<PAGE>
PROSPECTUS
Filed Pursuant to
Rule 424b4
Registration No. 333-76383
4,500,000 SHARES
[LOGO]
STREAMLINE.COM, INC.
COMMON STOCK
------------
Streamline.com is offering shares of its common stock in an initial public
offering. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "SLNE."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
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<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price......................................... $ 10.00 $45,000,000
Discounts and Commissions to Underwriters..................... $ 0.70 $ 3,150,000
Proceeds to Streamline.com.................................... $ 9.30 $41,850,000
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This is a firm commitment underwriting. The underwriters have a 30-day
option to purchase up to an additional 585,000 shares from us and 90,000 shares
from Timothy A. DeMello, our Chairman, Chief Executive Officer and President, to
cover any over-allotments. Banc of America Securities LLC expects to deliver the
shares of common stock to investors on June 23, 1999.
Banc of America Securities LLC
PaineWebber Incorporated
Dain Rauscher Wessels
a division of Dain Rauscher
Incorporated
------------------------
The date of this prospectus is June 17, 1999
<PAGE>
[Outside Front Gate]
(Two frames with images and text. The first frame is labeled "The Customer" and
contains a picture of a mother and child; accompanying text explains that
consumers demand time-saving alternatives. The second frame is labeled "The
Problem" and contains the image of a child pushing a grocery cart through a
supermarket; accompanying text describes stressful, time-consuming demands.)
[Inside Front Cover]
(Under the heading "The Solution" is a series of pictures and text
circumscribing an oval with text in the center that describes the way in which
Streamline.com simplifies the lives of busy suburban families. Each image
indicates an advantage of using Streamline.com. Rotating clockwise around the
oval, the pictures are labeled "Pantry Replenishment", "Easy Ordering",
"Merchandising", "Warehousing", "Efficient Picking", "Packing", "Delivery",
"Unattended Delivery", each picture being accompanied by a brief list of
descriptive phrases. "Customer", "Merchandising", "Order Assembly", and
"Delivery" appear in the respective corners of the page.)
[Inside Back Cover]
(Under the heading "The Shopping Software", four screen shots labeled,
"Marketplace", "Compare", "Video" and "Personal Shopping List" highlight
features of Streamline.com's CD-ROM application.)
THE MARKS STREAMLINE-REGISTERED TRADEMARK- AND WE BRING IT ALL
HOME-REGISTERED TRADEMARK- ARE FEDERALLY REGISTERED U.S. SERVICE MARKS AND THE
MARKS DRO(SM), DON'T RUN OUT(SM) AND SIMPLE SOURCE(TM) ARE SUBJECT TO PENDING
APPLICATIONS FOR REGISTRATION. EACH OF THESE MARKS ARE THE PROPERTY OF
STREAMLINE. THIS PROSPECTUS CONTAINS TRADEMARKS, SERVICE MARKS AND TRADE NAMES
OF COMPANIES AND ORGANIZATIONS OTHER THAN STREAMLINE.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 17
Dividend Policy............................................................................................ 17
Capitalization............................................................................................. 18
Dilution................................................................................................... 19
Selected Consolidated Financial Data....................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 34
Management................................................................................................. 50
Certain Transactions....................................................................................... 58
Principal Stockholders..................................................................................... 60
Description of Capital Stock............................................................................... 62
Shares Eligible for Future Sale............................................................................ 66
Underwriting............................................................................................... 67
Legal Matters.............................................................................................. 70
Experts.................................................................................................... 70
Additional Information..................................................................................... 70
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY. UNLESS OTHERWISE INDICATED,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL
NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES. STREAMLINE'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS AN AMENDMENT TO
STREAMLINE'S CERTIFICATE OF INCORPORATION WHICH RESULTED IN A 1-FOR-2 REVERSE
STOCK SPLIT OF STREAMLINE'S COMMON STOCK AND ALSO REFLECTS THE CONVERSION OF
STREAMLINE'S SERIES A, SERIES B, SERIES C AND SERIES D CONVERTIBLE PREFERRED
STOCK INTO COMMON STOCK.
STREAMLINE.COM, INC.
We simplify the lives of busy suburban families by providing them with
Internet-based ordering of a wide range of quality goods and services and
delivering these items directly to their homes. By eliminating frequent trips to
multiple physical stores, we significantly shorten and simplify the traditional
shopping needs of our customers, who increasingly demand time-saving lifestyle
solutions. We deliver our products and services to each customer through a
single weekly delivery. Our products, which we purchase directly from
wholesalers, distributors and manufacturers, include:
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- brand-name groceries - fresh baked goods
- quality meats and seafood - freshly prepared meals
- fresh produce - health and beauty care products
- dairy products, including gourmet - cleaning supplies and other household
cheeses items
- sliced-to-order deli products - specialty pet food and supplies
- organic foods - fresh flowers
- frozen foods - stationery supplies and postage stamps
- kosher foods - seasonal items, including firewood,
charcoal and holiday products
</TABLE>
In addition, we offer a wide range of related services, such as:
<TABLE>
<S> <C>
- dry cleaning pick-up and delivery - package pick-up and delivery
- clothing alteration and repair - bottle and can redemption
- video and video game rental - shoe repair
- film processing and supplies - food and clothing drives
- bottled water and cooler delivery
</TABLE>
Our necessity-based product and service offerings, combined with the
frequency of ordering and delivery, create an opportunity to develop long-term
customer relationships. Streamline's target customers are dual-income households
having at least one child and access to the Internet. During 1998, our average
customer placed approximately 40 orders and average product and service revenue
per order invoice was $102. We also derive revenue from monthly subscription
fees and from advertising, research and marketing fees. Since inception, we have
incurred significant net operating losses.
We have provided our products and services to suburban households in the
greater Boston area over the past several years and have developed a business
model that we intend to replicate in other markets across the country. This
model includes:
- an attractive, highly functional and user-friendly Internet-based ordering
process
- a consumer resource center, which is a strategically located,
multi-temperature zone, warehouse-based, dedicated fulfillment center
designed to efficiently aggregate a wide range of goods and services
4
<PAGE>
- a physical presence in the customer's home, which includes a
refrigerator/freezer and a compact storage unit, collectively referred to
as the Streamline box
- a highly targeted customer base of busy suburban families who value
time-saving Internet ordering and unattended home delivery
- an extensive database of customer purchase behavior information
- long-term relationships with leading global consumer packaged goods
companies
Streamline has been recognized as a pioneer in the emerging consumer direct
marketplace by Progressive Grocer magazine. We are developing merchandising
programs with leading consumer packaged goods companies and business partners.
These relationships generally provide us with revenue, through fees received
from participants in these programs, as well as merchandising concepts and other
business opportunities to ensure the most effective use of our channels to the
consumer. Streamline is entering the third year of its working relationships
with the following consumer packaged goods companies:
- The Gillette Company
- Kraft Foods, Inc.
- Nestle USA, Inc.
- The Procter & Gamble Company
- Warner-Lambert Company
and has recently initiated relationships with:
- Campbell Soup Company
- Kimberly-Clark Corporation
- Mott's North America, a subsidiary of Cadbury Schweppes plc
- Nabisco, Inc.
- The Pillsbury Company
- Ralston Purina Company
- Sargento Foods Inc.
We have further expanded our product and service offerings by establishing
alliances with other operators of e-commerce websites, including
barnesandnoble.com, eToys.com, Nordstrom.com, Outpost.com and PCFlowers.com.
These alliances are primarily hyperlink agreements that require these operators
to pay us a percentage of the revenue generated from purchases by our customers
who connect to these websites directly from www.streamline.com. In addition, we
are collaborating with Nordstrom, Inc., a significant stockholder, on marketing
opportunities. These relationships are governed by short-term contracts or
unwritten arrangements that may be cancelled by either party at any time.
Our objective is to be the leading consumer direct supplier of frequently
purchased goods and services. Our strategy to accomplish this objective
includes:
- expanding nationally by replicating our business model
- developing and strengthening our customer acquisition capabilities
- increasing revenue per customer
- maintaining and developing relationships with consumer packaged goods
companies, e-commerce companies and strategic investors
- maximizing operational efficiency
Streamline.com, Inc. is a Delaware corporation organized in 1993. Our
principal executive offices are located in Westwood, Massachusetts and our
telephone number is (781) 407-1900. Our website is located at
www.streamline.com. Information contained on our website is not incorporated by
reference into this prospectus and you should not consider such information a
part of this prospectus.
5
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered by Streamline.com...................... 4,500,000 shares
Common stock to be outstanding after this offering.......... 17,773,881 shares
Use of proceeds............................................. For expansion and general
corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol............................... SLNE
</TABLE>
The common stock to be outstanding after this offering is based on shares
outstanding as of March 31, 1999 and excludes 1,999,714 shares of common stock
issuable upon the exercise of outstanding stock options and warrants at a
weighted average exercise price of $5.78 per share. See "Capitalization" and
Notes 9 and 10 to Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table contains summary consolidated financial data of
Streamline. You should read this information in conjunction with the
Consolidated Financial Statements and related Notes included elsewhere in this
prospectus.
Pro forma per share amounts in the table below reflect the conversion of all
issued and outstanding shares of preferred stock of Streamline into common stock
as if the shares had been converted immediately upon their issuance. See Note 2
to Consolidated Financial Statements. The pro forma as adjusted balance sheet
data in the table below reflects the sale of 4,500,000 shares of common stock
offered hereby at the initial public offering price of $10.00 per share, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by Streamline.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $ 922 $ 2,634 $ 6,946 $ 1,202 $ 2,987
Total operating expenses...... 2,811 11,134 17,383 3,726 6,356
Net loss...................... (1,846) (8,315) (11,373) (2,493) (3,262)
UNAUDITED PRO FORMA NET LOSS
PER COMMON SHARE:
Basic and diluted........... $(1.28) $(0.25)
Shares used in computing
unaudited pro forma basic
and diluted net loss per
common share.............. 8,918,465 13,238,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
31, 1998 MARCH 31, 1999
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PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 12,593 $ 9,317 $ 50,067
Working capital........................................... 12,061 8,277 49,027
Total assets.............................................. 20,066 18,307 59,057
Capital lease obligations, net of current portion......... 381 603 603
Redeemable convertible preferred stock.................... 37,186 37,471 --
Stockholders' (deficit) equity............................ $ (18,593) $ (22,141) $ 56,080
</TABLE>
6
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RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING US. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE DO NOT PRESENTLY
KNOW ABOUT OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO ADVERSELY IMPACT
OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN SUCH CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD FALL, AND YOU MAY LOSE ALL OR PART
OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT STREAMLINE AND OUR
INDUSTRY THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS
ARE USUALLY ACCOMPANIED BY WORDS SUCH AS "BELIEVE," "ANTICIPATE," "PLAN,"
"SEEK," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS. OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS
BECAUSE OF FACTORS SUCH AS THE RISK FACTORS DISCUSSED BELOW. WE UNDERTAKE NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
WE HAVE A LIMITED OPERATING HISTORY
Although we were founded in 1993, most of our revenue growth has occurred
over the past two years. Accordingly, we have a limited operating history on
which to base an evaluation of our business and prospects. Our prospects are
subject to the risks and uncertainties frequently encountered by companies in
the early stages of development, particularly companies in new and rapidly
evolving markets such as the consumer direct industry. These risks include, but
are not limited to, the lack of widespread acceptance of the Internet as a means
for purchasing products and services and difficulty in managing our growth. We
cannot be certain that we will successfully address these risks. The failure to
do so could have a material adverse effect on our business, financial condition
and results of operations.
Our extremely limited operating history and the uncertain nature of the
markets in which we compete make the prediction of future results of operations
difficult or impossible. Therefore, our recent revenue growth may not indicate
the rate of revenue growth, if any, that we can expect in the future.
WE HAVE EXPERIENCED A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
We have never achieved profitability and, since inception, have incurred
significant net operating losses. At March 31, 1999, we had an accumulated
deficit of $26.7 million. We expect to continue to incur losses for the
foreseeable future both at our existing consumer resource center and as a result
of substantial expenditures associated with our planned expansion. We also
expect to increase our operating expenses significantly as we expand our sales
and marketing operations and continue to develop our customer service
infrastructure. To the extent that increased revenues do not promptly result
from these expenditures, our business, financial condition and results of
operations could be materially and adversely affected.
WE HAVE NOT SIGNIFICANTLY TESTED OUR ABILITY TO EXECUTE OUR EXPANSION STRATEGY
A critical part of our business strategy is the expansion of our operations
into new regional markets and within existing markets. To date, we have operated
only one facility in one regional market, and we have no experience operating in
any other region or managing multiple facilities. Our ability to expand
successfully will depend on a number of factors in each targeted regional
market, many of which are beyond our control. These factors include:
- acceptance of our product and service offerings
7
<PAGE>
- identification and availability of appropriate and affordable sites for
our facilities
- management of facility construction and development timing and costs
- ability to develop relationships with local and regional product and
service providers
- customer acquisition costs
- hiring and training of qualified personnel
- competition
- establishment of adequate management and information systems and financial
controls
- ability to profitably manage our growth
We cannot be sure that facilities in any new market will have operating results
similar to those of our current facility. In particular, our existing operations
are located in the Boston metropolitan area which an industry study cites as an
early adopter of consumer direct services and as having demographic
characteristics that are favorable for the acceptance of the consumer direct
industry.
Our ability to expand successfully and to manage our growth will also
require us to expand our operational, managerial and technical capabilities,
while maintaining a high level of quality and service at all times. Our failure
to effectively implement our expansion strategy would have a material adverse
effect on our business, financial condition and results of operations.
WE MAY HAVE DIFFICULTY RAISING ADDITIONAL CAPITAL
We will need additional financing over time, the amount and timing of which
will depend on a number of factors, including:
- the pace of our planned expansion into new markets
- our financial performance and results
- general market and economic conditions
We cannot be sure that we will be able to secure additional financing on
acceptable terms. Holders of any future debt instruments or preferred stock that
we may issue would have rights senior to those of the holders of our common
stock, and any future issuance of common stock would result in the dilution of
stockholders' equity interests.
WE RELY ON THE GROWTH OF E-COMMERCE AND THE INFRASTRUCTURE OF THE INTERNET
A majority of our customers place their orders over the Internet, and we
expect the percentage of customers who order our products and services via the
Internet to grow. Our future revenue and profit, if any, substantially depend on
the widespread acceptance and use of the Internet. However, the growth of the
Internet as a commercial medium may be sporadic for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. If speed, quality or usage demands placed on the Internet continue
to increase, the infrastructure for the Internet may not be able to support
these demands. In addition, growth of the Internet could be delayed as a result
of the pace of development or adoption of new standards and protocols required
to handle increased levels of Internet activity, or due to increased
governmental regulation. Changes in or insufficient availability of
communications services to support the Internet also could result in slower
response times and adversely affect Internet usage generally and affect
Streamline's services in particular. Our future financial condition will be
materially adversely affected if:
8
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- use of the Internet does not continue to grow or grows more slowly than
expected
- the infrastructure for the Internet does not effectively support any
increased usage that may occur
- the Internet does not continue to grow in importance as a commercial
marketplace
Any change in the required Internet infrastructure, standards or protocols may
require us to incur substantial expenditures in order to adapt our services to
these changing or emerging technologies, which could have a material adverse
effect on our business, financial condition and results of operations.
INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS AND
SERVICES
The market for our products and services is extremely competitive. We
currently or potentially compete with several types of companies, including:
- traditional grocery stores, such as supermarkets and independent grocery
stores, warehouse clubs, drug stores and convenience stores, some of which
fulfill orders received by telephone, fax or the Internet
- various suppliers of other goods and services, including national and
regional chains and independently owned operations, such as dry cleaners,
video rental stores, prepared meal providers, bottled water delivery
companies, pet supply stores and photo labs
- various on-line providers of groceries and other products and services,
such as Peapod, Inc., Hannaford Bros. Cos.' HomeRuns, ShopLink
Incorporated, HomeGrocer.com, Inc., Beacon Home Direct, Inc. d/b/a
Scotty's Home Market, Net Grocer Inc. and WebVan Group, Inc., some of
which are affiliated with large national and regional chains such as
Hannaford Bros. Co. and Stop & Shop Supermarket Co.
- other consumer direct or catalog retailers selling products or services
similar to those sold by Streamline
Many of our competitors are larger and have substantially greater resources than
we do. In addition, we believe that competition will intensify as more companies
offer competitive products and services through the consumer direct channel.
Streamline believes that the main competitive factors in our market are:
- range, quality and availability of products and services
- convenience, reliability and professionalism of delivery
- ease of ordering
- level and accessibility of information regarding products
- quality of customer service
- price
- general brand awareness
If any of our competitors surpass us or are perceived to have surpassed us with
respect to one or more of these factors, we may lose potential customers to
these competitors.
We must also compete to retain our existing customers. We aggressively
market our service to reduce customer attrition and increase the size and
frequency of customers' orders. However, there can be no assurance that these
marketing initiatives will be successful. High rates of customer attrition could
materially and adversely affect our business, financial condition and results of
operations.
9
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WE DEPEND ON CUSTOMER ACCEPTANCE OF DIRECT, UNATTENDED DELIVERY OF GOODS AND
SERVICES
We accept orders for products and services and then deliver them directly
into our customers' garages or another secure location on their property without
requiring that they be present at the time of delivery. Market acceptance of
home delivery of products and services remains uncertain, in part because of the
real or perceived risk of increased exposure to theft and other criminal
activity by delivery personnel or others who may obtain access to the customer's
private property. Streamline's success will depend to a substantial extent on
the willingness of consumers to increase their use of direct delivery of
products and to allow us to enter their property to make unattended deliveries.
The failure of either of these circumstances to occur could materially and
adversely affect our business, financial condition and results of operations.
DIFFICULTY DEVELOPING OUR BRAND WOULD LIMIT OUR ABILITY TO EXPAND OUR CUSTOMER
BASE AND RESULT IN INCREASED CUSTOMER ACQUISITION COSTS
We believe that establishing and maintaining brand identity is a critical
aspect of attracting and expanding our customer base. The importance of brand
recognition will increase with heightened local, regional and national
competition. Promotion and enhancement of our brand will depend largely on our
success in continuing to provide high quality products and services. If
customers do not perceive our product and service offerings to be comprehensive
and of high quality, or if we introduce new services or enter into new business
ventures that customers do not favorably receive, we will risk harming our
brand. If we fail to provide high quality goods and services or otherwise
promote and maintain our brand, or if we incur excessive expenses in an attempt
to promote and maintain our brand, our business, financial condition and results
of operations could be materially and adversely affected.
WE DEPEND SIGNIFICANTLY ON OUR SUPPLIERS TO MEET CUSTOMER DEMAND
We purchase the products and services that we offer from national, regional
and local suppliers. We intend to seek additional suppliers and will rely on
such relationships to allow us to expand the products and services we offer to
our customers. While we currently have favorable working relationships with our
suppliers, we cannot be sure that these relationships will continue in the
future. Additionally, we have no commitments from our suppliers that guarantee
the availability or pricing of products or services. If any product shortages
were to arise, suppliers may choose to allocate products to other retailers. If
any of these relationships were to terminate or expire, we could have difficulty
replacing the supply source in a timely manner. Additionally, if any of our
suppliers were to experience disruptions to their business, such as labor
disputes, supply shortages or distribution problems, or if they were to allocate
products and services ordered by Streamline to their other customers, we might
not be able to satisfactorily fulfill our customers' orders, which could
materially and adversely affect our business, financial condition and results of
operations.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE BASED ON SEASONAL AND OTHER FACTORS
We may experience significant fluctuations in future quarterly operating
results from a number of factors, including:
- the timing and nature of expansion efforts in both new and existing
markets and related expenses
- the introduction of new products or services and customer response to
those introductions
- seasonal trends, such as lower ordering during family vacations
- changes in pricing policies or service offerings
10
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- our ability to establish and expand recognition of the Streamline brand
- our ability to attract new customers and retain existing customers
- our ability to manage inventory and fulfillment operations
- our ability to sustain or improve cost of revenue
- changes in the level of marketing and other operating expenses to support
future growth
- competitive factors
- general economic conditions
Consequently, quarterly revenue and operating results have varied in the
past and may fluctuate significantly in the future. Streamline believes that
period-to-period comparisons of results will not necessarily be meaningful and
you should not rely on them as an indication of future performance. Furthermore,
due to the foregoing factors, among others, it is likely that our future
quarterly operating results will not meet the expectations of securities
analysts or investors from time to time, which may adversely affect the price of
the common stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Selected Quarterly Results of Operations."
WE DEPEND ON OUR MARKETING AND PROMOTIONAL RELATIONSHIPS FOR ADDITIONAL REVENUE
We derive a portion of our revenue through marketing and promotional
relationships with consumer packaged goods companies, and we intend to continue
to enter into similar relationships with other business partners. If we are
unable to continue promoting Streamline to these companies as an effective means
of conducting marketing and promotional efforts, we could experience a
significant decrease in revenue and our business, financial condition and
results of operations could be materially and adversely affected.
COMPETITORS COULD LICENSE OR REPLICATE OUR TECHNOLOGY SYSTEMS
Although we have directed considerable time and expense toward developing
several of the systems that we use in operating our business, such as our CD-ROM
ordering application, we do not own a copyright or other rights that would
preclude competitors from either licensing systems or portions of systems
substantially similar or identical to ours or using our systems as a model for
developing their own. Therefore, our competitors may be able to take advantage
of the time and effort that we expended in developing these systems.
