended October 2, 1999,
primarily due to the purchase of property and equipment to support the expansion
of our operations, and costs associated with purchased and capitalized software
for our customer ordering, warehouse management and financial systems.
Financing activities provided cash of $44.8 million in the nine months
ended October 2, 1999, as compared to $23.2 million in the nine months ended
September 30, 1998. Net proceeds from our initial public offering, net of
underwriting discounts and offering expenses, were approximately $40.5 million.
The underwriters exercised their over-allotment option in July of 1999 resulting
in additional proceeds, net of underwriting discounts and offering expenses, of
approximately $4.6 million. Prior to our initial public offering, we financed
our operations and capital requirements primarily through the sale of redeemable
convertible preferred stock and the issuance of senior discount notes.
We expect to incur operating losses in 1999 from our existing
consumer resource center and from the facility opened in the greater
Washington, D.C. area in the fourth quarter of 1999. Additionally, on October
27, 1999 we entered into a lease agreement with Pro Logis for a 102,000
square foot distribution facility in Carlstadt, NJ. We expect to open this
facility in the second quarter of 2000, and incur approximately $4.0 million
for costs associated with leasehold improvements, equipment acquisitions and
other asset purchases related to this facility. Additionally, we expect to
incur operating losses from this facility at least through 2000. We also
expect to incur similar costs and operating losses for an additional three to
four facilities planned during 2000.
We also expect to incur costs in the fourth quarter of 1999 and
beyond in connection with our acquisition of Beacon Home Direct d/b/a
Scotty's Home Market, a grocery home delivery company based in the Chicago,
IL area, on October 18,1999. We entered into a definitive agreement to
acquire Scotty's, and the transaction is expected to close in early 2000
subject to shareholder approval, regulatory approval and other typical
conditions. We expect to incur losses from this facility at least through
2000.
Additionally, we plan to continue to enhance our technology by
upgrading or replacing our financial, warehouse management and customer
information systems. We intend to finance these expenditures from capital
resources and future lease financing. We also plan to open new facilities in
2000 and beyond which may or may not have similar capital requirements due to
size, configuration, location and other local market conditions.
Pursuant to a letter agreement dated April 13, 1999, Nordstrom, Inc.
agreed to provide us with financing of up to $10.0 million upon our request.
Nordstrom's commitment terminated upon the closing of our initial public
offering. We issued Nordstrom a warrant to purchase 75,000 shares of common
stock at an exercise price of $7.00 per share in connection with this financing
commitment. We recorded deferred financing costs of approximately $472,000 for
the estimated fair value of the warrant. The fair value was calculated using the
Black-Scholes option pricing model utilizing a common stock fair value of $10.00
per share, the offering price of the common stock in our initial public
offering. By letter dated June 22, 1999, Nordstrom agreed to rescind all of
its rights pursuant to such warrant, effective as of the closing of our initial
public offering, resulting in us reversing the remaining unamortized deferred
financing costs of approximately $387,000. During the nine months ended October
2, 1999, we recorded a non-cash financing charge of approximately $85,000 for
the amortization of the deferred financing costs during the period prior to the
termination of Nordstrom's financing commitment.
We do not believe that inflation has had a material effect on
Streamline's operations.
13
<PAGE>
MARKET RISK
To date, Streamline has not utilized derivative financial instruments
or derivative commodity instruments. We invest our cash in high quality
(i.e.-A1/P1) short term commercial paper and money market funds, which are
subject to minimal credit and market risk, and have no debt. Therefore, we
believe the market risks associated with these financial instruments are
immaterial.
ACQUISITIONS
In 1996 we incorporated our subsidiary Streamline Mid-Atlantic, Inc.,
for the purpose of acquiring substantially all of the assets of Shopping
Alternatives, Inc., a consumer direct company based in the Washington, D.C.
area. In 1997 Streamline Mid-Atlantic sold approximately 45% of its common stock
to third parties. In November 1998, we acquired the outstanding minority
interest in Streamline Mid-Atlantic and it once again became a wholly owned
subsidiary. In connection with these transactions we recorded $1.3 million of
goodwill which is being amortized on a straight-line basis over a five-year
term.
YEAR 2000 COMPLIANCE
The Year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish 21st century dates from those in the 20th century. As a result,
computer software and hardware used by many companies and governmental agencies
may need to be upgraded to comply with Year 2000 requirements or risk system
failure or miscalculations causing disruptions to normal business activities.