DIFFICULTY IN IMPLEMENTING OUR NEW FINANCIAL MANAGEMENT SYSTEM COULD DISRUPT OUR
OPERATIONS
We are in the process of implementing a new financial management system and
are integrating this new system with other existing systems in order to improve
our accounting, financial reporting and financial control capabilities. To date,
we have paid approximately $400,000 relating to this system and intend to make
additional expenditures of approximately $500,000 in 1999 to complete the
functional roll-out of this system. If we are unsuccessful in implementing and
integrating this new system on schedule and within budget, our business,
financial condition and results of operations could be materially and adversely
affected.
DISRUPTIONS IN OUR TECHNICAL SYSTEMS COULD HARM OUR BUSINESS
Streamline's ability to successfully receive, fill and deliver orders and
our ability to provide high-quality customer service largely depend on the
operation of our technical systems. These systems could be vulnerable to, among
other factors, disruptions caused by system failures, power losses,
communication problems, natural disasters, break-ins and similar problems.
Further, weaknesses in
11
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communications media, such as the Internet, may compromise the security of
confidential electronic information exchanged with customers. Any system
interruptions that result in the unavailability of our website or reduced order
fulfillment performance would reduce customer satisfaction and decrease the
volume of goods sold and the attractiveness of our product and service
offerings. To date, we have not experienced material disruption of service.
However, there can be no assurance that such problems will not occur in the
future.
WE DEPEND ON OUR KEY PERSONNEL AND QUALIFIED FUTURE HIRES TO IMPLEMENT OUR
EXPANSION STRATEGY
Our success will depend on the efforts and abilities of our senior
management and key employees, particularly Timothy A. DeMello, our founder,
Chairman, President and Chief Executive Officer. We do not have employment
contracts with most of our key personnel. If we cannot retain existing key
managers and employ additional qualified senior managers, our business,
financial condition and results of operations could be materially and adversely
affected. Furthermore, future expansion of our operations will require us to
attract, train and retain substantial numbers of new personnel. The metropolitan
markets into which we may wish to expand may have very competitive labor
markets. Additionally, as we expand in new and existing markets, we may
experience labor disputes or union organization attempts. These factors could
increase our operating expenses. If we are unable to recruit or retain a
sufficient number of qualified employees, or the costs of compensation or
employee benefits increase substantially, our business, financial condition and
results of operations could be materially and adversely affected.
WE HAVE OUTSOURCED PORTIONS OF OUR CONSUMER RESOURCE CENTER OPERATIONS TO AN
UNPROVEN THIRD PARTY
In May 1999, we entered into an agreement with Genco I, Inc., a national
warehouse operations company, under which we outsourced the merchandise
processing and picking services conducted in our Westwood, Massachusetts
consumer resource center. In connection with our planned expansion, we may enter
similar agreements with Genco for the provision of these services in additional
consumer resource centers. We have not yet had sufficient time to evaluate
Genco's ability to provide these services for us. Moreover, Genco's performance
in our existing consumer resource center will not necessarily be indicative of
its ability to provide comparable services in future consumer resource centers.
If our relationship with Genco were to terminate, expire or experience
disruptions, we could have difficulty replacing these services. Additionally,
Genco's failure to perform in a high-quality, cost-effective and timely manner
in one or more consumer resource centers could interfere with our ability to
satisfactorily deliver our customers' orders and may require us to make
additional expenditures, which could materially adversely affect our business,
financial condition and results of operations.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE
E-commerce is characterized by rapidly changing technology. To remain
competitive, we must continue to enhance and improve the responsiveness and
functionality of our software and systems. Our future success will depend upon
our ability to keep pace with technological developments. The development of new
services and the enhancement of existing services entails significant
technological risks. We may not successfully:
- maintain and improve our software and systems
- effectively use new technologies
- adapt our services to emerging industry standards
- develop, introduce and market service enhancements or new services
If we are unable, for technical or other reasons, to develop and introduce new
services or enhancements of existing services in a timely manner in response to
changing market conditions or
12
<PAGE>
customer requirements, or if new services do not achieve market acceptance, our
business, financial condition and results of operations could be materially and
adversely affected.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Streamline's success and ability to compete substantially depend upon our
proprietary systems and technology. We rely on trademark and trade secret laws
to protect our proprietary rights. Streamline has been granted service mark
registrations for the marks STREAMLINE and WE BRING IT ALL HOME and has pending
registration applications for the marks DRO, DON'T RUN OUT and SIMPLE SOURCE.
Additionally, legal standards relating to the protection of intellectual
property rights in Internet-related industries are uncertain and still evolving.
As a result, the future viability or value of our intellectual property rights,
as well as those of other companies that conduct business over the Internet, is
unknown. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our service or obtain and use information
that we regard as proprietary. Policing unauthorized use of our proprietary
rights is difficult. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or
trademarks or to determine the validity and scope of the proprietary rights of
others. Litigation might result in substantial costs and diversion of resources
and management attention. Any infringement or misappropriation of our
proprietary rights and the related costs of enforcing those rights could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY INFRINGE UPON OTHER PARTIES' PROPRIETARY RIGHTS
Our business activities may infringe upon the proprietary rights of others
and other parties may assert infringement claims against us, including claims
that arise from directly or indirectly providing hyperlink text links to
websites operated by third parties. Moreover, from time to time, third parties
may allege infringement by us or our strategic partners on their trademarks,
service marks and other intellectual property rights. Such claims and any
resultant litigation could subject us to significant liability for damages,
might result in invalidation of our proprietary rights and, even if not
meritorious, could result in substantial costs and diversion of resources and
management attention and have a material adverse effect on our business,
financial condition and results of operations.
ALL OF OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
Many computer systems and other equipment with embedded control chips or
microprocessors use only two digits to represent the year, and could fail or
make miscalculations due to interpreting a date including "00" to mean 1900
rather than 2000. We are currently undergoing efforts to ensure that our
critical business systems will not fail or make miscalculations as a result of
the Year 2000 date change. Although we believe that the Year 2000 date change
will not adversely affect most of our internally developed and licensed
information technology, including our financial systems and accounting software,
we cannot assure you that the production systems of many of our strategic
business partners or suppliers will not be adversely affected. In addition, we
cannot be sure that we will not have to spend significantly more than we
currently anticipate on remediation efforts for our critical systems, or that
implementation of any contingency plans we develop to deal with problems
resulting from the Year 2000 date change will successfully avoid or alleviate
this problem. Any such failures could have a material adverse effect on our
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE DEPEND ON PRODUCT INFORMATION SUPPLIED BY THIRD PARTIES
We currently purchase and license from third parties graphical and textual
product information that we incorporate into our website and CD-ROM application.
We cannot assure you that third-party information of this type will continue to
be available to us on commercially reasonable terms, if at all.
13
<PAGE>
Any failure to obtain this type of information in the future could significantly
reduce the appeal of our Internet-based ordering systems and could adversely
affect our business, financial condition and results of operations.
WE MAY CONTRACT WITH OTHER COMPANIES TO PROVIDE BUSINESS SERVICES TO US
In the future, we may seek to contract with other companies to perform some
of the operational functions currently performed by our personnel. Should we
choose to outsource any of these activities, we would rely on these other
companies to assist us in operating portions of our business. If any of these
outsourcing relationships were to terminate, expire or experience disruptions,
we could have difficulty replacing these services in a timely manner.
Additionally, any such companies might not perform to our standards of
timeliness, quality and accuracy. As a result, we might not be able to
satisfactorily deliver our customers' orders, which could materially and
adversely affect our business, financial condition and results of operations.
E-COMMERCE SECURITY BREACHES COULD HARM US
The expansion and continued viability of e-commerce and related Internet
communications depends on secure transmission of confidential information. We
rely on encryption and authentication technology to effect secure transmission
of confidential information. Advances in computer capabilities, new discoveries
in the field of cryptography or other developments could result in a compromise
of the codes we use to protect customer transaction data. Any such compromise of
our security could have a material adverse effect on our business, financial
condition and results of operations. Concerns over the security of e-commerce
transactions and individual privacy may also inhibit the growth of the Internet
and other on-line services generally, especially as a means of conducting
commercial transactions.
WE FACE POTENTIAL PRODUCT LIABILITY CLAIMS
We cannot assure you that the products that we deliver will be free from
contaminants. Grocery and other related products occasionally contain
contaminants due to inherent defects in the products or improper handling. If
any of these products cause harm to any of our customers, we could be subject to
product liability lawsuits. If we are found liable under a product liability
claim, or even if we are not found liable but are required to defend ourselves
against such a claim, our customers may substantially reduce or even curtail
ordering products and services from us, which could have a material adverse
effect on our business, financial condition and results of operations.
WE COULD BE AFFECTED BY GOVERNMENT REGULATION OF THE INTERNET AND LEGAL
UNCERTAINTIES RELATING TO E-COMMERCE
Currently, few laws or regulations directly apply to commerce on or access
to the Internet and we are not subject to direct government regulation, other
than regulations applicable to businesses generally and food related businesses
in particular. However, a number of legislative and regulatory proposals
relating to e-commerce are under consideration by federal, state, local and
foreign governments and, as a result, a number of laws or regulations may be
adopted with respect to Internet user privacy, taxation, pricing, quality of
products and services, intellectual property ownership and consumer protection
generally. There is also uncertainty as to how existing laws in a number of
areas will be interpreted to apply to the Internet. The additional burdens
imposed by the adoption of new laws or the application of existing laws to the
Internet may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our services, increase our costs of doing business or
otherwise have a material adverse effect on our business, financial condition
and results of operations.
14
<PAGE>
WE WILL CONTINUE TO BE CONTROLLED BY OUR THREE LARGEST STOCKHOLDERS AND THEY
WILL BE ABLE TO EFFECT IMPORTANT CORPORATE ACTIONS WITHOUT THE APPROVAL OF OTHER
STOCKHOLDERS
Upon completion of this offering, our three largest stockholders will
beneficially own approximately 59.1% of our outstanding common stock. See
"Principal Stockholders." As a result, these stockholders, acting together, will
be able to control the outcome of all matters submitted for stockholder action,
including:
- electing members to our board of directors
- approving significant change-in-control transactions
- determining the amount and timing of dividends paid to themselves and to
our public stockholders
- otherwise controlling our management and operations
OUR STOCK PRICE MAY DECLINE AFTER THIS OFFERING AND MAY BE VOLATILE IN THE
FUTURE
The market for shares in newly public Internet-related companies is subject
to extreme price and volume fluctuations. These broad fluctuations may
materially and adversely affect the market price of our common stock. You may
not be able to resell any shares you buy from us at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results
- changes in investors' and securities analysts' expectations as to our
future financial performance or changes in financial estimates of
securities analysts
- announcement of new products or product enhancements by us or our
competitors
- technological innovations by us or our competitors
- the operating and stock price performance of comparable companies
In addition, although our common stock will be quoted on the Nasdaq National
Market, an active trading market may not develop or sustain itself after this
offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT
Purchasers of common stock in this offering will incur immediate and
substantial dilution of $7.03 in the net tangible book value per share of common
stock from the initial public offering price of $10.00. See "Dilution."
PROVISIONS OF OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD DISCOURAGE
ACQUISITION PROPOSALS OR DELAY A CHANGE IN CONTROL OF STREAMLINE
Our certificate of incorporation and by-laws contain anti-takeover
provisions, including those listed below, that could make it more difficult for
a third party to acquire control of us, even if that change in control would be
beneficial to stockholders:
- our board of directors has the authority to issue common stock and
preferred stock and to determine the price, rights and preferences of any
new series of preferred stock without stockholder approval
- our board of directors is divided into three classes, each serving
three-year terms
- supermajority voting is required to amend key provisions of our
certificate of incorporation and by-laws
15
<PAGE>
- there are limitations on who can call special meetings of stockholders
- stockholders may not take action by written consent
- advance notice is required for nominations of directors and for
stockholder proposals
In addition, provisions of Delaware law and our stock option plans may also
discourage, delay or prevent a change of control of Streamline or unsolicited
acquisition proposals.
FUTURE SALES BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK
Sales of our common stock in the public market following this offering could
adversely affect the market price of our common stock. Of the 17,858,656 shares
that will be outstanding upon the closing of this offering:
- all of the shares offered under this prospectus will be freely tradeable
in the public market
- approximately 13,000,000 additional shares may be sold after the
expiration of 180-day lock-up agreements
- approximately 1,200,000 additional shares may be sold upon the exercise of
stock options and warrants after the expiration of 180-day lock-up
agreements
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of shares in
this offering will be $40.8 million, or $46.2 million if the underwriters'
over-allotment option is exercised in full, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us and
assuming an initial public offering price of $10.00 per share. We will not
receive any of the proceeds from the sale of shares by Mr. DeMello as part of
any over-allotment option exercise.
We intend to use approximately $29 million to $35 million, or 70% to 85%, of
the net proceeds of this offering to finance the expansion of our business. We
expect to use the balance of the net proceeds, approximately $6 million to $12
million, for general corporate purposes, including working capital and capital
expenditures. A portion of the net proceeds may also be used for the acquisition
of businesses, products, services or technologies that are complementary to
those of Streamline. There currently are no active negotiations, understandings,
commitments or agreements with respect to any acquisition. Pending such uses, we
intend to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain earnings for the continued development and
expansion of our business. In the future, the terms of credit agreements or
other contractual provisions may impose restrictions or limitations on the
payment of dividends. In the absence of such restrictions or limitations, the
payment of any dividends will be at the discretion of our board of directors.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Streamline as of March
31, 1999: (1) on an actual basis; (2) on a pro forma basis to give effect to the
conversion of shares of preferred stock into common stock; and (3) on a pro
forma as adjusted basis to reflect the sale of common stock by Streamline at an
assumed initial public offering price of $10.00 per share and the application of
the net proceeds therefrom. The information on an actual basis with respect to
the Series D preferred stock reflects the accrual of 6,145 shares of Series D
preferred stock as a dividend, which together with the 228,570 issued and
outstanding shares of Series D preferred stock, will convert into common stock
as of the closing of this offering. This table should be read in conjunction
with Streamline's Consolidated Financial Statements and the related Notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Capital lease obligations, net of current portion........................... $ 603 $ 603 $ 603
Redeemable convertible preferred stock:
Series A preferred stock, $1.00 par value; 50,000 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 5,000 -- --
Series B preferred stock, $1.00 par value; 80,000 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 8,000 -- --
Series C preferred stock, $1.00 par value; 10,000 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 1,000 -- --
Series D preferred stock, $1.00 par value; 228,570 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 23,471 -- --
----------
Total redeemable convertible preferred stock............................ 37,471 -- --
----------
Stockholders' (deficit) equity:
Common stock, $0.01 par value; 22,700,000 shares authorized, 50,000,000 as
adjusted; 3,699,539 shares issued and 3,665,539 outstanding actual,
13,307,881 issued and 13,273,881 outstanding pro forma, and 17,807,881
shares issued and 17,773,881 outstanding pro forma as adjusted.......... 37 133 178
Additional paid-in capital................................................ 4,774 42,149 82,854
Treasury stock, at cost................................................... (238) (238) (238)
Accumulated deficit....................................................... (26,714) (26,714) (26,714)
---------- ----------- -----------
Total stockholders' (deficit) equity.................................... (22,141) 15,330 56,080
---------- ----------- -----------
Total capitalization.................................................. $ 15,933 $ 15,933 $ 56,683
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The common stock to be outstanding after this offering is based on
13,273,881 shares outstanding as of March 31, 1999 and excludes:
- 1,999,714 shares of common stock issuable upon the exercise of outstanding
stock options and warrants outstanding at March 31, 1999 at an average
exercise price of $5.78 per share
- 1,676,867 additional shares of common stock currently reserved for
issuance under Streamline's stock option and stock purchase plans. See
"Management--Stock Option Plans"
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<PAGE>
DILUTION
As of March 31, 1999, Streamline had a pro forma net tangible book value of
approximately $12,106,000, or $0.91 per share of common stock after giving
effect to the conversion of all outstanding shares of preferred stock and
accrued preferred dividends into common stock. Pro forma net tangible book value
per share is determined by dividing the net tangible book value of Streamline,
meaning total tangible assets less total liabilities, by the total number of
shares of common stock outstanding after giving effect to the conversion of
preferred stock and accrued preferred dividends of Streamline. After taking into
account the sale of shares offered hereby by Streamline, the pro forma as
adjusted net tangible book value as of March 31, 1999, would have been
approximately $52,856,000, or $2.97 per share. The pro forma as adjusted net
tangible book value assumes that the proceeds to Streamline, net of underwriting
discounts and commissions and offering expenses will be approximately
$40,750,000. Based on the foregoing, there would be an immediate increase in net
tangible book value to existing stockholders attributable to new investors of
$2.06 per share and an immediate dilution of $7.03 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.......................... $ 10.00
Pro forma net tangible book value per share at March 31,
1999......................................................... $ 0.91
Increase per share attributable to new investors............... 2.06
---------
Pro forma as adjusted net tangible book value per share after
this offering.................................................. 2.97
---------
Dilution per share to new investors.............................. $ 7.03
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock of Streamline, including the accrued dividend of 6,145 shares, into
9,608,342 shares of common stock upon the closing of this offering (1) 4,500,000
shares of common stock purchased from Streamline, (2) the total consideration
paid to Streamline and (3) the average price per share paid by the existing
stockholders and by the new investors at the initial public offering price of
$10.00 per share. Underwriting discounts and commissions and offering expenses
have not been deducted.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 13,273,881 74.7% $ 42,537,000 48.6% $ 3.20
New investors..................................... 4,500,000 25.3 45,000,000 51.4 10.00
------------ ----- ------------- -----
Total......................................... 17,773,881 100.0% $ 87,537,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
1,211,000 shares of common stock, at a weighted average exercise price of $5.85
per share and approximately 302,000 additional shares reserved for future grants
and issuances under Streamline's stock option and stock purchase plans.
Additionally, at March 31, 1999, there were outstanding warrants to purchase a
total of 788,714 shares of common stock at an average exercise price of $5.67
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
fiscal years ended December 31, 1996, 1997 and 1998 has been derived from
consolidated financial statements of Streamline, included elsewhere in this
prospectus, which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The selected financial data for the fiscal year ended December 31,
1995 has been derived from financial statements of Streamline, not appearing
elsewhere in this prospectus, which have been audited by PricewaterhouseCoopers
LLP. The selected financial data for the fiscal year ended December 31, 1994 has
been derived from financial statements of Streamline, not appearing elsewhere in
this prospectus, which have been audited by Arthur Andersen LLP, independent
accountants. The pro forma as adjusted balance sheet data and pro forma per
share and share amounts have not been audited. The statement of operations data
for the quarters ended March 31, 1998 and 1999 are unaudited but have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of operating results
for such periods. The operating results for the quarter ended March 31, 1999 are
not necessarily indicative of the results to be expected for any other interim
period or the full year. You should read this data along with the Consolidated
Financial Statements and related Notes and with Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue, net...... $ 29 $ 128 $ 391 $ 1,815 $ 6,026 $ 1,072 $ 2,568
Subscription fees..................... -- 6 20 98 391 77 186
Advertising, research and marketing
fees................................ -- -- 511 721 529 53 233
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue........................... 29 134 922 2,634 6,946 1,202 2,987
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of revenue....................... 24 128 391 2,098 4,992 896 2,022
Fulfillment center operations......... -- -- 916 2,769 4,013 946 1,407
Sales and marketing................... 4 59 441 1,428 1,479 285 616
Technology systems and development.... 4 7 78 1,673 3,002 636 828
General and administrative............ 627 970 985 3,166 3,897 963 1,483
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses................ 659 1,164 2,811 11,134 17,383 3,726 6,356
Loss from operations.................... (630) (1,030) (1,889) (8,500) (10,437) (2,524) (3,369)
Other income (expense), net............. 7 (20) 43 (80) (330) (40) 107
Loss before minority interest and
extraordinary item.................... (623) (1,050) (1,846) (8,580) (10,767) (2,564) (3,262)
Minority interest in net loss of
consolidated subsidiary............... -- -- -- 265 138 71 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before extraordinary item.......... (623) (1,050) (1,846) (8,315) (10,629) (2,493) (3,262)
Dividends on preferred stock............ -- -- 203 157 329 -- 286
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss attributable to common stockholders
before extraordinary item............. (623) (1,050) (2,049) (8,472) (10,958) (2,493) (3,548)
Extraordinary item--loss on early
redemption of debt.................... -- -- -- -- 744 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss attributable to common
stockholders.......................... $ (623) $ (1,050) $ (2,049) $ (8,472) $ (11,702) $ (2,493) $ (3,548)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss per common share before
extraordinary item.................. $(0.23) $(0.34) $(0.62) $(2.47) $(3.11) $(0.71) $(0.97)
Net loss per common share............. (0.23) (0.34) (0.62) (2.47) (3.32) (0.71) (0.97)
Shares used in computing basic and
diluted loss per common share......... 2,748,042 3,046,127 3,284,625 3,424,035 3,522,458 3,447,032 3,665,539
Unaudited pro forma basic and diluted
net loss per common share............. $(1.28) $(0.25)
Shares used in computing unaudited pro
forma basic and diluted net loss per
share................................. 8,918,465 13,238,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999 (UNAUDITED)
------------------------------------------------ ---------------------------------------
PRO FORMA AS
1994 1995 1996 1997 1998 ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
-------- -------- -------- -------- -------- -------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 111 $ 34 $ 1,005 $ 1,446 $ 12,593 $ 9,317 $ 9,317 $50,067
Working capital (deficit).......... 56 (365) 978 330 12,061 8,277 8,277 49,027
Total assets....................... 162 289 3,618 7,897 20,066 18,307 18,307 59,057
Capital lease obligations, net of
current portion.................. -- 64 325 334 381 603 603 603
Redeemable convertible preferred
stock............................ -- -- 5,203 14,000 37,186 37,471 -- --
Stockholders' equity (deficit)..... 101 (186) (2,179) (8,398) (18,593) (22,141) 15,330 56,080
</TABLE>
- ------------------------
(1) Reflects the conversion of all outstanding shares of preferred stock of
Streamline, including accrued dividends of 6,145 shares, into 9,608,342
shares of common stock upon the closing of this offering. See
"Capitalization."
(2) Adjusted to give effect to the sale of 4,500,000 shares of common stock
offered by this prospectus at the initial public offering price of $10.00
per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by Streamline, and the anticipated
application of the net proceeds therefrom.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. STREAMLINE'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE FOLLOWING DISCUSSION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Streamline 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. We plan to use these net operating losses 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.
HISTORY OF GROWTH
Streamline was founded in April 1993. From 1993 through 1995 we focused
primarily on testing the viability of the consumer home delivery market. We
developed our current business concept during that period.
In 1996 we began offering a full range of products and services to a test
group of approximately 100 customers. In October 1996 we completed the
development of our first consumer resource center in the greater Boston area and
commenced marketing our services.
In 1997 we focused on building our business by:
- expanding our product and service offerings
- negotiating wholesale supply of our products and services
- refining our consumer resource center operations
- developing our website and related ordering technology
- enhancing customer service
- increasing the number of customers served
22
<PAGE>
By the end of 1997 we expanded our customer base to approximately 900
customers and served 30 cities and towns in the greater Boston area. During 1997
we also launched the Consumer Learning Center, which provides consumer packaged
goods companies research and merchandising opportunities. Additionally, in 1997
we acquired substantially all of the assets of Shopping Alternatives, Inc., a
consumer direct company based in the Washington, D.C. area.
In 1998 we increased the number of cities and towns served by our consumer
resource center in the greater Boston area to 38 and continued to market our
services to prospective customers in those areas. As a result, we increased our
customer base to approximately 2,000 customers. By March 31, 1999, our customer
base increased to approximately 2,600 customers.
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.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in Streamline's consolidated
statement of operations data:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
Revenue:
Product and service revenue, net........... 42.4% 68.9% 86.8% 89.2% 86.0%
Subscription fees.......................... 2.2 3.7 5.6 6.4 6.2
Advertising, research and marketing fees... 55.4 27.4 7.6 4.4 7.8
------ ------ ------ ------ ------
Total revenue............................ 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue............................ 42.4 79.6 71.9 74.6 67.7
Fulfillment center operations.............. 99.4 105.1 57.8 78.7 47.1
Sales and marketing........................ 47.8 54.2 21.3 23.7 20.6
Technology systems and development......... 8.5 63.5 43.2 52.9 27.7
General and administrative................. 106.9 120.2 56.1 80.2 49.7
------ ------ ------ ------ ------
Total operating expenses................. 305.0 422.6 250.3 310.1 212.8
Loss from operations......................... (205.0) (322.6) (150.3) (210.1) (112.8)
Other income (expense), net.................. 4.7 (3.1) (4.8) (3.3) 3.6
Loss before minority interest and
extraordinary item......................... (200.3) (325.7) (155.1) (213.4) (109.2)
Minority interest in net loss of consolidated
subsidiary................................. -- 10.1 2.0 5.9 --
Loss before extraordinary item............... (200.3) (315.6) (153.1) (207.5) (109.2)
Extraordinary item--loss on early redemption
of debt.................................... -- -- 10.7 -- --
------ ------ ------ ------ ------
Net loss..................................... (200.3)% (315.6)% (163.8)% (207.5)% (109.2)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
23
<PAGE>
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
TOTAL REVENUE. Total revenue increased to $3.0 million in the quarter ended
March 31, 1999 from $1.2 million in the comparable period ended March 31, 1998,
an increase of 148.5%. This increase was primarily due to an expanded customer
base generating higher average product and service revenue per invoice; more
subscription fees; and increased advertising, research and marketing fees due to
more consumer packaged goods companies participating in our Consumer Learning
Center.
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. Sales of products and services, net of
returns increased to $2.6 million in the quarter ended March 31, 1999 from $1.1
million in the comparable period ended March 31, 1998, an increase of 139.5%.
The increase in revenue was the result of:
- an increase in our customer base to approximately 2,600 at March 31, 1999
from approximately 1,200 at March 31, 1998, an increase of 125.8%,
primarily due to our marketing efforts to obtain new customers in the
greater Boston market and customer referrals
- a related increase in the number of invoices for product and service
revenue to approximately 24,000 in the quarter ended March 31, 1999 from
11,000 in the comparable period ended March 31, 1998, an increase of
118.1%
- an increase in average product and service revenue per invoice to
approximately $107 in the quarter ended March 31, 1999 from approximately
$100 in the comparable period ended March 31, 1998, an increase of 6.6%,
primarily due to further expansion of our product and service offering
Product and service revenue, net as a percentage of total revenue decreased to
86.0% in the quarter ended March 31, 1999 from 89.2% in the comparable period
ended March 31, 1998. This decrease is due to the timing of member enrollment in
our Consumer Learning Center.
SUBSCRIPTION FEES. Streamline customers pay a monthly subscription fee in
addition to amounts paid for the products and services we deliver to their
homes. Revenue from these fees increased to $186,000 in the quarter ended March
31, 1999 from $76,000 in the comparable period ended March 31, 1998, an increase
of 144.2%, due to our expanded customer base. Subscription fees as a percentage
of total revenue decreased to 6.2% in the quarter ended March 31, 1999 from 6.4%
in the comparable period ended March 31, 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 $233,000 in the quarter ended March 31, 1999 from $53,000 in the
comparable period ended March 31, 1998, an increase of 336.8%. These fees as a
percentage of total revenue increased to 7.8% in the quarter ended March 31,
1999 from 4.4% in the comparable period ended March 31, 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 $6.4 million,
or 212.8% of total revenues, in the quarter ended March 31, 1999 from $3.7
million, or 310.1% of total revenues, in the comparable period ended March 31,
1998, an increase of 70.6%. The increase in operating expenses is a result of an
increase in order volume. These costs decreased as a percentage of total revenue
due to achieving operational efficiencies and offsetting fixed costs with higher
order volumes.
COST OF REVENUE. The cost of revenue is comprised of the 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 $2.0 million, or 67.7% of total revenue, in the quarter ended
24
<PAGE>
March 31, 1999 from $896,000, or 74.6% of total revenue, in the comparable
period ended March 31, 1998, an increase of 125.6%. This increase was due to
increased order size and customer orders, offset by cost reductions associated
with higher purchase volumes.
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 $1.4 million, or 47.1% of total revenue, in
the quarter ended March 31, 1999 from $946,000, or 78.7% of total revenue, in
the comparable period ended March 31, 1998, an increase of 48.7%. The decrease
in fulfillment center expenses as a percentage of total revenue resulted from
controlling operational costs while increasing order volume and order size.
SALES AND MARKETING. Sales and marketing expenses include general marketing
expenses and the sales and marketing costs associated with acquiring customers.
Sales and marketing expenses increased to $616,000, or 20.6% of total revenue,
in the quarter ended March 31, 1999 from $285,000, or 23.7% of total revenue, in
the comparable period ended March 31, 1998, an increase of 116.3%. This increase
was due to additional advertising and promotional activities undertaken to
acquire new customers. As a percentage of total revenue, sales and marketing
expenses remained relatively stable.
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 $828,000, or 27.7% of
total revenue, in the quarter ended March 31, 1999 from $636,000, or 52.9% of
total revenue, in the comparable period ended March 31, 1998, an increase of
30.3%, primarily due to costs associated with maintaining, enhancing and
integrating our technology systems.
GENERAL AND ADMINISTRATIVE. General and administrative costs include
corporate salaries and wages, employee benefits, corporate facility costs and
depreciation, amortization and general administrative expenses including office
equipment and supplies, telephone expenses, travel costs and legal, audit and
other consulting fees. These costs increased to $1.5 million, or 49.7% of total
revenue, in the quarter ended March 31, 1999 from $963,000, or 80.2% of total
revenue, in the comparable period ended March 31, 1998, an increase of 54.0%,
primarily due to the addition of management and administrative staff to support
our growth and expansion strategy.
OTHER INCOME (EXPENSE), NET. Other income, net increased to income of
$107,000 in the quarter ended March 31, 1999 from an expense of $40,000 in the
comparable period ended March 31, 1998, an increase of 366.6%, primarily due to
increased interest income from higher cash balances and the pay down of debt.
MINORITY INTEREST. At March 31, 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 results of operations.
1998 COMPARED TO 1997
TOTAL REVENUE. Total revenue increased to $6.9 million in 1998 from $2.6
million in 1997, an increase of 163.7%. This increase was primarily due to an
increase in total orders resulting from our expanded customer base.
PRODUCT AND SERVICE REVENUE, NET. Sales of products and related services,
net of returns increased to $6.0 million in 1998 from $1.8 million in 1997, an
increase of 232.0%. Product and service revenue, net as a percentage of total
revenue increased to 86.8% in 1998 from 68.9% in 1997. These increases were
principally due to:
25
<PAGE>
- an increase in our customer base to approximately 2,000 at the end of 1998
from approximately 900 at the end of 1997, an increase of 122.2%,
primarily due to our marketing efforts to obtain new customers in the
greater Boston market
- a related increase in the number of invoices for product and service
revenue to approximately 59,000 in 1998 from approximately 18,000 in 1997,
an increase of 231.6%
SUBSCRIPTION FEES. Revenue from subscription fees increased to $392,000 in
1998 from $99,000 in 1997, an increase of 297.3% due to an increase in our
customer base and the timing of these customer acquisitions. Subscription fees
as a percentage of total revenue increased to 5.6% in 1998 from 3.7% in 1997.
These increases resulted from the growth in our customer base.
ADVERTISING, RESEARCH AND MARKETING FEES. Fees from advertising, research
and marketing services decreased to $529,000 in 1998 from $721,000 in 1997, a
decrease of 26.6%. Advertising, research and marketing fees as a percentage of
total revenue decreased to 7.6% in 1998 from 27.4% in 1997. These decreases are
primarily due to a reduction in the average dollar amount paid by participants
resulting from shorter membership periods.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $17.4 million,
or 250.3% of total revenue, in 1998 from $11.1 million, or 422.6% of total
revenue, in 1997, an increase of 56.1%, largely due to:
- increased fulfillment center operational costs
- increased expenses related to technology systems and development
- increased sales and marketing expenses incurred to increase our customer
base
- increased general and administrative expenses incurred to support our
growing operations
COST OF REVENUE. The cost of revenue increased to $5.0 million, or 71.9% of
total revenue, in 1998 from $2.1 million, or 79.6% of total revenue, in 1997, an
increase of 138.0%, due to the increased order size and number of customer
orders, offset by cost reductions associated with higher purchase volumes.
FULFILLMENT CENTER OPERATIONS. Expenses attributable to fulfillment center
operations increased to $4.0 million, or 57.8% of total revenue, in 1998 from
$2.8 million, or 105.1% of total revenue, in 1997, an increase of 44.9%, due to
the increase in customer order volume.
SALES AND MARKETING. Sales and marketing expenses increased to $1.5
million, or 21.3% of total revenue, in 1998 from $1.4 million, or 54.2% of total
revenue, in 1997, an increase of 3.6%. As a result of increased customer
referrals and the more effective utilization of marketing channels, sales and
marketing expenses decreased as a percentage of total revenue.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to technology
systems and development increased to $3.0 million, or 43.2% of total revenue, in
1998 from $1.7 million, or 63.5% of total revenue, in 1997, an increase of
79.5%. Certain costs associated with our website, on-line ordering, warehouse
management and other enterprise systems were capitalized during 1997 and 1998
and are being amortized over the useful lives of the assets. In 1998 the
increased expense is largely due to increased amortization of these capitalized
costs and costs associated with maintaining, enhancing and integrating our
technology systems.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased to
$3.9 million, or 56.1% of total revenue, in 1998 from $3.2 million, or 120.2% of
total revenue, in 1997, an increase of 23.1%, primarily due to the addition of
management and administrative staff to support our growth.
OTHER INCOME (EXPENSE), NET. Other expense, net increased to $330,000 in
1998 from $80,000 in 1997, an increase of 311.0%, largely due to a $518,000
increase in net interest expense resulting
26
<PAGE>
primarily from our issuance of senior discount notes in 1998 offset by $182,000
of interest income we received primarily from investing the proceeds of debt and
equity financings completed during the year. Other expense in 1997 was largely
due to the losses incurred on the disposal of fixed assets.
MINORITY INTEREST. The allocation of the net losses of our subsidiary,
Streamline Mid-Atlantic, Inc., to the minority interest decreased to $139,000 in
1998 from $265,000 in 1997. In 1998, we were allocated a percentage of net
losses in excess of our ownership percentage due to the minority interest being
allocated all of its allowable losses. In November 1998, we acquired the
remaining minority interest and will report 100% of the income or loss of this
subsidiary in our results of operations in future periods.
EXTRAORDINARY LOSS. We incurred an extraordinary loss of $744,000 in 1998
due to the early extinguishment of the senior discount notes issued in April
1998 and retired in September 1998. This loss included approximately $257,000
for a call premium, and $452,000 for the unamortized discount value associated
with the warrants to purchase common stock issued in connection with the senior
discount notes and $35,000 for the issuance of common shares and remaining
deferred financing costs.
1997 COMPARED TO 1996
TOTAL REVENUE. Total revenue increased to $2.6 million in 1997 from $922,000 in
1996, an increase of 185.8%. This increase was due to an increase in the number
of customers and orders in 1997.
PRODUCT AND SERVICE REVENUE, NET. Sales of products and related services,
net of returns increased to $1.8 million in 1997 from $391,000 in 1996, an
increase of 364.4%. Net product and service revenue as a percentage of total
revenue increased to 68.9% in 1997 from 42.4% in 1996. Due to active marketing
efforts, we increased our customer base to approximately 900 at the end of 1997
from approximately 100 households in 1996. The increase in our customer base
resulted in a greater number of orders in 1997.
SUBSCRIPTION FEES. Subscription fees increased to $99,000 in 1997 from
$20,000 in 1996, an increase of 395.1% primarily as a result of an increase in
the number of customers to approximately 900 by the end of 1997 from a pilot
group of 100 in 1996. Subscription fees as a percentage of total revenue
increased to 3.7% in 1997 from 2.2% in 1996 due to this increase in our customer
base.
ADVERTISING, RESEARCH AND MARKETING FEES. Revenue from advertising,
research and marketing fees increased to $721,000 in 1997 from $511,000 in 1996,
an increase of 41.1%. These fees decreased, as a percentage of total revenue to
27.4% in 1997 from 55.4% in 1996. In 1997, we began offering research and
marketing programs to consumer packaged goods companies, whereas, in 1996 the
revenue from market research was a result of our non-recurring participation in
a third party research program while operating with our initial test group of
100 customers.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $11.1 million,
or 422.6% of total revenue, in 1997 from $2.8 million, or 305.0% of total
revenue, in 1996, an increase of 296.1%, due to:
- an increase in the number of customers and orders
- an increase in costs related to consumer resource operations due to the
completion of our first consumer resource center
- increased sales and marketing expenses related to the expansion our
customer base
- an increase in general and administrative expenses as a result of
increasing our infrastructure to support expanded operations
COST OF REVENUE. The cost of revenue increased to $2.1 million, or 79.6% of
total revenue, in 1997 from $391,000, or 42.4% of total revenue, in 1996, an
increase of 436.3%, due to the increase in customer orders and the increase in
costs associated with research and marketing programs.
27
<PAGE>
FULFILLMENT CENTER OPERATIONS. In 1996 we completed construction of our
first facility in the greater Boston, Massachusetts area and began full
operations. Expenses attributable to fulfillment center operations increased to
$2.8 million, or 105.1% of total revenue, in 1997 from $916,000, or 99.4% of
total revenue, in 1996, an increase of 202.3%, as a result of increased labor
associated with processing a higher order volume.
SALES AND MARKETING. Sales and marketing increased to $1.4 million, or
54.2% of total revenue, in 1997 from $441,000, or 47.8% of total revenue, in
1996, an increase of 224.1%. We incurred higher customer acquisition expenses in
1997 because we ended our test phase and began actively marketing our service to
new customers. In 1997 we also began general promotional efforts.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to technology
systems and development increased to $1.7 million, or 63.5% of total revenue, in
1997 from $78,000, or 8.5% of total revenue, in 1996, due to the development and
implementation of our website, on-line ordering, warehouse management system and
other enterprise systems in 1997.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased to
$3.2 million, or 120.2% of total revenue, in 1997 from $1.0 million, or 106.9%
of total revenue in 1996, an increase of 221.3% due to an increase in
administrative salaries and related benefits to support the growth in customers.
OTHER INCOME (EXPENSE), NET. Other expense, net of $80,000 in 1997 was
primarily due to the losses incurred on the disposal of fixed assets. Other
income, net of $43,000 in 1996 resulted primarily from the net interest income
we received from investing the proceeds of equity financings completed during
the year offset by leasing and other financing expenses.
MINORITY INTEREST. In 1997 we established a subsidiary, Streamline
Mid-Atlantic, Inc., which sold common stock to third parties and acquired
substantially all of the assets of Shopping Alternatives, Inc. in exchange for
shares of its common stock. These transactions created a minority interest in
our subsidiary, to which we allocated approximately 45% of the subsidiary's 1997
operating loss.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly consolidated statement of
operations data for each of the quarters during the fiscal years ended December
31, 1997 and 1998 and for the quarter ended March 31, 1999. In the opinion of
management, this information has been prepared on the same basis as the audited
financial statements appearing elsewhere in this prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the unaudited quarterly results.
You should read the quarterly data presented below in conjunction with the
Consolidated Financial Statements and related Notes appearing elsewhere in this
prospectus.
28
<PAGE>
The results of operations for any quarter are not necessarily indicative of
future quarterly results of operations. See "Risk Factors."
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue,
net............................ $ 185 $ 340 $ 473 $ 817 $1,072
Subscription fees................ 9 16 27 46 77
Advertising, research and
marketing fees................. 135 270 271 45 53
------------- ------------- ------------- ------------- -------------
Total revenue...................... 329 626 771 908 1,202
Operating expenses:
Cost of revenue.................. 261 392 604 841 896
Fulfillment center operations.... 417 624 751 977 946
Sales and marketing.............. 338 357 390 343 285
Technology systems and
development.................... 125 405 528 615 636
General and administrative....... 425 893 904 944 963
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 1,566 2,671 3,177 3,720 3,726
Loss from operations............... (1,237) (2,045) (2,406) (2,812) (2,524)
Other income (expense), net........ (8) (12) (87) 27 (40)
------------- ------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... $(1,245) $(2,057) $(2,493) $(2,785) $(2,564)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PERCENTAGE OF REVENUE:
Revenue:
Product and service revenue,
net............................ 56.2% 54.3% 61.3% 90.0% 89.2%
Subscription fees................ 2.7 2.6 3.5 5.1 6.4
Advertising, research and
marketing fees................. 41.0 43.1 35.1 5.0 4.4
------------- ------------- ------------- ------------- -------------
Total revenue...................... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue.................. 79.3 62.6 78.3 92.6 74.6
Fulfillment center operations.... 126.7 99.7 97.4 107.6 78.7
Sales and marketing.............. 102.7 57.0 50.6 37.8 23.7
Technology systems and
development.................... 38.0 64.7 68.5 67.7 52.9
General and administrative....... 129.2 142.7 117.3 104.0 80.2
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 476.0 426.7 412.1 409.7 310.1
------------- ------------- ------------- ------------- -------------
Loss from operations............... (376.0) (326.7) (312.1) (309.7) (210.1)
Other income (expense), net........ (2.4) (1.9) (11.3) 3.0 (3.3)
------------- ------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... (378.4)% (328.6)% (323.3)% (306.7)% (213.4)%
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue,
net............................ $1,401 $1,409 $2,144 $2,568
Subscription fees................ 94 105 116 186
Advertising, research and
marketing fees................. 159 158 158 233
------------- ------------- ------------- -------------
Total revenue...................... 1,654 1,672 2,418 2,987
Operating expenses:
Cost of revenue.................. 1,206 1,164 1,726 2,022
Fulfillment center operations.... 1,009 946 1,112 1,407
Sales and marketing.............. 328 376 490 616
Technology systems and
development.................... 664 637 1,065 828
General and administrative....... 951 884 1,099 1,483
------------- ------------- ------------- -------------
Total operating expenses........... 4,158 4,007 5,492 6,356
Loss from operations............... (2,504) (2,335) (3,074) (3,369)
Other income (expense), net........ (209) (205) 124 107
------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... $(2,713) $(2,540) $(2,950) $(3,262)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PERCENTAGE OF REVENUE:
Revenue:
Product and service revenue,
net............................ 84.7% 84.2% 88.6% 86.0%
Subscription fees................ 5.7 6.3 4.8 6.2
Advertising, research and
marketing fees................. 9.6 9.5 6.6 7.8
------------- ------------- ------------- -------------
Total revenue...................... 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue.................. 72.9 69.6 71.4 67.7
Fulfillment center operations.... 61.0 56.6 46.0 47.1
Sales and marketing.............. 19.8 22.5 20.3 20.6
Technology systems and
development.................... 40.1 38.1 44.1 27.7
General and administrative....... 57.5 52.8 45.4 49.7
------------- ------------- ------------- -------------
Total operating expenses........... 251.3 239.6 227.2 212.8
------------- ------------- ------------- -------------
Loss from operations............... (151.3) (139.6) (127.2) (112.8)
Other income (expense), net........ (12.7) (12.2) 5.1 3.6
------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... (164.0)% (151.8)% (122.1)% (109.2)%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
29
<PAGE>
Streamline's quarterly operating results have fluctuated significantly in
the past due to many factors beyond our control including seasonality.