STATE OF READINESS
We have assessed the corporate systems and operations that we believe
could be affected by the Year 2000 problem. We have focused our Year 2000 review
on three areas:
- internal information technology infrastructure
- third-party compliance
- non-information technology systems
INTERNAL INFORMATION TECHNOLOGY INFRASTRUCTURE. Because our consumer
and business systems are essential to our business, financial condition and
results of operations, we assessed these systems prior to other less critical
information technology systems. We use the following information technology for
our internal infrastructure:
- website and Internet ordering systems
- main enterprise systems, such as those used for purchase
orders, invoicing, shipping, warehouse management and
accounting
- individual workstations, including personal computers
- network systems
We currently believe that all of our critical systems are Year 2000
compliant. We have received written assurance that our website, ordering systems
and main enterprise and financial systems are Year 2000 compliant. We have
currently conducted Year 2000 compliance testing of our individual workstations
and network systems and have certified them as Year 2000 compliant. To date, we
have not discovered Year 2000 problems in these internal systems.
THIRD-PARTY COMPLIANCE. Streamline's material third party business
relationships include:
- customers who order products and services via the Internet,
telephone and fax
- vendors and suppliers who provide the goods and services that
we offer to our customers
14
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We are unable to predict, and have not attempted to assess, the Year
2000 readiness of our customers or the systems they use to interact with
Streamline. Since our customers order our products and services via the Internet
or by telephone or fax, Streamline's operations would be materially adversely
affected if a significant number of customers were unable to use these devices
to place their orders.
Year 2000 disruptions in the systems or equipment used by our suppliers
could result in our being unable to obtain products and services in a timely
manner. We developed a standard survey to help us assess the Year 2000 readiness
or our suppliers and have received confirmation of their readiness from a
majority of our suppliers.
NON-INFORMATION TECHNOLOGY SYSTEMS. Some non-information technology
systems used in our business, such as HVAC and telephone systems, our truck
fleet and refrigeration and other equipment, may contain date-processing
embedded technology. The Year 2000 problem could cause failures in these assets
which could disrupt our operations. We have assessed the Year 2000 problem with
respect to these non-technology systems and believe we have corrected all
problems that have been identified.
COSTS
Streamline's Year 2000 assessment, remediation and testing activities
have been conducted by internal personnel, and we have not recorded the amount
of employee time expended on these tasks. Accordingly, we are unable to
determine the cost of employee time devoted to Year 2000 matters. Until we have
further assessed the Year 2000 readiness of our internal systems and those of
third parties with whom we do business, we will be unable to estimate all of the
costs that we may incur in our Year 2000 compliance efforts. Streamline has
funded and will continue to fund these activities principally through cash flow.
MOST REASONABLE WORST CASE SCENARIO
It is possible that problems related to the Year 2000 could disrupt one
or more of the following systems:
- customer Internet-based ordering
- technology-driven order picking
- inventory replenishment
- credit card settlement
In each case, there is a low technology alternative available which
would allow us to continue to run our business. However, most of the
alternatives would result in increased costs, reduced revenues or service
delays, which should increase our operating losses. Extended disruptions may
impact long term customer and supplier relationships further impacting future
profitability.
15
<PAGE>
CONTINGENCY PLAN
Other than the short-term low technology alternatives discussed above,
to date we have not formulated contingency plans related to the failure of our
or a third-party's systems or equipment should they prove to not be Year 2000
compliant. However, we intend to develop contingency plans to address any Year
2000 compliance problems that we discover through our ongoing assessment,
remediation and testing activities.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 17, 1999 in connection with the Company's initial public
offering, a Registration Statement on From S-1 (Reg. No. 333-76383) was declared
effective by the Securities and Exchange Commission, pursuant to which 4,998,482
shares of the Company's common stock, including the exercise of the
underwriter's over-allotment option, were offered and sold at a price of $10.00
per share, generating proceeds to the company of approximately $45.0 million,
net of underwriting discounts and other related expenses.
Through October 2, 1999, Streamline spent $6.4 million of the $45.0
million net proceeds received from the initial public offering for the
following uses and in the following amounts per use: $1.3 million for the
construction of plant, building and facilities; $120,000 for legal and audit
fees; $1.2 million paid to Genco, the third party CRC operations partner;
$329,000 paid for advertising services of Ogilvy; $148,000 for general
software maintenance; and $3.1 million for working capital. None of these
amounts entailed direct or indirect payments to directors, officers or
persons holding 10% or more of our outstanding common stock, other than
payments for salaries and reimbursements to officers and directors, and
payments aggregating $216,000 to Elm Square Technologies, Inc. for technology
consulting services. Thomas Jones, a director of the company, is President of
Elm Square Technologies.
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<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.
STREAMLINE.COM, INC.
November 15, 1999 By: /s/ LAUREN A. FARRELL
---------------------------------
Lauren A. Farrell
Vice President, Finance
(Authorized Officer and Principal
Financial and Accounting Officer)
17
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