Generally, the number of orders, as well as the total amount spent per order,
tends to decrease in July, August and during school breaks when many busy
suburban families vacation. This pattern is demonstrated by a comparison of
product and service revenue, net for the last three quarters of 1998 and the
first quarter of 1999. This revenue remained stable in the second and third
quarters of 1998 as opposed to the 52.2% increase from the third quarter of 1998
to the fourth quarter of 1998. Product and service revenue, net increased 19.8%
from the fourth quarter of 1998 to the first quarter of 1999. Our operating
results are likely to continue to fluctuate due to seasonality and other
factors, including:
- the ability to attract new customers and retain existing customers
- the timing and nature of the expansion of our business, and the amount of
operating costs and capital expenditures relating to such expansion of our
business
- our ability to manage inventory and fulfillment operations
- the introduction of new products and services and changes in the sales mix
of our product and service offerings
- the ability to maintain or reduce costs of revenue
- our ability to establish and expand recognition of the Streamline brand
- changes in pricing policies
- competitive factors
- general economic conditions
We may also experience significant fluctuations in revenue from our
advertising, research and marketing fees due to the timing and length of our
agreements with participants and affiliates. For example, the Consumer Learning
Center operated primarily in the first three quarters of 1997 and the last three
quarters of 1998 and therefore generated the majority of advertising, research
and marketing fees during those periods. We also expect that revenue from
customer acquisition and revenue sharing contracts with other e-commerce
companies may vary between quarters.
Cost of revenue as a percentage of total revenue has fluctuated between
quarters due to the timing of expenses related to the recognition of
advertising, research and marketing fees. The total costs of revenue as a
percentage of total revenue decreased from 79.6% in 1997 to 71.9% in 1998
primarily as a result of securing better wholesale prices from new and existing
suppliers. The cost of revenue decreased from 71.4% in the fourth quarter of
1998 to 67.7% in the first quarter of 1999, primarily as a result of an increase
in the percentage of total revenue derived from advertising, marketing and
research fees, which have a lower cost of revenue as compared to product and
service revenue, net.
Expenses attributable to fulfillment center operations, which include the
fixed costs to operate our consumer resource center, as well as labor costs
associated with managing inventory and processing orders have typically
increased as a result of increases in our order volume.
Sales and marketing expenses have typically increased as a result of
increased marketing efforts to acquire additional customers.
Technology and development expenses have typically increased due to
incurring costs to develop, enhance and maintain our ordering, warehouse
management, financial and customer information systems. These expenses
significantly increased in the fourth quarter due to the issuance of warrants
for common stock in lieu of payment for services related to the development of
our website and customer ordering systems. See Notes to the Consolidated
Financial Statements.
General and administrative expenses have typically increased as a result of
the addition of management and administrative staff and related expenses to
support our current and future growth.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Streamline has financed its operations and capital requirements through the
sale of redeemable convertible preferred stock and the issuance of senior
discount notes.
Operating activities used cash of $2.2 million in the first quarter of 1999,
$9.4 million in 1998, $6.7 million in 1997 and $1.7 million in 1996 primarily
due to the net losses incurred in each period. Investing activities used cash of
$975,000 in the first quarter of 1999, $2.1 million in 1998, $2.8 million in
1997 and $2.0 million in 1996 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 warehouse management, customer
ordering, and financial systems. Financing activities used cash of $72,000 in
the first quarter of 1999 and provided cash of $22.7 million in 1998, $10.0
million in 1997, and $4.7 million in 1996 primarily through sales of preferred
stock which generated proceeds of $22.9 million in 1998, $9.0 million in 1997,
and $5.0 million in 1996. During 1998 we received $7.0 million in connection
with the issuance of senior discount notes. A portion of the proceeds from our
sale of preferred stock in September 1998 was used to retire the senior discount
notes.
We expect to incur operating losses in 1999 from our existing consumer
resource center and from the facility we have leased and plan to open in the
greater Washington, D.C. area in the fourth quarter of 1999. We have currently
budgeted expenditures in 1999 of approximately $4.0 million for costs associated
with leasehold improvements, equipment acquisitions and other asset purchases
related to our new facility. 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. has
agreed to provide us with financing of up to $10.0 million upon our request.
Nordstrom's commitment will terminate upon the closing of this offering or April
2000, whichever is earlier. The final terms of any such financing will be
determined at the time we request such financing, but will be similar to the
terms of the sale of the Series D preferred stock to Nordstrom in September
1998. 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 and recorded approximately $600,000 of deferred financing costs for
the fair value of the warrant. We estimated the fair value of the warrant using
the Black-Scholes option pricing model. The fair market value of the common
stock for purposes of this calculation was $12.00 per share, the mid-point of
the proposed offering price at the time of calculation. Assuming the
consummation of this offering, the Company will incur a non-cash charge of
approximately $600,000, the fair value of the warrant, in the quarter ended June
30, 1999. If this offering is not consummated, the Company will incur this
charge ratably over the financing commitment term.
We currently believe that existing cash and short-term investments, together
with the net cash proceeds of this offering, 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.
We do not believe that inflation has had a material effect on Streamline's
operations during the three year period ended December 31, 1998 or the quarter
ended March 31, 1999.
MARKET RISK
To date, Streamline has not utilized derivative financial instruments or
derivative commodity instruments. We invest our cash in 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
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<PAGE>
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 begun to assess 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 began our assessment of 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 systems are Year 2000 compliant. In addition, we are in the
process of implementing a new financial system which is certified Year 2000
compliant by the vendor. We expect this system to be in place by the end of
1999. We are currently conducting Year 2000 compliance testing of our individual
workstations and network systems. 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
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 are in the process of developing a standard survey to help us assess
the Year 2000 readiness or our suppliers, but we have not yet begun to collect
information from these companies.
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<PAGE>
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 are currently assessing the Year 2000 readiness
of many of these systems and equipment and expect to have identified and
corrected problems in critical items by September 1999.
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.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1, Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use. SoP 98-1 provides guidance on accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and the related amortization of such costs.
Streamline does not expect the adoption of this standard to have a material
effect on our current capitalization policy.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-Up Activities. Start-up
activities are defined broadly as those one-time activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, commencing some new
operation or organizing a new entity. Under SoP 98-5, the cost of start-up
activities should be expensed as incurred. SoP 98-5 is effective for
Streamline's 1999 financial statements and we do not expect its adoption to have
a material effect on our business, financial condition or results of operations.
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BUSINESS
OVERVIEW
We simplify the lives of busy suburban families by providing them with
Internet-based ordering of goods and services, coupled with direct-to-the-home
delivery. We significantly shorten and simplify the traditional shopping needs
of our customers who increasingly demand time-saving lifestyle solutions. We
deliver our products and services to each customer through a single weekly
delivery. Products that we purchase at wholesale prices directly from
wholesalers, distributors and manufacturers and sell to our customers at retail
prices include:
<TABLE>
<S> <C>
- brand-name groceries - fresh baked goods
- quality meats and seafood - freshly prepared meals
- fresh produce - health and beauty care products
- dairy products, including gourmet - cleaning supplies and other household items
cheeses
- sliced-to-order deli products - specialty pet food and supplies
- organic foods - fresh flowers
- frozen foods - stationery supplies and postage stamps
- kosher foods - seasonal items, including firewood,
charcoal and holiday products
</TABLE>
In addition, we offer a wide range of related services, such as:
<TABLE>
<S> <C>
- dry cleaning pick-up and delivery - package pick-up and delivery
- clothing alteration and repair - bottle and can redemption
- video and video game rental - shoe repair
- film processing and supplies - food and clothing drives
- bottled water and cooler delivery
</TABLE>
Our product and service offerings, combined with the frequency of ordering
and delivery, provide us the opportunity to develop long-term relationships with
customers.
INDUSTRY BACKGROUND
Consumer direct companies deliver groceries and other consumer products and
services, which consumers have ordered over the Internet or by telephone or fax,
directly to their homes. In a 1996 study, Andersen Consulting estimated that the
U.S. consumer direct market could generate approximately $60 billion in annual
sales in 2007. Several converging trends are driving this growth:
- demographic trends supporting the growth of the consumer direct industry
- growth of the Internet and e-commerce
- limitations of the traditional physical store model
DEMOGRAPHIC TRENDS SUPPORTING THE GROWTH OF THE CONSUMER DIRECT INDUSTRY
NFO Worldwide, Inc. analyzed a group of consumer direct users and profiled
such users as having the following characteristics, among others:
- 61% are dual income households
- 75% have at least one child under 18
- 88% use personal computers
- 40% use time-saving services such as house cleaning services
- 75% use time-saving devices such as mobile phones
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NFO and Andersen Consulting separately report that perceived time-saving is
one of the primary benefits driving usage of consumer direct channels. Andersen
Consulting has additionally found that consumer direct companies excel at
meeting the following needs of the busy consumer:
- simplicity
- more effective use of time
- pricing accuracy
- product quality
- minimal physical effort
GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has become an increasingly significant global medium for
consumer commerce and now provides a powerful and efficient means for consumers
to order products and services. International Data Corporation estimates that 21
million U.S. households had Internet access in 1997 and expects this number to
grow to over 67 million by the end of 2002.
Growth in Internet usage among consumers has been fueled by a number of
factors, including:
- increased awareness of the Internet among consumers
- a large and increasing number of personal computers at home
- growing e-commerce activity due to increasing availability of information
and services on the Internet
- more readily available access to the Internet due to the proliferation of
service providers
- advances in the performance and speed of personal computers and modems
- improvements in network systems and infrastructure, including increased
bandwidth
- reduced security risks in conducting commercial transactions via the
Internet
The Internet is also dramatically affecting the manner in which companies
distribute goods and services. Specifically, the Internet allows consumer direct
companies to:
- reach a large national and local audience from a central location
- process business with reduced infrastructure investment and overhead
costs, along with greater economies of scale
- provide consumers with a broad selection of products and services,
increased information and enhanced convenience
As a result of both increased consumer Internet use and this increasing
selection of products and services, a growing number of consumers are
transacting business on the Internet, including buying groceries and other
consumer products. IDC estimates that in 1997 over 36% of Internet users
purchased consumer goods or services over the Internet and that 50% of Internet
users will make on-line purchases in 2002. IDC also estimates that consumer
purchases of goods and services over the Internet will increase from $4.3
billion in 1997 to $54.3 billion in 2002. For example, Jupiter Communications
estimates that consumers spent approximately $65 million in 1997 over the
Internet on grocery and health and beauty products, and that this market will
increase to approximately $4.7 billion by 2002. This estimated penetration still
represents less than one percent of the total dollars expended in 1997 on
grocery and health and beauty products through traditional U.S. retail channels.
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<PAGE>
LIMITATIONS OF THE TRADITIONAL PHYSICAL STORE MODEL
LIMITED ABILITY TO MEET THE NEEDS OF BUSY CONSUMERS. Consumers are
increasingly time constrained. The increase in dual income families limits the
time available for routine activities, such as shopping, cooking and cleaning.
According to the U.S. Bureau of Labor Statistics, the number of dual income
households totaled 28.5 million in 1998, representing approximately 27.8% of the
total number of households in 1998 as reported by the U.S. Bureau of the Census.
According to Andersen Consulting, the typical consumer visits the supermarket
twice per week and each trip takes an average of 47 minutes excluding the time
required for driving to and from the store, parking, and loading and unloading
packages. The weekly time burden is even greater when one considers time spent
on other chores, such as picking up dry cleaning, returning videos and mailing
packages. According to the Food Marketing Institute, people with full time jobs
complete 50% of their shopping during the weekend.
ECONOMIC CONSTRAINTS. Traditional physical store models face significant
economic limitations due to costs associated with real estate, construction,
store set-up, inventory, and other fixed assets. As an example, according to the
FMI, 7% of a traditional grocery store's operating costs in 1997 were related to
real estate rental costs. Traditional physical store models also have high
ongoing expenses relating to personnel. As measured by the FMI, a traditional
grocery store's labor costs in 1997 typically represented 57% of its operating
costs. In addition, traditional physical stores are limited in their ability to
track critical customer purchasing and preference information and, therefore,
cannot predict customer demand with great accuracy. ACNielsen Corporation has
found that only 55% of customers participate in scannable card programs.
Therefore, these programs do not provide complete consumer purchase data.
Consequently, traditional physical stores, especially grocery stores, must carry
more inventory and, therefore, build or lease more space to warehouse and
display this inventory and employ more people to service this larger space. The
average supermarket currently stocks over 30,000 items and has grown from 31,000
square feet to 39,260 between 1990 and 1997.
Consumers are increasingly seeking a shopping solution which helps them to
save time while providing quality goods and services. Consumer direct companies
are using the Internet to satisfy this need while traditional physical stores
face fundamental constraints that limit their ability to meet these demands.
THE STREAMLINE SOLUTION
We have created a lifestyle solution for today's busy suburban family by
providing an efficient means of purchasing and receiving groceries and other
related products and services. We supply consumers with a simple, informative
and enjoyable Internet-based shopping experience by offering a targeted,
necessity-based range of products and services enhanced by weekly unattended
home delivery.
The principal benefits to our customers include:
- convenience and simplicity
- time savings
- access to detailed information about products and services
- competitive pricing
- personalized care and service
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<PAGE>
Through key relationships with premier national, regional and local business
partners, we aggregate a wide range of products and services for our customers,
including:
<TABLE>
<CAPTION>
SAMPLE OF
1997 ESTIMATED STREAMLINE'S GEOGRAPHIC SCOPE
U.S. SALES PRODUCT AND SERVICE OF PARTNER'S
PRODUCT AND SERVICE (IN BILLIONS) PROVIDERS OPERATIONS
- ----------------------------- ----------------- --------------------------- -----------------
<S> <C> <C> <C>
Groceries, dry and perishable $ 475 SuperValu Operations, Inc. National
Health and Beauty Care 49(1) Millbrook Corporation National
Prepared Meals 29 Legal Sea Foods, Inc. Regional
S.E. Olson's Uptown Gourmet Local
Specialty Pet Food and 11(1) Iams Company National
Supplies
Ralston Purina Company National
Video and Video Game Rentals 10 BlockBuster Videos, Inc. National
Dry Cleaning 6(2) Quest Dry Cleaning Inc. Local
Bottled Water and Cooler 4 Poland Spring Corporation Regional
Delivery
</TABLE>
- ------------------------
(1) Estimated 1998 annual sales.
(2) Estimated 1996 annual sales.
We estimate that our process allows customers to complete an entire order in
20 to 30 minutes per week from the comfort of their homes, thereby reducing
their need to make frequent trips to multiple traditional stores. NFO has
conducted research which concludes that 94% of Streamline customers consider us
to be their primary provider of groceries and other household goods and
services.
OUR VIRTUAL AND PHYSICAL CHANNELS
To deliver superior value to the consumer, Streamline has built two
dedicated pipelines direct to the home: a virtual channel using the Internet and
a physical channel using our direct delivery system.
(Diagram depicting the types of products and services delivered to
Streamline.com's customer resource center and indicating that there exists
two-way virtual and physical channels between Streamline.com and its customers.
The top half of the diagram contains two rows of pictures showing the types of
products and services that Streamline.com provides. On the left side, under the
heading "Product Offering" are pictures labeled "Fresh Baked Goods", "Quality
Meats and Seafood", "Cleaning Supplies and Household Items", "Freshly Prepared
Meals", "Brand Name Groceries", "Health and Beauty Care Products", "Specialty
Pet Food and Supplies", and "Fresh Produce". On the right side, under the
heading "Service Offering" are pictures labeled "Film Processing and Supplies",
"Video Rentals", "Dry Cleaning", "Stamps", "Fresh Flowers", "Bottled Water and
Cooler Delivery", "Package Pick-up and Delivery", and "Bottle and Can
Redemption". In the center of the diagram is a depiction of a building labeled
"The Consumer Resource Center". Arrows come down from the product and service
offerings toward the consumer resource center, and bi-directional vertical
arrows run between the consumer resource center and a picture of a two story
home. One bi-directional arrow is labeled "Virtual Channel" and is accompanied
by an image of a computer; the other is labeled "Physical Channel" and is
accompanied by an image of a truck bearing Streamline.com's logo.)
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<PAGE>
OUR VIRTUAL CHANNEL
Our virtual channel, which refers to the ongoing two-way exchange of
information through the Internet between our customers and us, is a central
element of the Streamline experience. Because our customers order frequently, we
use the ordering process as a way to gather and distribute information about the
products and services we provide. From the comfort of their homes, customers can
use our Internet-based ordering system to browse weekly specials, review and
compare product nutritional information and place orders. The Internet-based
ordering system also provides us a direct line of communication to our customers
and serves as an efficient means of collecting data on their ordering habits and
preferences. Currently, over 70% of our customers order via the Internet, and we
plan to migrate exclusively to Internet-based ordering.
<TABLE>
<CAPTION>
CUSTOMER USES STREAMLINE USES
- --------------------------------------------- ---------------------------------------------
<S> <C>
- - ordering products and services - collecting data on customer purchasing
behavior
- - browsing offerings by category and - promoting new products and services
searching
for particular items - alerting customers to special offers and
other
- - customizing a PERSONAL SHOPPING LIST of time-sensitive information
frequently ordered items - conducting market research
- - customizing a DON'T RUN OUT list to
automatically reorder items on a preset - responding to customer inquiries
schedule
- - providing feedback on customer service and
products and services
- - downloading and analyzing details of past
purchases
</TABLE>
Streamline's virtual channel enables us to create and manage high-value,
sustainable and long-term customer relationships. On average, we receive weekly
feedback from over 35% of our customers. We routinely collect and analyze
customer feedback and satisfaction levels to continually improve customer
satisfaction. We use this information to more efficiently serve the customer by
refining our understanding of the customer's product preferences, cross-category
purchasing behavior, attitudes and lifestyle.
Our virtual channel also creates a unique opportunity to market on a
one-to-one basis to a highly specific and demographically attractive group of
consumers and to encourage increased spending through our channel. Our virtual
channel can be used to deliver interactive, information-rich multimedia messages
targeted specifically to the consumer. We also promote our virtual channel to
consumer packaged goods companies and other strategic partners as a means of
delivering targeted marketing programs, including Internet advertising and
sampling programs. Historically, consumer packaged goods companies have garnered
much of their market information through traditional grocery store purchase
data. Streamline, however, can more comprehensively track purchasing data and
can provide consumer packaged goods companies with information on the
effectiveness of their marketing programs, without ever disclosing an individual
customer's personal information.
OUR PHYSICAL CHANNEL
We have created our own efficient, direct-to-the-customer distribution
channel comprised of:
- THE CONSUMER RESOURCE CENTER. Streamline's model consumer resource center
is a strategically located, multi-temperature zone, warehouse-based,
dedicated fulfillment center of approximately
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<PAGE>
100,000 square feet that is designed to serve approximately 10,000
customers within a 15 to 20 mile radius.
- STREAMLINE'S DELIVERY FLEET. Streamline's uniformed drivers, or field
service representatives, deliver goods and services in leased refrigerated
trucks bearing Streamline's logo. Within these vehicles, secure containers
separate different types of products and services to ensure quality during
transport.
- THE STREAMLINE BOX. The Streamline box is a refrigerator/freezer with a
compact storage unit that is located in a secure area at the customer's
home, such as in a garage. The Streamline Box allows us to maintain the
separation of different types of products within proper temperature zones
even after delivery.
<TABLE>
<CAPTION>
CUSTOMER USES STREAMLINE USES
- ---------------------------------------------- -------------------------------------------
<S> <C>
- - aggregating multiple shopping trips - lowering facility operating costs
- - avoiding crowded stores - optimizing fleet utilization and time per
stop
- - eliminating stress of waiting for a delivery - promoting a weekly shopping pattern
person
- - maintaining chill chain for product quality - increasing order size and frequency
- - providing additional storage space - providing back haul capability that
allows for an expanded product offering
</TABLE>
The Streamline solution also addresses some of the limitations of the
traditional physical store model:
REDUCED REAL ESTATE, LABOR AND ADMINISTRATIVE EXPENSES. Streamline's model
consumer resource center is located in an industrial setting, as opposed to a
more expensive location, such as a strip mall or other retail location typical
of a traditional physical store. Additionally, our facilities do not require
display cases, cash registers, customer parking lots or other space-consuming
elements associated with the traditional physical store. We further reduce real
estate, labor and administrative expenses by consolidating goods and services
within a single operation, thereby eliminating much of the overhead that would
otherwise be required to provide similar products and services through separate
grocery stores, dry cleaners, video stores, pet supply stores, and other similar
stores.
MORE EFFECTIVE INVENTORY MANAGEMENT. Streamline has aggregated a targeted
offering of products and services which promote purchasing in high frequency
because of their consumable, renewable or disposable nature. By focusing on busy
suburban families, Streamline is able to tailor our assortment of products and
services so as to meet customer demand while reducing the number of
stock-keeping units, or SKUs, that we provide. Currently, we maintain
approximately 10,000 of the SKUs most commonly ordered by busy suburban
families, as opposed to a typical grocery store's offering of 30,000 SKUs. Our
targeted SKU assortment allows us to reduce inventory carrying costs, lower
operating costs, more accurately forecast demand and provide customers with a
more efficient ordering process.
MORE EFFECTIVE CUSTOMER INTERACTION. Customers place their orders by one of
two Internet-based ordering methods, a website or a CD-ROM application developed
with Intel Productions, or by telephone or fax. The Internet-based ordering
technology used by the majority of our customers allows Streamline to deliver
product information rapidly and conveniently while removing the need to
physically display products in a costly and inefficient manner. In addition to
saving customers from having to visit a number of different traditional physical
stores, we also provide our customers with a more efficient method of
purchasing.
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<PAGE>
STREAMLINE'S STRATEGY
Streamline's objective is to become the leading national consumer direct
supplier of groceries and other related products and services to busy suburban
families. We intend to achieve this objective through the following principal
strategies:
EXPAND NATIONALLY BY REPLICATING OUR BUSINESS MODEL. Streamline seeks to
expand our business by establishing consumer resource centers in selected
markets across the country. We estimate that the top 20 markets in the U.S.
provide access to approximately 40% of the population. Eventually, we intend to
serve busy suburban families in nearly all of these markets by establishing
local operations based on our existing model of offering weekly unattended
deliveries from a consumer resource center.
Our strategy is to be the first consumer direct provider of groceries and
other related products and services in many of our target markets, which we
believe will provide us an opportunity to obtain as customers a considerable
portion of the busy suburban families in those areas. As we expand, we intend to
focus on increasing our brand recognition through targeted promotional and
marketing programs, individually and with existing and future strategic
partners. We expect that the increased brand awareness will accelerate our
customer acquisition rate as we enter new markets and expand within existing
markets.
We are currently in the process of opening our second market, in the
Washington, D.C. area, and are scouting locations in additional target markets.
Although not our primary expansion focus, we are also considering licensing our
business model and technologies to third parties for international
implementation. Additionally, we will consider opportunities to acquire or
invest in products, services or technologies complementary to our business if
any such opportunities arise. However, we have no present understandings,
commitments or agreements with respect to any acquisitions or investments, and
none are planned or under negotiation. See "Business--Expansion Strategy and
Market Selection."
DEVELOP AND STRENGTHEN OUR CUSTOMER ACQUISITION CAPABILITIES. The ability
to rapidly acquire customers while maintaining service quality is essential to
achieving and maintaining consumer resource center profitability as we implement
our expansion plans. Our strategy is to supplement our existing customer
acquisition programs by forming relationships with strategic partners with whom
we will be able to engage in joint marketing and other directed sales efforts.
We plan to implement and continue to develop a variety of co-marketing programs
that make use of Nordstrom's brand loyalty, existing customer relationships and
presence in many of our target markets. The goal of these programs, coupled with
our current advertising and customer referral programs, is to reduce our
customer acquisition costs and facilitate rapid customer acquisition in new and
existing markets.
INCREASE REVENUE PER CUSTOMER. We seek to increase the average size of our
customers' weekly orders by fulfilling a greater portion of their needs. Our
strategy is to increase penetration of the existing products and services we
offer and to introduce new product and service offerings. Streamline's
technology allows us to track customer purchasing data, both individually and in
the aggregate, to determine the types of products and services that a busy
suburban family is most likely to appreciate. We expect to use this data to help
us determine which new products and services should be added to our offerings
and whether to provide them directly or through strategic relationships with
other companies. By increasing the size and scope of our offerings, we seek to
expand our role as an aggregator and to capture the economic benefits associated
with providing products and services through a single consolidated operation,
rather than through a traditional multiple store format. Additionally, by
maintaining a high level of customer satisfaction with our offerings, we expect
that customers will increasingly use Streamline as the primary supplier of many
of the products and services they require.
MAINTAIN AND DEVELOP RELATIONSHIPS WITH CONSUMER PACKAGED GOODS COMPANIES,
E-COMMERCE COMPANIES AND STRATEGIC INVESTORS. The spending habits of our
customers and the level of interaction that they
40
<PAGE>
have with us, both via the Internet and through our physical channel, makes us
an effective conduit for accessing a customer base that is attractive to other
providers of goods and services. Consumer packaged goods companies compensate
Streamline for the opportunity to gain insight into consumer purchase behavior
and to conduct merchandising programs, such as Internet advertising and new
product testing with targeted demographic groups. Additionally, we provide
direct links to websites maintained by select e-commerce companies offering
items that may be of interest to busy suburban families. We have also
established business relationships with several of our investors, such as:
- developing our CD-ROM application with Intel Corporation
- entering into lease financing arrangements with General Electric Capital
Corporation
- developing marketing opportunities, which are not governed by a written
contract, with Nordstrom, Inc.
We intend to continue to maintain strong relationships with our existing
strategic investors and to seek out additional business opportunities.
MAXIMIZE OPERATIONAL EFFICIENCY. Our consumer resource center, located in
an industrial setting, allows us to create efficient operational processes. For
example, we use customer purchasing data to maximize the efficiency of our
internal operations. By understanding the ordering patterns of our customers, we
are better able to capture and forecast real demand for our products and
services, which enables us to maintain lower inventory levels and decrease
inventory carrying costs. Additionally, our unattended delivery system, through
which we deliver orders to our customers at a fixed delivery time, allows us to
maximize fleet utilization and create routing efficiencies. We are in the
process of implementing route planning software to gain further efficiencies in
our physical channel. As we expand our operations, our strategy is to centralize
many functions such as customer acquisition, Internet-based order taking,
customer service and general administrative functions and to consider
outsourcing other functions in order to lower overall operating expenses and
reduce operating risks.
DETAILS OF THE STREAMLINE PROCESS
Our process focuses on the ordering and delivery of quality goods and
services to the busy suburban family in a simple and efficient manner:
INITIAL CUSTOMER INSTALLATION. A Streamline representative visits each new
customer's home to install a Streamline box, consisting of a
refrigerator-freezer, for perishable and frozen items, and a shelving unit, used
for delivery and pick-up of dry goods, dry cleaning, video rentals and other
products. The Streamline box is located in the customer's garage or in another
secure location that does not give access to the interior of the customer's
home. Access to these secure locations is obtained through a keypad entry system
provided, installed and maintained by Streamline.
TAKING THE ORDER. Customers can place and modify their orders via the
Internet, or by telephone or fax, until 11:00 p.m. the evening before their
scheduled delivery day. Currently more than 70% of our customers order via the
Internet due to the convenience and broader functionality offered through an
on-line experience. We plan to migrate to exclusively Internet-based ordering
due to the accuracy and cost efficiencies gained by using such technology.
We provide each customer with an on-line personal shopping list. This list
of approximately 200 items is tailored to each customer and represents a
substantial majority of the items included in a typical weekly order.
Alternatively, the customer can simply select from any of the other products and
services we offer. A customer can add or delete items from the personal shopping
list at any time through our website or CD-ROM application. A customer can also
be prompted to order through our DON'T RUN OUT program which allows the customer
to automatically order items on a pre-defined cycle.
41
<PAGE>
For example, a customer can indicate once through this program and have a
half-gallon of milk delivered every week or a five-pack of razor blades
delivered every six weeks.
We have designed the website and CD-ROM application to be intuitive, fun and
easy to use. Customers can easily locate products by using the SHOP function
which categorizes products into groups, such as BAKERY, PET FOOD or PAPER GOODS,
or by using a robust, key-word search capability to locate items without knowing
full product descriptions. The customer shopping experience is further enhanced
by an interactive marketing capability in our CD-ROM application which allows
targeted and relevant advertising and immediate ordering of goods and services.
For example, when ordering a BlockBuster Video, an interactive promotion may ask
if the customer would like to order popcorn; with a click, we add popcorn to
that week's order.
ASSEMBLING THE ORDER AT THE CONSUMER RESOURCE CENTER. Streamline's model
consumer resource center is outlined below.
THE CONSUMER RESOURCE CENTER
(Diagram indicating space allocation for consumer resource center. On the
left side, in the exterior space, are four trucks lined from top to bottom
placed in front of bay doors leading into the interior space; three trucks with
"Streamline.com" logos on them which are facing away (left) from the interior
space; one with "Supplier" on the side facing towards the interior space. The
interior space is divided into areas to indicate the activities conducted in
each location of the consumer resource center. Moving from left to right and top
to bottom, the spaces are designated as follows: ROW ONE: "Just-in-Time Items";
"Refrigerated Goods Picked and Staged"; "Frozen Goods Picked and Staged"; ROW
TWO: "Completed Orders Staged for Delivery"; "Dry Goods Picked"; ROW THREE:
"Fast Moving"; "Slow Moving". The remainder of the interior space is filled with
graphics representing the goods fitting into each category, with the exception
of the bottom right corner, which has been designated "Services Consolidated".)
Operations within the consumer resource center include:
- receiving, quality-checking and stocking of products
- preparing and picking customer orders and placing them in appropriate
containers
- loading the delivery fleet
- providing back haul services, such as video tape returns, dry cleaning,
film processing, shoe repair and bottle and can redemption
42
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We receive inventory on a frequent basis to ensure availability and
freshness. Additionally, quality assurance personnel examine each perishable
item prior to order fulfillment to ensure that we provide only top-quality goods
to our customers. We also maintain quality and improve picking efficiency by
segregating products into a number of different areas in the consumer resource
center based on
43
<PAGE>
product characteristics, such as perishability, fragility, temperature zone,
odor and purchase frequency. Refrigerated and frozen goods are maintained at
appropriate temperatures, while household items, such as soap and cleaning
supplies, and service items, such as dry cleaning, are kept separate from food
items.
Since orders are received until 11:00 p.m. for delivery the next day, order
picking takes place overnight. We optimize the picking process by employing
traditional logistical techniques, such as segregating fast- and slow-moving
items. To maximize efficiency, our employees pick multiple customer orders at
one time, aided by a hand-held computerized device that directs them to pick
orders in the most efficient pattern while maintaining accuracy through bar
coding. Once the order is picked and consolidated in each customer's delivery
bins, we stage it for delivery in the morning. At that point, we assemble each
customer's grocery products with other items to be delivered, including products
that we receive each morning such as fresh baked goods and prepared meals.
In May 1999, we entered into an agreement with Genco I, Inc., a national
warehouse operations company, under which we outsourced the merchandise
processing and picking services conducted in our Westwood, Massachusetts
consumer resource center. In connection with our planned expansion, we may enter
into similar agreements with Genco for the provision of these services in
additional consumer resource centers.
ORDER FULFILLMENT AND DELIVERY. Once we have filled, assembled and staged
customer orders at the consumer resource center, we place them in refrigerated
trucks specially designed to ensure quality during delivery. Customers receive
their orders on a weekly schedule on a fixed day at any time from 9:00 a.m. to
6:00 p.m. As a result, the delivery system allows for geographic concentration,
better load balancing and optimized route efficiency. To maintain proper
temperature and to properly separate incompatible items, such as a carton of
eggs and a frozen turkey, we separate our products and services in delivery
containers designated for certain types of items, including:
<TABLE>
<CAPTION>
TYPE OF CONTAINER SAMPLE CONTENTS
- ------------------------------------------------ ---------------------------------------------------
<S> <C>
bins for frozen products........................ ice cream and frozen vegetables
bins for refrigerated items..................... prepared meals, fresh meats, seafood and dairy
products
bins for ambient temperature food products...... baked goods, canned goods and other dry groceries
bins for ambient temperature non-food cleansers, detergents and health and beauty
products........................................ products
hanging bags or boxes........................... dry cleaning
flower boxes.................................... fresh flowers
individual items................................ bottled water and other bulk items
</TABLE>
By using a refrigerated truck and multi-temperature storage unit in the
customer's home, Streamline maintains the temperature integrity of a customer's
order better than if the customer purchased from a traditional retail
store--that is, refrigerated and frozen products are kept cool during the
delivery process, as opposed to being subject to differing temperature zones.
Our field service representatives are trained to bring quality customer
service direct to the home. Streamline's field service representatives are
uniformed and bonded and deliver to the customers in trucks that prominently
display our logo. Additionally, the Streamline box is equipped with a message
pad to facilitate communication between the customer and our field service
representative.
The Streamline box is combined with a weekly delivery cycle to provide an
in-home connection with the customer and allow back haul to enable Streamline to
expand its product offering to include renewable items such as dry cleaning and
video rentals. Streamline has also used its back haul capability to promote
community awareness through programs such as clothing and food drives to benefit
local organizations.
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<PAGE>
EXPANSION STRATEGY AND MARKET SELECTION
We intend to expand our business by establishing consumer resource centers
in selected markets across the country. We expect that we will be able to
centralize most of our operations, including order processing, customer service,
customer acquisition and general management and administration, in our corporate
headquarters, located in Westwood, Massachusetts. Our model consumer resource
center will require an estimated 150 to 200 individuals, comprised of local
personnel to support our physical channel, along with a small management staff.
Our strategy is to have consumer resource centers in nearly all of what we
have identified as the top 20 markets in the U.S. for our service.
TOP 20 U.S. MARKETS
<TABLE>
<CAPTION>
NUMBER
OF HOUSEHOLDS
METROPOLITAN AREA (IN MILLIONS)
- --------------------------------------------- -----------------
<S> <C>
New York/New Jersey.......................... 7.0
Los Angeles.................................. 5.2
Chicago...................................... 3.2
Philadelphia................................. 2.7
San Francisco................................ 2.5
Boston....................................... 2.2
Washington, D.C.............................. 2.0
Dallas....................................... 2.0
Detroit...................................... 1.9
Houston...................................... 1.7
Atlanta...................................... 1.6
Seattle...................................... 1.6
Cleveland.................................... 1.5
Minneapolis.................................. 1.5
Tampa/St. Petersburg......................... 1.4
Miami........................................ 1.4
Denver....................................... 1.2
Sacramento................................... 1.1
Baltimore.................................... 1.0
Charlotte.................................... 0.8
- ------------------------
Source: The Lifestyle Market Analyst, 1999.
</TABLE>
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<PAGE>
In assessing our expansion plans, we consider several factors in determining
the attractiveness of each target market, such as:
- number of households
- number of households with at least one child
- median income of households
- number of homeowners
- personal computer and Internet use
- strategic partnering opportunities
Our current development plan is to open a second consumer resource center,
in the Washington, D.C. area, in the fourth quarter of 1999. In addition,
Streamline plans to open consumer resource centers in new markets across the
U.S. while simultaneously expanding in existing markets with additional centers.
Specifically, we plan to open two to three additional facilities in 2000 with an
additional three to five facilities becoming operational in 2001. Although not
our primary expansion focus, we are also considering licensing our business
model and technologies to third parties for international implementation.
The number of consumer resource centers actually opened, as well as their
locations, will vary depending on a number of factors, including:
- regional acceptance of our products and services
- the availability of appropriate and affordable sites for our facilities
- managing construction and obtaining local permits
- our ability to develop relationships with local and regional suppliers
- our ability to hire and train qualified personnel
- general economic and financial conditions
RELATIONSHIPS WITH CONSUMER PACKAGED GOODS COMPANIES
Streamline's business model has allowed us to develop strategic
relationships with a number of leading consumer packaged goods companies. These
companies compensate Streamline for the opportunity to gain insight into
consumer purchase behavior and to conduct on-line merchandising programs.
Additionally, since we deliver products to our customers with high frequency,
our physical channel provides an opportunity for consumer packaged goods
companies to conduct focused market research within particular demographic
groups consistent with the busy suburban family.
To strengthen our relationships with consumer packaged goods companies,
Streamline developed and sponsors the Consumer Learning Center, an on-site
research center designed to further develop the best thinking on consumer
behavior in the emerging consumer direct industry. Through the Consumer Learning
Center we work with each participant to:
- conduct quarterly research with a proprietary panel of consumers, located
throughout the U.S., who are selected because of their frequent use of
consumer direct services
- design, implement, and assess the effectiveness of marketing promotions at
Streamline
- solicit rich, qualitative feedback from Streamline customers through
quarterly focus groups
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In addition to conducting research on the consumer direct industry,
Streamline provides Consumer Learning Center participants marketing and
promotional opportunities. Participants in the Consumer Learning Center pay
Streamline a membership fee.
Consumer Learning Center participants include the following:
<TABLE>
<S> <C>
- - Campbell Soup Company - Nestle USA, Inc.
- - The Gillette Company - The Pillsbury Company
- - Kimberly-Clark Corporation - The Procter & Gamble Company
- - Kraft Foods, Inc. - Ralston Purina Company
- - Mott's North America, a subsidiary of - Sargento Foods Inc.
Cadbury Schweppes plc - Warner-Lambert Company
- - Nabisco Inc.
</TABLE>
OTHER ALLIANCES
We have recently formed alliances with e-commerce companies to expand our
product and service offerings. These alliances are primarily hyperlink
agreements that require these companies to pay us a percentage of the revenue
generated from purchases by our customers who connect to their websites directly
from www.streamline.com. Although we have not yet generated significant revenue
through these alliances, we believe that they will provide us with several key
benefits, including:
- generating additional revenue
- assisting in the building of our customer base
- enhancing awareness and expansion of the Streamline brand
Streamline has alliances in place with the following:
<TABLE>
<CAPTION>
AFFILIATE SITES PRODUCTS SUPPLIED
- ------------------------------------ ------------------------------------
<S> <C>
barnesandnoble.com.................. books
eToys.com........................... toys
Nordstrom.com....................... clothing
Outpost.com......................... computer software and hardware
PCFlowers.com....................... flowers
</TABLE>
CUSTOMERS AND CUSTOMER ACQUISITION
Our target customers are busy suburban families, particularly dual-income
households having at least one child in the home and access to the Internet,
which we believe represent the top consuming households for our products and
services. These households have significant purchasing power, high levels of
education, sizable amounts of discretionary income, and are comfortable using
technology. We believe they are the most valuable consumer segment in the
consumer direct channel in terms of potential profitability and willingness to
pay for time-saving alternatives. Approximately 85% of our current customer
households have at least one child in the home. During 1998, our average
customer placed approximately 40 orders and the average product and service
revenue per invoice was $102.
Currently, we generate leads primarily through direct mail campaigns, local
advertising and referrals. To better target our ideal customer, our advertising
and direct mailings focus on families and emphasize the time savings and
convenience provided by our service. We believe that we generate a significant
portion of our leads through referrals from existing customers. We have found
that our customers tend to refer potential customers from the same demographic
group--that is, busy suburban families. Moreover, customer referrals lower our
customer acquisition costs. For these reasons, we actively encourage customer
referrals by offering incentives for each new customer directed to us.
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<PAGE>
The following chart provides information with respect to the ten towns in
the greater Boston area in which we have achieved greatest market penetration,
as of March 31, 1999:
<TABLE>
<CAPTION>
1990 PERCENTAGE
AVERAGE HOUSEHOLD APPROXIMATE OF HOUSEHOLDS
TOWN INCOME(1) NUMBER OF HOUSEHOLDS(2) SERVED BY STREAMLINE
- ------------------------- -------------------- ------------------------- -----------------------
<S> <C> <C> <C>
Weston................... $ 95,134 3,400 5.4%
Dover.................... 91,376 1,800 5.2
Wayland.................. 72,057 4,400 3.4
Sherborn................. 93,925 1,500 3.3
Westwood................. 58,559 4,800 3.0
Wellesley................ 79,111 8,700 2.8
Medfield................. 66,084 3,800 2.4
Sudbury.................. 79,092 5,400 2.3
Sharon................... 61,692 6,200 1.5
Milton................... 53,130 8,500 1.5
</TABLE>
- ------------------------------
(1) Source: 1990 U.S. Census.
(2) Source: U.S. Postal Service.
We focus on developing relationships with strategic partners with whom we
will be able to engage in joint marketing and other directed sales efforts in an
attempt to reduce our customer acquisition costs. For example, in connection
with the opening of our facility in the Washington, D.C. area, we are working
with Nordstrom, Inc., as well as other area partners to determine ways to inform
their existing busy suburban family customers of Streamline's services. Although
we have no formal agreement with Nordstrom, Inc., we plan to implement and
continue to develop a variety of co-marketing programs that make use of
Nordstrom's brand loyalty, existing customer relationships and presence in many
of our target markets. For example, Nordstrom, Inc. has physical stores in 14 of
the top 20 U.S. markets, and distributes 60 million catalogs per year across all
major markets in the U.S. They also have a sizable in-store sales force and a
significant e-commerce initiative located at www.nordstrom.com.
CUSTOMER SERVICE
We have created a number of relationship management systems designed to
encourage feedback and promote issue resolution. We also maintain a
comprehensive customer service database that enables us to deliver personalized
customer service and to efficiently track customer requests for new products and
services.
Our customer service team is cross-trained and encouraged to address all
customer comments and inquiries, which we receive via the Internet, by telephone
and fax, and by messages left on Streamline boxes for our field representatives.
Each customer comment or inquiry, whether positive, negative or neutral, is
stored and categorized in our customer service database. We attempt to resolve
issues and answer questions at the first point of contact between us and the
customer, and in any event within 24 hours of initial contact.
TECHNOLOGY
Streamline employs both proprietary and commercially available licensed
technologies to integrate our various systems, including order-taking, inventory
control, warehouse management and customer service.
Streamline offers its customers two options for ordering via the Internet.
Customers can visit our website at www.streamline.com to review product and
service offerings, to revise their personal shopping list and DON'T RUN OUT
selections, and to place or revise their orders. The website offers
47
<PAGE>
high-quality graphical representations of, and textual information regarding,
our products and services. The website also provides a two-way communication
channel between us and our customers.
In addition to our website, we have recently introduced a hybrid
CD-ROM/Internet application in order to deliver customers a graphic ordering
system designed to alleviate the bandwidth constraints experienced by many
Internet users. The CD-ROM is the result of over 18 months of development
efforts involving Streamline and Intel Corporation, with input and assistance
from consumer packaged goods companies. The CD-ROM provides a graphical
interface that is even more robust than that of our website. Among the
enhancements included in the CD-ROM application are the ability to:
- provide a side by side comparison of multiple products
- watch a cooking demonstration with audio
- receive pop-up ordering suggestions, such as the opportunity to buy hot
fudge topping while purchasing ice cream.
Streamline's systems and technology are continually reviewed, updated and
supported by in-house technicians, system administrators and outside consultants
and systems integration specialists.
COMPETITION
Both the retail industry and the consumer direct industry are highly
competitive. Streamline currently or potentially competes with several types of
companies, including:
- traditional retail stores, including grocery stores, warehouse clubs, drug
stores and convenience stores, some of which fulfill orders received by
telephone, fax or the Internet
- various suppliers of other goods and services, both chains and
independently owned operations, such as dry cleaners, video rental stores,
prepared meal providers, bottled water delivery operations, pet supply
stores and photo labs
- various on-line providers of groceries and other products and services,
such as Peapod, Inc., Hannaford Bros. Cos.' HomeRuns, ShopLink
Incorporated, HomeGrocer.com, Inc., Beacon Home Direct, Inc. d/b/a
Scotty's Home Market, Net Grocer Inc. and WebVan Group, Inc.
- other consumer direct or catalog retailers of products or services
Streamline believes that the main competitive factors in our market are:
- range, quality and availability of products and services
- convenience, reliability and professionalism of delivery
- ease of ordering
- level and accessibility of information regarding products
- quality and responsiveness of customer service
- price
- general brand awareness
Many of our competitors are larger and have substantially greater resources
than we do. In addition, we believe that competition among consumer direct
suppliers of groceries and other products and services will continue to
intensify as new on-line suppliers and traditional retailers recognize the
potential of the consumer direct channel.
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INTELLECTUAL PROPERTY
Streamline regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success and
relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, clients, partners
and others to protect its proprietary rights. Streamline pursues the
registration of its trademarks and service marks in the U.S. and has applied for
the registration of several of its trademarks and service marks. Streamline has
been granted service mark registrations for the marks STREAMLINE and WE BRING IT
ALL HOME and has pending registration applications for the marks DRO, DON'T RUN
OUT and SIMPLE SOURCE. Streamline has not sought trademark, service mark or
copyright protection outside of the U.S. Accordingly, satisfactory intellectual
property protection may not be available in each country where Streamline may
offer its products and services in the future.
EMPLOYEES
As of March 31, 1999, Streamline had 189 full-time and part-time employees,
which worked in corporate, selling general and administrative functions and in
our suburban Boston consumer resource center. On May 16, 1999, in connection
with the outsourcing of our merchandise processing and picking services at this
facility, 71 full-time and part-time employees were transferred to Genco I, Inc.
Streamline also employs a limited number of independent contractors and
temporary employees on a periodic basis. None of Streamline's employees are
represented by a labor union and Streamline considers its labor relations to be
good.
FACILITIES
Streamline is headquartered in Westwood, Massachusetts, where we lease
approximately 67,000 square feet of commercial space pursuant to a term lease
that expires on October 31, 2000, subject to a five-year renewal at Streamline's
option. These facilities are used for executive office space, including sales
and marketing and finance and administration, and for the operation of our
initial consumer resource center. We also maintain a facility in Gaithersburg,
Maryland where we lease an aggregate of approximately 93,000 square feet of
commercial space pursuant to a term lease that expires on October 1, 2007 with
respect to 56,000 square feet and on July 22, 2009 with respect to 37,000 square
feet. We believe that our current facilities will be adequate to meet our needs
in the Boston and Washington, D.C. areas for the remainder of the year. We
intend to acquire additional facilities in connection with our planned
expansion.
LEGAL PROCEEDINGS
Streamline is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SELECTED KEY EMPLOYEES
The executive officers, directors and selected key employees of Streamline
as of March 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --------- -------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Timothy A. DeMello.................... 40 Chairman, President and Chief Executive
Officer
Richard T. Joseph..................... 36 Chief Financial Officer
Terence W. Toran...................... 50 Chief Development Officer
David K. Blakelock.................... 37 Vice President, Operations
Frank F. Britt........................ 32 Vice President, Marketing and Merchandising
Mary E. Wadlinger..................... 39 Vice President, Customer Quality
John Cagno............................ 40 Vice President, Information Technology
Mark A. Cohn(1)....................... 42 Director
Thomas A. Crowley(2).................. 50 Director
John P. Fitzsimons(2)................. 53 Director
Thomas O. Jones....................... 54 Director
J. Daniel Nordstrom(1)................ 36 Director
Faith B. Popcorn(1)................... 55 Director
OFFICERS AND SELECTED KEY EMPLOYEES
Lauren A. Farrell..................... 31 Associate Vice President and Controller
Gina L. Wilcox........................ 30 Associate Vice President, Strategic
Relations
Kevin M. Sheehan...................... 35 Vice President and General Manager,
Washington Market
Cathy Papoulias....................... 42 Vice President, Corporate Development
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
TIMOTHY A. DEMELLO is the founder, Chairman, President and Chief Executive
Officer of Streamline. Prior to launching Streamline in 1993, Mr. DeMello was
founder, President and Chief Executive Officer of Replica Corporation.
Previously, Mr. DeMello served as Vice President of L.F. Rothschild, Unterberg,
Towbin from 1985 to 1987 and as Vice President of Kidder Peabody & Company from
1981 to 1985. Mr. DeMello received a Bachelor of Science degree in business from
Babson College and currently sits on its Board of Trustees. Mr. DeMello also
sits on the Board of Trustees for the Pan-Mass Challenge, a charitable
foundation that raises money for cancer research.
RICHARD T. JOSEPH joined Streamline as Chief Financial Officer in May 1999.
From April 1998 to May 1999, Mr. Joseph served as Chief Financial Officer of
Software Emancipation Technology, a client/ server software developer. He was
employed by Planet Direct Corp., a web-based on-line service and a wholly owned
subsidiary of CMGI, Inc., as Vice President-Finance, Chief Financial Officer and
Secretary from November 1996 to April 1998. From November 1994 to November 1996,
he served as Vice President-Finance, Chief Financial Officer and Treasurer at
ESSENSE Systems, Inc., a client/ server software developer. From 1985 to
November 1994, Mr. Joseph held several positions at Ernst & Young, LLP. Mr.
Joseph received a Bachelor of Science degree in accounting and management from
Boston College. He is a certified public accountant.
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<PAGE>
TERENCE W. TORAN became Streamline's Chief Development Officer in May 1999
after serving as interim Chief Financial Officer since March 1999. From 1997
until joining Streamline, he served as Vice President, Development of Carematrix
Corp., a retirement living company. From 1996 to 1997, Mr. Toran was a principal
of Nassau Advisors, a management consulting and development firm which he
co-founded. From 1986 to 1996, he served in a number of capacities for Marriott
International, Inc., most recently as Senior Vice President, Finance and Market
Development--Food Services Division. While at Marriott he also served as the
Vice President, Finance and Development--Retirement Living Division where he was
responsible for the national rollout of over 100 facilities. He also directed
and controlled the annual development plan for lodging and restaurant units. Mr.
Toran received a Masters of Business Administration from Amos Tuck School at
Dartmouth College and a Bachelor of Science degree in chemical engineering from
Princeton University.
DAVID K. BLAKELOCK joined Streamline as Vice President, Operations in
January 1995. From April 1987 until he joined Streamline, Mr. Blakelock was a
consultant for Senn-Delaney Management Consultants, a unit of Arthur Andersen,
most recently managing the East Coast Distribution & Logistics Practice. Mr.
Blakelock received a Masters of Business Administration from the University of
Chicago and a Bachelor of Science degree in engineering from Union College.
FRANK F. BRITT joined Streamline in August 1996 as Vice President, Marketing
and Merchandising. From February 1990 to August 1996, Mr. Britt was a senior
manager in the consumer products practice with Andersen Consulting's Strategic
Services Division. Prior to 1990, he worked in the Operations Management
Practice at Arthur D. Little, Inc. Mr. Britt holds a Bachelor of Science degree
in marketing and logistics from Syracuse University.
MARY E. WADLINGER joined Streamline in January 1997 as Director of
Operations and has served as Vice President, Customer Quality since May 1997.
From August 1989 until June 1996, Ms. Wadlinger was the Director of Process
Improvement at Melville Corporation, where she managed strategic re-engineering
efforts in customer service, merchandise allocation, logistics and store
operations for Marshall's, CVS Pharmacy and Kay-Bee Toys. Ms. Wadlinger received
her Bachelor of Science degree in finance from the University of Maine at Orono.
JOHN CAGNO has served as Vice President, Information Technology since
January 1999. From August 1996 to January 1999, Mr. Cagno was Vice President,
Information Services at Brookstone Company, Inc. He also served as Director,
Retail Information Systems at Reebok International Ltd. from January 1995 to
August 1996. From January 1994 to January 1995, Mr. Cagno was Director,
Information Systems at Nature Food Centre.
MARK A. COHN has served as a director of Streamline since June 1993. Mr.
Cohn founded Damark International, Inc. and has been its Chief Executive Officer
since 1986.
THOMAS A. CROWLEY has served as a director of Streamline since September
1997. Mr. Crowley has been Managing Director of GE Equity, a division of General
Electric Capital Corporation, since February 1998. Prior to his current
position, he served in a number of capacities at GE Capital since August 1987,
including Managing Director, Corporate Ventures from January 1996 to February
1998, Senior Vice President, Equity Capital Group from November 1994 to January
1996, and Senior Vice President, Corporate Finance Group from July 1991 to
November 1994.
JOHN P. FITZSIMONS has served as a director of Streamline since September
1998. Mr. Fitzsimons has been Senior Vice President, Director of Equities of
Reliance Insurance Company since February 1999. Prior to his current position,
he served as Vice President of Reliance Insurance Company from 1990 through 1994
and as Vice President, Director of Equities from 1994 to February 1999.
THOMAS O. JONES has served as a director since January 1998. He was Chief
Information Officer of Streamline from March 1997 to December 1997. He has also
been President and CEO of Elm Square
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<PAGE>
Technologies, Inc. since January 1994. Mr. Jones was a Senior Lecturer at
Harvard Business School from November 1991 to June 1995 and at MIT Sloan School
from September 1998 to December 1998.
J. DANIEL NORDSTROM has served as a director of Streamline since September
1998. In 1995, Mr. Nordstrom was appointed Co-President of Nordstrom, Inc.,
where he oversees the Direct Sales Division which he launched in 1993.
Previously, he served in several capacities at Nordstrom, Inc. Mr. Nordstrom
received his Masters of Business Administration degree from the University of
Washington in 1989.
FAITH B. POPCORN has served as a director of Streamline since June 1997. Ms.
Popcorn founded BrainReserve, Inc., a marketing consultancy company, in January
1974 and has been its chairman since that time.
LAUREN A. FARRELL joined Streamline as Controller in May 1996 and became an
Associate Vice President in December 1998. From December 1994 to May 1996, she
was Financial Reporting Manager at Saga International Holidays, Ltd., a direct
marketing company in the travel industry. Ms. Farrell was with American Auto
Auction, Inc. as Controller from October 1992 to December 1994 and previous to
that assignment, she was a tax consultant with Arthur Andersen. Ms. Farrell
received a Bachelor of Science degree from Bentley College. She is a certified
public accountant.
GINA L. WILCOX joined Streamline as Director of Strategic Relations in
November 1996 and became Associate Vice President, Strategic Relations in
December 1998. From June 1995 until she joined Streamline, Ms. Wilcox was a
consultant in the consumer products practice with Andersen Consulting's
Strategic Services Division. Ms. Wilcox received her Masters of Business
Administration degree in 1995 from Harvard Business School.
KEVIN M. SHEEHAN joined Streamline in February 1997 and has served in
various positions, including Vice President and General Manager, Washington
Market since January 1999. Mr. Sheehan also served as President of Streamline
Mid-Atlantic, Inc. from February 1997 to May 1998. From April 1994 to February
1997, Mr. Sheehan was President and CEO of Shopping Alternatives, Inc., a
provider of home grocery shopping services based in the Washington, D.C. area.
CATHY PAPOULIAS joined Streamline as Vice President, Corporate Development
in February 1999. She was Vice President of Pendleton James Associates from
January 1997 to January 1999. In June 1995, Ms. Papoulias founded Spartan
Trading, an import trading company, acting as President until January 1997. From
March 1987 to August 1994, Ms. Papoulias served in several capacities with
ACNielsen Corporation, most recently as Vice President of Global Accounts.
BOARD OF DIRECTORS
Our charter and by-laws provide that the size of our board of directors
shall be determined by resolution of the board of directors.
The board of directors is divided into three classes, with the members of
the respective classes serving for staggered three-year terms. The first class
consists of Mr. Fitzsimons and Ms. Popcorn, the second of Mr. Crowley and Mr.
Jones, and the third of Mr. Cohn, Mr. DeMello and Mr. Nordstrom, with the
initial terms of the directors in these classes expiring upon the election and
qualification of the directors at the 2000, 2001 and 2002 annual meetings of
stockholders, respectively. At each annual meeting of stockholders, directors
will be re-elected or elected for full three-year terms. See "Description of
Capital Stock--Delaware Law and Certain Charter and By-Law Provisions."
Messrs. Crowley, Fitzsimons and Nordstrom were nominated and elected as
directors by the holders of our preferred stock in accordance with provisions of
our charter that will terminate upon the closing of this offering. They will
remain as directors until they resign or the stockholders elect their
replacements.
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<PAGE>
Our executive officers are appointed by the board of directors and serve
until their successors have been duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee consists of Mr. Cohn, Mr. Nordstrom and Ms.
Popcorn. The compensation committee reviews and evaluates the salaries,
supplemental compensation and benefits of our officers, reviews general policy
matters relating to compensation and benefits of our employees and makes
recommendations concerning these matters to the board of directors. The
compensation committee is also authorized to administer our stock option and
stock purchase plans.
The audit committee consists of Messrs. Crowley and Fitzsimons. The audit
committee reviews with our independent accountants the scope and timing of its
audit services, the accountants' report on our financial statements following
completion of their audit and our policies and procedures with respect to
internal accounting and financial controls. In addition, the audit committee
will make annual recommendations to the board of directors for the appointment
of independent accountants for the ensuing year.
DIRECTOR COMPENSATION
Directors of Streamline have not received compensation for their services as
directors. However, non-employee directors are reimbursed for travel expenses.
Streamline maintains directors' and officers' liability insurance and our
by-laws provide for mandatory indemnification of directors and officers to the
fullest extent permitted by Delaware law. In addition, the charter limits the
liability of directors to us or our stockholders for breaches of the directors'
fiduciary duties to the fullest extent permitted by Delaware law. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions." Under our director stock option plan, at the discretion of the
board of directors, non-employee directors are eligible to receive options to
purchase shares of common stock at the fair market value on the date of grant.
Currently, Mr. Cohn has an option to purchase 12,500 shares of common stock at
an exercise price of $1.50 per share and Ms. Popcorn has an option to purchase
12,500 shares of common stock at an exercise price of $2.04 per share.
Additionally, upon the closing of this offering, each of our non-employee
directors will receive a stock option to purchase 50,000 shares of common stock
at an exercise price equal to the initial public offering price, which will
become exercisable at the rate of 20% per year over five years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is currently comprised of Mr. Cohn, Mr. Nordstrom
and Ms. Popcorn. No member of the compensation committee has been an employee of
Streamline. No executive officer of Streamline serves as a member of the board
of directors or compensation committee of any other entity that has one or more
executive officers serving as a member of Streamline's board of directors or
compensation committee.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Mr. DeMello, dated as of April 9, 1999,
providing for Mr. DeMello to be employed as our President and Chief Executive
Officer. Under the terms of the employment agreement, Mr. DeMello is to be paid
a base annual salary of $200,000, subject to increase from time to time by the
board of directors, and is eligible to receive an annual bonus at the discretion
of the board of directors which is not to exceed 50% of his then current base
salary. Mr. DeMello is also entitled to life insurance, health insurance and
other employee fringe benefits to the extent that we make benefits of this type
available to our other executive officers. Under the employment agreement,
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<PAGE>
upon the closing of this offering Mr. DeMello will receive stock options to
purchase 250,000 shares of common stock at an exercise price equal to the
initial public offering price. These stock options become exercisable at the
rate of 20% per year over five years. If we terminate Mr. DeMello's employment
without cause or if he resigns for good reason, we must continue to pay his base
salary and benefits for a period of two years and any stock options and
restricted stock that he may have at the time will become immediately
exercisable and fully vested.
We have an employment agreement with Mr. Britt, dated as of July 1, 1996,
providing for Mr. Britt to be employed as our Vice President of Marketing and
Merchandising for a 12-month period, subject to automatic extension for
successive 12-month periods unless either party advises the other at least 60
days prior to the expiration of the current term of its desire not to extend the
term of employment. Under the terms of the employment agreement, Mr. Britt is to
be paid a base annual salary of not less than $100,000, subject to increase from
time to time by the board of directors following and based on annual reviews of
Mr. Britt's performance. The employment agreement also contains non-competition
and non-solicitation provisions that are intended to survive the termination of
employment for a period of 24 months.
With the exception of Mr. DeMello and Mr. Britt, none of Streamline's
executive officers have an employment contract with Streamline and each of such
officers serves at the discretion of the board of directors. All of our
executive officers and key employees have signed non-disclosure agreements and
non-competition and non-solicitation agreements that extend for two years after
employment termination.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of Streamline's chief executive officer and the three other most highly
compensated executive officers whose total salary and bonus exceeded $100,000
for the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE FOR 1998
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
------------------------ SECURITIES
NAME AND PRINCIPAL POSITION(S) SALARY BONUS UNDERLYING OPTIONS
- ----------------------------------------------------------- ----------- ----------- -------------------
<S> <C> <C> <C>
Timothy A. DeMello......................................... $ 157,385 -- --
Chairman, President and Chief Executive Officer
David K. Blakelock......................................... 109,908 $ 1,800 --
Vice President, Operations
Frank F. Britt............................................. 109,908 -- --
Vice President, Marketing and Merchandising
Mary E. Wadlinger.......................................... 102,442 1,800 35,000
Vice President, Customer Quality
</TABLE>
STOCK OPTION GRANTS
The following table contains information concerning the grants of options to
purchase common stock made in the year ended December 31, 1998 to each of the
officers named in the Summary Compensation Table. Stock options are generally
granted at 100% of the fair value of the common stock as determined by the board
of directors on the date of grant. In reaching the determination of
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<PAGE>
fair value at the time of each grant, the board of directors considers a range
of factors, including Streamline's current financial position; its recent
revenue, results of operations and cash flows; its assessment of Streamline's
competitive position in its markets and prospects for the future; the status of
Streamline's customer acquisition and marketing efforts; current valuations for
comparable companies; and the illiquidity of an investment in the common stock.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
- -------------------------------- ------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. DeMello.............. -- -- -- -- -- --
David K. Blakelock.............. -- -- -- -- -- --
Frank F. Britt.................. -- -- -- -- -- --
Mary E. Wadlinger............... 35,000 29.23% $ 7.00 1/1/08 $ 325,113 $ 662,810
</TABLE>
- ------------------------
(1) Shares underlying options generally vest over a three-year period. See
"Management--Stock Option Plans."
(2) Assumes appreciation in the independently appraised value of the common
stock of 5% and 10% per year over the ten-year option period as mandated by
the rules and regulations of the Securities and Exchange Commission, and
does not represent Streamline's estimate or projection of the future value
of the common stock. The actual value realized may be greater or less than
the potential realizable values set forth in the table.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option holdings for
the year ended December 31, 1998 with respect to each of the officers named in
the Summary Compensation table.
1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END(1)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Timothy A. DeMello............................. -- -- -- --
David K. Blakelock............................. 100,000 12,500 $ 820,000 $ 102,500
Frank F. Britt................................. 50,000 37,500 398,000 298,500
Mary E. Wadlinger.............................. 16,666 33,334 74,798 149,601
</TABLE>
- ------------------------
(1) Value is determined by subtracting the exercise price from the initial
offering price of the common stock, multiplied by the number of shares
underlying the options.
In the year ended December 31, 1998 none of the officers named in the
Summary Compensation Table exercised any options.
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<PAGE>
STOCK OPTION PLANS
1993 EMPLOYEE OPTION PLAN
In June 1993, Streamline's board of directors and stockholders approved
Streamline's 1993 employee option plan, which provides for the grant of
incentive stock options and nonqualified stock options to employees, including
officers and employee directors, consultants and advisors. A maximum of
2,500,000 shares have been authorized for issuance pursuant to the employee
option plan. As of March 31, 1999, 49,633 shares had been issued upon exercise
of options granted under the employee option plan and options for 1,186,000
shares were outstanding. No participant in the employee option plan may, in any
year, be granted stock options or awards with respect to more than 1,000,000
shares of common stock.
The board of directors administers the employee option plan and has the
authority to determine which eligible individuals are to receive options, the
terms of such options, the status of such options as incentive or nonqualified
stock options under the federal income tax laws, including the number of shares,
exercise prices and times at which the options become and remain exercisable and
the time, manner and form of payment upon exercise of an option. The exercise
price of options granted under the employee option plan may not be less than
100% of the fair market value of a share of common stock on the date of grant,
or 110% in the case of incentive stock options issued to an employee who at the
time of grant owns more than 10% of the combined voting power of all classes of
Streamline stock. The options become exercisable at such time or times as are
determined by the board of directors and expire after a specified period that
may not, in the case of incentive stock options, exceed ten years.
From and after the closing of this initial public offering, the compensation
committee shall determine the selection of a director or an officer as a
recipient of an option, the timing of the option grant, the exercise price of
the option and the number of shares subject to the option.
In the event of a consolidation, merger or sale of all or substantially all
of the assets of Streamline in which outstanding shares of common stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of Streamline, the board of
directors of Streamline, or the board of directors of any corporation assuming
the obligations of Streamline, may, in its discretion, provide that outstanding
options under the employee option plan be:
- assumed, or equivalent options substituted, by the acquiring or succeeding
corporation, or an affiliate thereof
- exercised within a specified period of time, at the end of which period
the options will terminate
- terminated in exchange for a cash payment
- exercised in full immediately prior to such event
With the consent of an option holder, the board of directors can cancel that
holder's options and replace them with new options for the same or a different
number of shares having a higher or lower exercise price per share than the
cancelled options or amend the terms of any option outstanding to provide for a
higher or lower exercise price per share. The board of directors may also, in
its sole discretion, accelerate the date or dates on which all or any particular
option or options granted under the employee option plan may be exercised or
extend the dates during which all, or any particular, option or options granted
under the employee option plan may be exercised.
The board of directors may amend or modify the employee option plan at any
time, subject to the rights of holders of outstanding options. The employee
option plan will terminate on June 9, 2007.
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<PAGE>
1993 DIRECTOR OPTION PLAN
In June 1993, Streamline's board of directors and stockholders approved the
1993 director option plan which provides for the grant of nonqualified stock
options to directors of Streamline who are not also employees of Streamline.
Options are granted under the director option plan at the discretion of the
board of directors at an exercise price equal to the fair market value of the
common stock on the date of grant, and have a term of five years.
In the event of a consolidation, merger or sale of all or substantially all
of the assets of Streamline in which outstanding shares of common stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of Streamline, the board of
directors of Streamline, or the board of directors of any corporation assuming
the obligations of Streamline, may, in its discretion, provide that outstanding
options under the director option plan be:
- assumed, or equivalent options substituted, by the acquiring or succeeding
corporation, or an affiliate thereof
- exercised within a specified period of time, at the end of which period
the options will terminate
- terminated in exchange for a cash payment
- exercised in full immediately prior to such event
A maximum of 400,000 shares have been authorized for issuance pursuant to
the director option plan. As of March 31, 1999, 62,500 shares had been issued
upon exercise of options granted under the director option plan and options for
25,000 shares were outstanding.
1999 EMPLOYEE STOCK PURCHASE PLAN
In April 1999, Streamline's board of directors and stockholders approved the
1999 employee stock purchase plan, which enables eligible employees to acquire
shares of Streamline's common stock through payroll deductions. Our employee
stock purchase plan is intended to qualify as an employee stock purchase plan
under Section 423 of the Internal Revenue Code. The initial offering period will
start on the date of this prospectus and will end on December 31, 1999, unless
otherwise determined by the board of directors. Subsequent offerings under the
employee stock purchase plan are planned to start on January 1 and July 1 of
each year and end on June 30 and December 31 of each year. During each offering
period, an eligible employee may select a rate of payroll deduction of from 1%
to 10% of compensation, up to an aggregate of $12,500 in any offering period.
The purchase price for Streamline's common stock purchased under our employee
stock purchase plan is 85% of the lesser of the fair market value of the shares
on the first day or the last day of the offering period. An aggregate of 250,000
shares of common stock have been reserved for issuance under the employee stock
purchase plan.
401(K) PLAN
Streamline has established a tax-qualified cash or deferred profit sharing
plan or 401(k) plan covering all of Streamline's eligible full-time employees.
Streamline adopted the 401(k) plan effective January 1, 1997. Under the plan,
participants may elect to contribute, through salary reductions, up to 15% of
their annual compensation subject to a statutory maximum. Streamline does not
currently provide additional matching contributions under the 401(k) plan, but
may do so in the future. The 401(k) plan is designed to qualify under Section
401 of the Internal Revenue Code of 1986, as amended, so that contributions by
employees or by Streamline to the plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) plan, and so that
contributions by Streamline, if any, will be deductible by Streamline when made.
57
<PAGE>
CERTAIN TRANSACTIONS
In May and June 1996, Reliance Insurance Company purchased a total of 50,000
shares of Streamline Series A cumulative convertible preferred stock for an
aggregate purchase price of $5.0 million. John P. Fitzsimons, a director of
Streamline, is a Senior Vice President, Director of Equities of Reliance.
In June and September 1997, Intel Corporation, PaineWebber Capital Inc.,
General Electric Capital Corporation and SAP America, Inc. each acquired 20,000
shares of Streamline Series B convertible preferred stock and Reliance acquired
10,000 shares of Streamline Series C convertible preferred stock, for an
aggregate purchase price of $9.0 million.
In April 1998, DDJ Canadian High Yield Fund and Mellon Bank, N.A., solely in
its capacity as Trustee for General Motors Employees Domestic Group Pension
Trust as directed by DDJ Capital Management, LLC and not in its individual
capacity, purchased senior discount notes and warrants of Streamline in 777
attached units. Streamline also issued an aggregate of 7,500 shares of common
stock to these purchasers in connection with the financing. DDJ Canadian High
Yield Fund purchased 222 units and Mellon Bank, N.A., solely in its capacity as
trustee as described above, purchased 555 units. The face amount of the senior
discount notes was approximately $7.8 million which resulted in proceeds to
Streamline of $7.0 million. The warrants have an exercise price of $7.00 per
share and were exercisable for up to 425,000 shares of common stock in the
aggregate, 225,000 of which were vested and 200,000 of which were subject to
vesting.
In September 1998, Nordstrom, Inc. acquired 228,570 shares of Series D
convertible preferred stock of Streamline for an aggregate purchase price of
approximately $22.9 million. J. Daniel Nordstrom, a director of Streamline, is
Co-President of Nordstrom, Inc.
In September 1998, in connection with the Series D financing, Streamline
repaid the $7.0 million principal amount of senior discount notes plus $591,000
which included accrued interest and redemption premium, amended the warrant
agreement with DDJ Canadian High Yield Fund and Mellon Bank, N.A., solely in its
capacity as trustee as described above, to fix the total number of shares
issuable upon exercise of the warrants to 225,000, and sold these parties a
total of 5,000 additional shares of common stock for nominal cash consideration.
Additionally, in September 1998, we repaid non-negotiable convertible promissory
notes with an aggregate principal amount of $600,000 plus accrued interest. The
notes accrued interest at a rate of 8% per annum and were convertible into
common stock. Mark A. Cohn, a director of Streamline, was repaid $100,000 plus
accrued interest of approximately $4,400. James Maxmin, a director of Streamline
until September 1998, was repaid $100,000 plus accrued interest of approximately
$4,500.
Thomas O. Jones, a director of Streamline, is the President of Elm Square
Technologies, Inc. On March 7, 1997, Streamline entered into a development and
consulting agreement with Elm Square whereby Elm Square committed to develop an
Internet ordering system and customer support database and also provide
technology consulting services to Streamline. Although the agreement terminated
according to its terms on December 31, 1997, an ongoing business relationship
continues between Elm Square and Streamline. During fiscal year 1998, Streamline
paid Elm Square approximately $1.7 million for software development,
implementation and consulting services. Elm Square continues to provide ongoing
services of this nature at a cost to Streamline of approximately $150,000 per
month. In March 1997, in connection with the development agreement, Streamline
issued Elm Square a warrant to purchase 50,000 shares of common stock at a
purchase price of $2.04 per share. In December 1998, Streamline issued Elm
Square a warrant to purchase an additional 100,000 shares of common stock at a
purchase price of $4.00 per share in connection with ongoing services provided
by Elm Square.
Intel Corporation is a beneficial owner of more than 5% of Streamline's
Series B convertible preferred stock. On June 13, 1997, Streamline entered into
a development agreement with Intel,
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<PAGE>
whereby Intel committed to develop a CD-ROM application for Streamline and
Streamline issued warrants for up to 142,857 shares of common stock, exercisable
at $7.00 per share. An additional 28,000 warrants, exercisable at $7.00 per
share, were issued to Intel in January 1998 in connection with ongoing
development efforts by Intel. All of Intel's warrants became fully vested in
July 1998 upon Intel's delivery of the final version of the application.
General Electric Capital Corporation is a beneficial owner of more than 5%
of Streamline's Series B convertible preferred stock, and Thomas A. Crowley, a
director of Streamline, is a Managing Director of Ventures of GE Capital. In
September 1997, we agreed to give GE Capital opportunities to provide us with
any future debt financing that we required and, in connection with these
proposed arrangements, we granted GE Capital warrants to purchase up to 142,857
shares of common stock. Of such warrants 25% are vested and exercisable at $7.00
per share and 75% vest in the event GE Capital provides a specified level of
future debt financing to Streamline by September 23, 1999 and are exercisable at
greater than or equal to $8.40 per share. On November 21, 1997, Streamline
entered into a 36 month lease with GE Capital for office furniture. Streamline
paid GE Capital approximately $82,000 in 1998 and $21,000 in the first quarter
of 1999 to lease such furniture. Streamline has entered into lease agreements
with Penske Truck Leasing, a subsidiary of GE Capital, for 60-month leases of 13
Streamline delivery vehicles. Streamline paid Penske approximately $116,000 in
1998 and $53,000 in the first quarter of 1999 to lease such trucks.
Reliance Insurance Company, Intel Corporation, PaineWebber Capital Inc.,
General Electric Capital Corporation, SAP America, Inc., DDJ Canadian High Yield
Fund, Mellon Bank, N.A. solely in its capacity as trustee as described above,
and Nordstrom, Inc. are entitled to demand and piggyback registration rights
with respect to the common stock they will hold upon the closing of this
offering and the common stock they will hold upon the exercise of Streamline
warrants. See "Description of Capital Stock--Registration Rights."
Pursuant to a letter agreement dated April 13, 1999, Nordstrom, Inc. has
agreed to provide us with financing of up to $10.0 million upon our request.
Nordstrom's commitment will terminate upon the closing of this offering or April
2000, whichever is earlier. The final terms of any such financing will be
determined at the time we request such financing but will be similar to the
terms of the sale of Series D preferred stock to Nordstrom in September 1998. 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.
For a description of other transactions and employment and other
arrangements between Streamline and its directors and executive officers, see
"Management--Director Compensation" and "--Executive Compensation."
We believe that all of the transactions set forth above that were
consummated with parties that may be deemed to be affiliated with us were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. We will require that all future transactions with parties
affiliated with us, including loans between us and our officers, directors,
principal stockholders and their affiliates, be approved by a majority of the
board of directors, including a majority of independent and disinterested
directors, and that such transactions will need to be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
Streamline's common stock as of March 31, 1999, and as adjusted to reflect the
sale of shares offered hereby, by (1) each person known by Streamline to own
beneficially more than five percent of Streamline's common stock, (2) each of
Streamline's directors and each of the officers named in the Summary
Compensation Table, and (3) all current executive officers and directors of
Streamline as a group.
Unless otherwise indicated, each person named in the table has sole voting
power and investment power or shares such power with his or her spouse with
respect to all shares listed as owned by such person. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting or investment power with respect to the
securities. The number of shares of common stock outstanding used in calculating
the percentage for each listed person includes any shares the individual has the
right to acquire within 60 days of March 31, 1999, and assumes the conversion of
all outstanding shares of preferred stock into common stock of Streamline.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY OWNED
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Nordstrom, Inc....................................................... 5,989,641(1) 44.7% 33.5%
J. Daniel Nordstrom
1617 Sixth Avenue
Seattle, WA 98101
Reliance Insurance Company........................................... 2,597,615(2) 19.8 14.7
John P. Fitzsimons
55 East 52nd Street
New York, NY 10055
Timothy A. DeMello................................................... 1,926,000(3) 14.7 10.9
c/o Streamline.com, Inc.
27 Dartmouth Street
Westwood, MA 02090
Thomas A. Crowley.................................................... 321,428(4) 2.4 1.8
Faith B. Popcorn..................................................... 56,250(5) * *
Mark A. Cohn......................................................... 55,000(6) * *
Thomas O. Jones...................................................... 150,000(7) 1.1 *
David K. Blakelock................................................... 125,000(8) * *
Frank F. Britt....................................................... 87,500(8) * *
Mary E. Wadlinger.................................................... 33,333(8) * *
All executive officers and directors as a group (12 people).......... 11,341,767(9) 81.6% 61.7%
</TABLE>
- ------------------------
* Less than 1% of our outstanding common stock.
(1) Includes 5,714,250 shares beneficially owned by Nordstrom, Inc. and an
additional 75,000 shares issuable upon the exercise of a warrant owned by
Nordstrom. Also includes 200,391 shares of common stock issuable upon
conversion of shares of Series D preferred stock dividends expected to
accrue through May 31, 1999. Mr. Nordstrom, a director of Streamline, is
Co-President of Nordstrom. Although Mr. Nordstrom may be deemed to be a
beneficial holder of such shares, he disclaims all such beneficial ownership
except to the extent of his financial interest therein.
(2) Consists of shares beneficially owned by Reliance Insurance Company. Mr.
Fitzsimons, a director of Streamline, is the Senior Vice President, Director
of Equities of Reliance. Although Mr. Fitzsimons may be deemed to be a
beneficial holder of such shares, he disclaims all such beneficial ownership
except to the extent of his financial interest therein.
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<PAGE>
(3) Includes an aggregate of 10,000 shares held in custody for Mr. DeMello's
children and an aggregate of 200,000 shares held in trusts with respect to
which Mr. DeMello or his children have a beneficial interest. Mr. DeMello
disclaims beneficial ownership of such shares except to the extent of his
financial interest therein.
(4) Consists entirely of shares beneficially owned by General Electric Capital
Corporation, of which Mr. Crowley is the Managing Director of Ventures.
Includes 285,714 shares held by GE Capital and 35,714 shares issuable to GE
Capital upon the exercise of a stock purchase warrant exercisable within 60
days of March 31, 1999. Mr. Crowley disclaims beneficial ownership of the
shares held by GE Capital except to the extent of his financial interest
therein.
(5) Includes 12,500 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999 and 50,000 shares issuable upon the
exercise of a stock purchase warrant, exercisable within 60 days of March
31, 1999, held by BrainReserve, Inc., of which Ms. Popcorn is the founder
and Chief Executive Officer. Ms. Popcorn disclaims beneficial ownership of
the shares held by BrainReserve except to the extent of her financial
interest therein.
(6) Includes 12,500 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999.
(7) Consists entirely of shares issuable upon the exercise of stock purchase
warrants, exercisable within 60 days of March 31, 1999, held by Elm Square
Technologies, Inc., of which Mr. Jones is the President. Mr. Jones disclaims
beneficial ownership of the shares held by Elm Square except to the extent
of his financial interest therein.
(8) Consists entirely of shares issuable upon the exercise of options
exercisable within 60 days of March 31, 1999.
(9) Includes 264,583 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999.
Timothy A. DeMello, Chairman, President and Chief Executive Officer of
Streamline since its formation in 1993, has granted the underwriters an option
to purchase 90,000 shares of common stock as part of the underwriters'
over-allotment option. If this option is exercised in full, after this offering
Mr. DeMello will beneficially own 1,836,000 shares of common stock, or 10.3% of
the shares outstanding. This post-offering number of shares includes an
aggregate of 10,000 shares held in custody for Mr. DeMello's children and an
aggregate of 200,000 shares held in trusts with respect to which Mr. DeMello or
his children have a beneficial interest. Mr. DeMello disclaims beneficial
ownership of such shares except to the extent of his financial interests
therein.
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DESCRIPTION OF CAPITAL STOCK
Effective as of the closing of this offering, the authorized capital stock
of Streamline will consist of 50,000,000 shares of common stock and 5,000,000
shares of preferred stock, each having a par value of $0.01 per share.
COMMON STOCK
As of March 31, 1999, there were 13,273,881 shares of common stock
outstanding and held of record by 164 stockholders, after giving effect to the
conversion of all outstanding shares of Series A convertible preferred stock,
Series B convertible preferred stock, Series C convertible preferred stock and
Series D convertible preferred stock upon the closing of this offering. Based
upon the number of shares of common stock outstanding as of that date and giving
effect to the issuance of the 4,500,000 shares of common stock offered hereby
there will be 17,773,881 shares of common stock outstanding upon the closing of
this offering, assuming no exercise of the underwriters' over-allotment option.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
Streamline, the holders of common stock are entitled to receive ratably the net
assets of Streamline available after the payment of all debts and other
liabilities, subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by Streamline in this offering will be, when issued and paid for, fully
paid and non-assessable. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that Streamline may designate
and issue in the future. Upon the closing of this offering, there will be no
shares of preferred stock outstanding.
PREFERRED STOCK
The board of directors is authorized, subject to limitations prescribed by
Delaware law, without further stockholder approval, from time to time to issue
up to an aggregate of 5,000,000 shares of preferred stock in one or more series
and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions thereof, of the shares of each such
series, such as the number of shares constituting any such series and the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, including sinking fund provisions, redemption price or prices and
liquidation preferences thereof. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change of control of Streamline.
Streamline has no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of approximately 9,467,221 shares of common stock and warrants
to purchase an additional 506,571 shares of common stock as of March 31, 1999
will have demand rights to register those shares under the Securities Act
beginning 180 days after the date of this prospectus. Streamline granted such
rights under the terms of a Series A stock purchase agreement, dated as of May
15, 1996, and registration rights agreements, dated as of June 13, 1997, April
15, 1998 and September 18, 1998, to investors that participated in Streamline's
preferred stock and senior discount note financings, some of which are
affiliates of directors of Streamline.
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If requested by holders of common stock issued upon conversion of our Series
A preferred stock to register at least 100,000 shares or shares having a market
value of at least $1.0 million, then, subject to limitations relating to the
timing of the request, Streamline must file a registration statement under the
Securities Act covering all registrable shares requested to be included. We are
required to effect up to three such demand registrations. We have the right to
delay any such registration for up to 60 days where registration would have an
adverse impact on transactions being pursued by Streamline, but will be
prohibited until 90 days after the effectiveness of such registration from
registering any other Streamline securities under the Securities Act, except in
connection with our employee benefit plans or a corporate reorganization. We
will bear all fees, costs and expenses of any of these demand registrations
other than underwriting discounts and commissions.
Under the registration rights agreement dated June 13, 1997, if requested by
holders of at least 30% of the common stock issued upon conversion of our Series
B and C preferred stock to register shares having a market value of at least
$2.0 million, then, subject to limitations relating to the timing of the
request, Streamline must file a registration statement under the Securities Act
covering all registrable shares requested to be included. We are required to
effect up to two such demand registrations. Once Streamline is eligible to
register shares using a short-form registration statement, we will be required,
if requested to do so by holders of at least 20% of the common stock issued upon
conversion of our Series B and C preferred stock to register shares having a
market value of at least $1.0 million. We have the right to delay any such
registration for up to 90 days where registration would have an adverse impact
on transactions being pursued by Streamline, but will be prohibited until 90
days after the effectiveness of such registration from registering any other
Streamline securities under the Securities Act, except in connection with our
employee benefit plans or a corporate reorganization. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions.
The registration rights agreement dated April 15, 1998, requires us, if
requested by holders of at least 30% of the common stock issued upon conversion
of warrants issued by us in connection with our sale of senior discount notes
and other shares of common stock issued in connection with that transaction,
subject to limitations relating to the timing of the request, to file a
registration statement under the Securities Act covering all registrable shares
requested to be included. We are required to effect up to two such demand
registrations. Once Streamline is eligible to register shares using a short-form
registration statement, we will be required, if requested to do so by holders of
at least 20% of the common stock issued upon conversion of warrants issued by us
in connection with our sale of senior discount notes and other shares of common
stock issued in connection with that transaction, to register shares having a
market value of at least $350,000. We have the right to delay any such
registration for up to 90 days where registration would have an adverse impact
on transactions being pursued by Streamline, but will be prohibited until 90
days after the effectiveness of such registration from registering any other
Streamline securities under the Securities Act, except in connection with our
employee benefit plans or a corporate reorganization. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions.
Under the registration rights agreement dated September 18, 1998, if
requested by holders of at least 30% of the common stock issued upon conversion
of our Series D preferred stock to register shares having a market value of at
least $2.0 million, then, subject to limitations relating to the timing of the
request, Streamline must file a registration statement under the Securities Act
covering all registrable shares requested to be included. We are required to
effect up to two such demand registrations. Once Streamline is eligible to
register shares using a short-form registration statement, we will be required,
if requested to do so by holders of at least 20% of the common stock issued upon
conversion of our Series D preferred stock, to register shares having a market
value of at least $1.0 million. We have the right to delay any such registration
for up to 90 days where registration would have an adverse impact on
transactions being pursued by Streamline, but will be prohibited until
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90 days after the effectiveness of such registration from registering any other
Streamline securities under the Securities Act, except in connection with our
employee benefit plans or a corporate reorganization. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions.
In addition, under all of the agreements described above, holders of
registrable shares have piggyback registration rights. If Streamline proposes to
register any of its securities under the Securities Act other than in connection
with our employee benefit plans or a corporate reorganization, then, subject to
limitations based on the number of shares to be registered and the terms on
which they are to be sold, the holders of registrable shares may require us to
include all or a portion of their shares in such registration, although the
managing underwriter of any such offering has the right to limit the number of
shares in such registration. We will bear all fees, costs and expenses of such
registrations other than underwriting discounts and commissions.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a certain period of time. That period is three
years from the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
Streamline's certificate of incorporation, also called its charter, and
by-laws provide for the division of the board of directors into three classes,
as nearly equal in size as possible, with each class beginning its three-year
term in different years. See "Management--Executive Officers, Directors and
Selected Key Employees." Any director may be removed only for cause by the vote
of a majority of the shares entitled to vote for the election of directors.
Our by-laws provide that for nominations for the board of directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice of the matter
in writing to Streamline's secretary. To be timely, a notice of nominations or
other business to be brought before an annual meeting must be delivered between
120 days and 150 days prior to date one year after the date of the preceding
year's proxy statement. If the date of the current year's annual meeting is more
than 30 days before or 60 days after such anniversary, or if no proxy statement
was delivered to stockholders in connection with the preceding year's annual
meeting, a stockholder's notice will be timely if it is delivered not earlier
than 90 days prior to the current year's annual meeting and not later than 60
days prior to the annual meeting or 10 days following the date on which public
announcement of the date of the annual meeting is first made by Streamline,
whichever is later. With respect to special meetings, notice must generally be
delivered not more than 90 days prior to such meeting and not later than 60 days
prior to such meeting or 10 days following the day on which public announcement
of the date of the annual meeting is first made by Streamline, whichever is
later. The notice must contain, among other things, certain information about
the stockholder delivering the notice and, as applicable, background information
about each nominee or a description of the proposed business to be brought
before the meeting.
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Our charter empowers the board of directors, when considering a tender offer
or merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. These factors may include:
- comparison of the proposed consideration to be received by stockholders in
relation to the market price of Streamline's capital stock, the estimated
current value of Streamline in a freely negotiated transaction and the
estimated future value of Streamline as an independent entity
- the impact of such a transaction on the employees, suppliers and clients
of Streamline and its effect on the communities in which Streamline
operates
The provisions described above could make it more difficult for a third
party to acquire, or of discouraging a third party from acquiring control of
Streamline.
Our charter also provides that any action required or permitted to be taken
by the stockholders of Streamline may be taken only at duly called annual or
special meetings of the stockholders, and that special meetings may be called
only by the chairman of the board of directors, a majority of the board of
directors or the president of Streamline. However, holders of a majority of the
common stock entitled to vote on the election of directors may call a special
meeting for the purpose of filling a vacancy on the board of directors, and
holders of at least two-thirds of the common stock entitled to vote generally
may call a special meeting for any other purpose. These provisions could have
the effect of delaying until the next annual stockholders' meeting stockholder
actions that are favored by the holders of a majority of the common stock. These
provisions may also discourage another person or entity from making a tender
offer to Streamline stockholders for the common stock. This is because the
person or entity making the offer, even if it acquired a majority of the
outstanding voting securities of Streamline, would be unable to call a special
meeting of the stockholders or to take action by written consent. As a result,
any desired actions they would like to take, such as electing new directors or
approving a merger, would have to wait until the next duly called stockholders'
meeting.
The Delaware General Corporation Law provides that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The charter requires the affirmative vote of the holders of at least
67% of the outstanding voting stock of Streamline to amend or repeal any of the
provisions of our charter described above, or to reduce the number of authorized
shares of common stock and preferred stock. The 67% vote is also required to
amend or repeal any of the provisions of our by-laws that are described above.
Our by-laws may also be amended or repealed by a majority vote of the board of
directors. The 67% stockholder vote would be in addition to any separate class
vote that might in the future be required pursuant to the terms of any preferred
stock that might be outstanding at the time any amendments are submitted to
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. Upon completion of this offering, based upon the number of shares
outstanding at March 31, 1999, there will be 17,773,881 shares of common stock
outstanding assuming the underwriters do not exercise their over-allotment
option, and no warrants or options are exercised. Of these shares, the 4,500,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of Streamline, as that term is defined in Rule 144 under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The outstanding shares of common stock not sold in this offering will be
deemed "restricted securities" under Rule 144 under the Securities Act. Of these
shares, 12,833,963 are subject to 180-day lock-up agreements with the
representatives. Upon expiration of the lock-up agreements 180 days after the
date of this prospectus, all such shares will be available for sale in the
public market, subject to the provisions of Rule 144. Stockholders who are
parties to the lock-up agreement have agreed that for a period of 180 days after
the date of this prospectus, they will not sell, offer, contract or grant any
option to sell, pledge, transfer, establish an open put equivalent position or
otherwise dispose of any shares of common stock, any options to purchase shares
of common stock or any shares convertible into or exchangeable for shares of
common stock, owned directly by such persons or with respect to which they have
the power of disposition, unless permitted to do so by Banc of America
Securities LLC.
In general, under Rule 144, beginning 90 days after the effective date of
this prospectus, a stockholder who has beneficially owned his or her restricted
securities for at least one year will be entitled to sell, within any
three-month period, a limited number of such shares. The number of shares may
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume in the common stock during the four preceding
calendar weeks. In addition, under Rule 144(k), if a period of at least two
years has elapsed since the date restricted securities were acquired from
Streamline or an affiliate of Streamline, a stockholder who is not an affiliate
of Streamline at the time of sale and has not been an affiliate of Streamline
for at least three months prior to the sale will be entitled to sell the shares
immediately without restriction.
Securities issued in reliance on Rule 701, such as shares of common stock
acquired upon exercise of certain options granted under our stock option plans,
are also restricted and, beginning 90 days after the effective date of this
prospectus, may be sold by stockholders other than affiliates of Streamline
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
WARRANTS AND OPTIONS
As of March 31, 1999, there were warrants and options outstanding to
purchase an aggregate of 1,999,714 shares of common stock, of which 1,969,714
were subject to lock-up agreements. Warrants and options to purchase an
aggregate of 1,089,979 shares were exercisable as of March 31, 1999, of which
1,079,646 were subject to lock-up agreements.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock issuable under our stock
option and stock purchase plans promptly following the closing of this offering.
Shares issued pursuant to such plans shall be, after the effective date of the
Form S-8 registration statements, eligible for resale in the public market
without restriction, subject to Rule 144 limitations applicable to affiliates
and the lock-up agreements noted above, if applicable.
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<PAGE>
UNDERWRITING
Streamline is offering the shares of common stock described in this
prospectus through a number of underwriters. Banc of America Securities LLC,
PaineWebber Incorporated and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are the representatives of the underwriters. Streamline has
entered into a firm commitment underwriting agreement with the representatives.
Subject to the terms and conditions of the underwriting agreement, Streamline
has agreed to sell to the underwriters, and the underwriters have each agreed to
purchase the number of shares of common stock listed next to its name in the
following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------- ------------
<S> <C>
Banc of America Securities LLC........................................ 1,485,000
PaineWebber Incorporated.............................................. 907,500
Dain Rauscher Wessels................................................. 907,500
BancBoston Robertson Stephens Inc..................................... 100,000
Bear, Stearns & Co. Inc............................................... 100,000
Deutsche Bank Securities Inc.......................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 100,000
Goldman, Sachs & Co................................................... 100,000
Hambrecht & Quist LLC................................................. 100,000
Salomon Smith Barney Inc.............................................. 100,000
Adams, Harkness & Hill, Inc........................................... 50,000
Advest, Inc........................................................... 50,000
Cruttenden Roth Incorporated.......................................... 50,000
John G. Kinnard & Company, Incorporated............................... 50,000
Pacific Crest Securities.............................................. 50,000
U.S. Bancorp Piper Jaffray Inc........................................ 50,000
Sandler O'Neill & Partners L.P........................................ 50,000
Tucker Anthony Incorporated........................................... 50,000
C.E. Unterberg, Towbin................................................ 50,000
H.C. Wainwright & Co., Inc............................................ 50,000
------------
Total............................................................. 4,500,000
------------
------------
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $0.40 per share. The underwriters
also may allow, and any dealers may reallow, a concession of not more than $0.10
per share to some other dealers. If all the shares are not sold at the initial
public offering price, the underwriters may change the offering price and the
other selling terms. The common stock is offered subject to a number of
conditions, including:
- receipt and acceptance of our common stock by the underwriters
- the right to reject orders in whole or in part
The underwriters have an option to buy up to 585,000 additional shares of
common stock from Streamline and 90,000 additional shares of common stock from
Timothy A. DeMello. These additional shares would cover sales of shares by the
underwriters which exceed the number of shares specified in the table above, and
will be sold by Streamline and Mr. DeMello on a pro rata basis in the event that
the option is not exercised in full. The underwriters have 30 days to exercise
this option. If the underwriters exercise this option, they will each purchase
additional shares approximately in proportion to the amounts specified in the
table above. Streamline will pay the expenses, other than the
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underwriting discount and commissions paid by Mr. DeMello, associated with the
exercise of the over-allotment option.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Streamline and Mr. DeMello. Such
amounts are shown assuming no exercise and full exercise of the underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY STREAMLINE
-------------------------
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per Share................................................ $ 0.70 $ 0.70
Total.................................................... $3,150,000 $3,559,500
<CAPTION>
PAID BY MR. DEMELLO
-------------------------
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per Share................................................ -- $ 0.70
Total.................................................... -- $ 63,000
</TABLE>
Streamline and substantially all holders of its stock prior to this
offering, as well as substantially all holders of stock options and warrants,
have entered into lock-up agreements with the underwriters. Under those
agreements, Streamline and those holders of stock, options and warrants may not
dispose of or hedge any Streamline common stock or securities convertible into
or exchangeable for shares of Streamline common stock unless permitted to do so
by Banc of America Securities LLC. These restrictions will be in effect for a
period of 180 days after the date of this prospectus. At any time and without
notice, Banc of America Securities LLC may, in its sole discretion, release all
or some of the securities from these lock-up agreements.
Streamline and Mr. DeMello will indemnify the underwriters against
liabilities, including liabilities under the Securities Act. If Streamline and
Mr. DeMello are unable to provide this indemnification, they will contribute to
payments the underwriters may be required to make in respect of those
liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales
- stabilizing transactions
- purchases to cover positions created by short sales
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment
- stabilization
- syndicate covering transactions
- imposition of penalty bids
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As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter-market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for the common stock
of Streamline. The initial public offering price has been negotiated between
Streamline and the underwriters. Among the factors considered in such
negotiations were:
- the history of, and prospects for, Streamline and the industry in which it
competes
- the past and present financial performance of Streamline
- an assessment of Streamline's management
- the present state of Streamline's development
- the prospects for future earnings of Streamline
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offering
- market valuations of publicly traded companies that Streamline and the
representatives believe to be comparable to Streamline
- other factors deemed relevant
An affiliate of PaineWebber Incorporated, a representative, is the
beneficial owner of approximately 285,714 shares of our common stock.
The underwriters, at our request, have reserved for sale to our employees,
affiliates and strategic partners at the initial public offering price up to
five percent of the shares being offered by this prospectus and up to 250,000
shares for sale to our customers. The sale of shares to our employees,
affiliates and strategic partners will be made by Banc of America Securities
LLC. E*TRADE Securities, a broker-dealer, will facilitate the sale of shares to
our customers over the Internet through individual on-line brokerage accounts
set up with E*TRADE Securities. To the extent that our customers do not purchase
all of the 250,000 shares reserved for them, E*TRADE Securities will offer the
remaining shares to its customers. We do not know if our employees, affiliates,
strategic partners or customers or customers of E*TRADE Securities will choose
to purchase all or any portion of these reserved shares, but any purchases they
do make will reduce the number of shares available to the general public. If all
of these reserved shares are not purchased, the underwriters will offer the
remainder to the general public on the same terms as the other shares offered by
this prospectus.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Streamline by Bingham Dana LLP, Boston, Massachusetts and for the underwriters
by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of Streamline at December 31, 1997 and 1998
and the consolidated statements of operations, stockholders' deficit and cash
flows for each of the three years in the period ended December 31, 1998 included
in this prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock we are offering by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of these documents at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference facilities.
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STREAMLINE.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998 and March 31, 1999 (unaudited)................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the quarters ended March 31, 1998 and 1999 (unaudited)........................... F-4
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998 and the quarter ended March 31, 1999 (unaudited)........................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the quarters ended March 31, 1998 and 1999 (unaudited)........................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Streamline.com, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Streamline.com, Inc. and its subsidiary at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. 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 audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 13, 1999
F-2
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(NOTE 2)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,445,943 $12,593,160 $ 9,316,736 $ 9,316,736
Accounts receivable, net of allowance for doubtful
accounts of none at December 31, 1997 and 1998 and
approximately $25,000 at March 31, 1999,
respectively........................................... 76,656 87,779 595,935 595,935
Inventory................................................ 254,474 323,656 338,799 338,799
Prepaid expenses and other current assets................ 375,106 148,695 398,996 398,996
----------- ----------- ----------- -----------
Total current assets............................... 2,152,179 13,153,290 10,650,466 10,650,466
Property and equipment, net.............................. 3,459,388 3,663,481 4,229,503 4,229,503
Purchased and capitalized software, net.................. 1,528,855 2,025,282 2,293,280 2,293,280
Goodwill, net of accumulated amortization................ 648,433 991,746 931,361 931,361
Other assets, net........................................ 108,032 232,019 202,227 202,227
----------- ----------- ----------- -----------
Total assets....................................... $ 7,896,887 $20,065,818 $18,306,837 $18,306,837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Capital lease obligations................................ $ 197,155 $ 236,326 $ 298,729 $ 298,729
Accounts payable......................................... 1,131,475 447,410 965,943 965,943
Accrued expenses......................................... 493,416 408,436 1,108,565 1,108,565
----------- ----------- ----------- -----------
Total current liabilities.......................... 1,822,046 1,092,172 2,373,237 2,373,237
----------- ----------- ----------- -----------
Long-term portion of capital lease obligations............. 334,308 380,751 602,719 602,719
----------- ----------- ----------- -----------
Commitments and contingencies (Note 11)
Minority interest in consolidated subsidiary............... 138,598 -- -- --
Redeemable convertible preferred stock (Note 7), ($1.00 par
value);
Authorized: 300,000 at December 31, 1997, 680,000 at
December 31, 1998, and March 31, 1999, actual and pro
forma
Issued and outstanding: 140,000 shares issued and
outstanding at December 31, 1997, 368,570 shares
issued and outstanding at December 31, 1998 and March
31, 1999 actual, and none at March 31, 1999 pro
forma................................................ 14,000,000 37,185,765 37,471,478 --
----------- ----------- ----------- -----------
Stockholders' (deficit) equity:
Common stock, $0.01 par value;
Authorized: 12,500,000 at December 31, 1997, 22,700,000
at December 31, 1998, and March 31, 1999, actual and
pro forma
Issued and outstanding: 3,526,032 shares issued and
3,497,032 outstanding at December 31, 1997, 3,699,539
shares issued and 3,665,539 outstanding at December
31, 1998 and March 31, 1999 actual and 13,307,881
shares issued and 13,273,881 outstanding at March 31,
1999 pro forma....................................... 35,260 36,995 36,995 133,079
Additional paid-in capital............................... 3,848,768 5,060,436 4,774,723 42,150,117
Treasury stock, at cost: 29,000 shares at December 31,
1997, 34,000 shares at December 31, 1998 and March 31,
1999, actual and pro forma............................. (203,000) (238,000) (238,000) (238,000)
Accumulated deficit...................................... (12,079,093) (23,452,301) (26,714,315) (26,714,315)
----------- ----------- ----------- -----------
Total stockholders' (deficit) equity............... (8,398,065) (18,592,870) (22,140,597) 15,330,881
----------- ----------- ----------- -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' (deficit) equity......... $ 7,896,887 $20,065,818 $18,306,837 $18,306,837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ------------ ------------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product and service revenue,
net............................ $ 390,801 $ 1,814,793 $ 6,025,573 $ 1,072,080 $ 2,567,734
Subscription fees................ 19,908 98,566 391,579 76,350 186,412
Advertising, research and
marketing fees................. 511,000 721,000 529,138 53,225 232,500
----------- ----------- ------------ ------------ ------------
Total revenue...................... 921,709 2,634,359 6,946,290 1,201,655 2,986,646
----------- ----------- ------------ ------------ ------------
Operating expenses:
Cost of revenue.................. 391,123 2,097,642 4,992,092 895,986 2,021,479
Fulfillment center operations.... 915,863 2,768,995 4,012,617 946,244 1,407,102
Sales and marketing.............. 440,493 1,427,810 1,479,210 284,613 615,615
Technology systems and
development.................... 78,327 1,672,870 3,002,514 635,668 828,205
General and administrative....... 985,400 3,166,552 3,896,756 963,264 1,483,189
----------- ----------- ------------ ------------ ------------
Total operating expenses........... 2,811,206 11,133,869 17,383,189 3,725,775 6,355,590
----------- ----------- ------------ ------------ ------------
Loss from operations............. (1,889,497) (8,499,510) (10,436,899) (2,524,120) (3,368,944)
Other income (expense):
Interest income.................. 74,744 58,148 239,992 5,083 122,586
Interest expense................. (31,341) (50,659) (568,834) (45,198) (15,656)
Other............................ -- (87,914) (1,647) -- --
----------- ----------- ------------ ------------ ------------
Total other income (expense),
net.............................. 43,403 (80,425) (330,489) (40,115) 106,930
----------- ----------- ------------ ------------ ------------
Loss before minority interest and
extraordinary item............... (1,846,094) (8,579,935) (10,767,388) (2,564,235) (3,262,014)
Minority interest in net loss of
consolidated subsidiary.......... -- 265,428 138,598 71,252 --
----------- ----------- ------------ ------------ ------------
Loss before extraordinary item..... (1,846,094) (8,314,507) (10,628,790) (2,492,983) (3,262,014)
Extraordinary item--loss on early
redemption of debt............... -- -- 744,418 -- --
----------- ----------- ------------ ------------ ------------
Net loss........................... $(1,846,094) $(8,314,507) $(11,373,208) $(2,492,983) $ (3,262,014)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Dividends on preferred stock....... 202,900 157,264 328,765 -- 285,713
Net loss attributable to common
stockholders..................... $(2,048,994) $(8,471,771) $(11,701,973) $(2,492,983) $ (3,547,727)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Basic and diluted net loss per
common share..................... $ (0.62) $ (2.47) $ (3.32) $ (0.71) $ (0.97)
Shares used in computing basic and
diluted net loss per common
share............................ 3,284,625 3,424,035 3,522,458 3,497,032 3,665,539
Unaudited pro forma basic and
diluted net loss per common share
(Note 2)......................... $ (1.28) $ (0.25)
Shares used in computing unaudited
pro forma basic and diluted net
loss per share................... 8,918,465 13,238,167
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
$0.01 PAR PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL STOCK DEFICIT DEFICIT
---------- --------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. 3,284,625 $ 32,846 $ 1,699,420 $ (1,918,492) $ (186,226)
Dividends on preferred stock........... (202,900) (202,900)
Issuance of warrants for the purchase
of common stock in exchange for goods
and services......................... 56,100 56,100
Net loss............................... (1,846,094) (1,846,094)
---------- --------- ------------ ----------- -------------- --------------
Balance, December 31, 1996............. 3,284,625 32,846 1,552,620 (3,764,586) (2,179,120)
Sale of common stock................... 163,857 1,639 1,145,361 1,147,000
Dividends on preferred stock........... (157,264) (157,264)
Issuance of warrants for the purchase
of common stock in exchange for goods
and services......................... 738,326 738,326
Options exercised...................... 77,550 775 89,065 89,840
Repurchase of common stock (29,000
shares).............................. $ (203,000) (203,000)
Change in interest in consolidated
subsidiary........................... 480,660 480,660
Net loss............................... (8,314,507) (8,314,507)
---------- --------- ------------ ----------- -------------- --------------
Balance, December 31, 1997............. 3,526,032 35,260 3,848,768 (203,000) (12,079,093) (8,398,065)
Dividends on preferred stock........... (328,765) (328,765)
Issuance of warrants in connection with
notes payable........................ 525,300 525,300
Reduction in value of warrants granted
in 1997 in exchange for goods and
services............................. (67,462) (67,462)
Issuance of common stock and warrants
for the purchase of common stock in
exchange for goods and services...... 12,500 125 516,600 516,725
Options exercised...................... 34,583 346 61,563 61,909
Common stock issued to acquire minority
interest............................. 126,424 1,264 504,432 505,696
Treasury stock acquired in connection
with forgiveness of notes receivable
(5,000 shares)....................... (35,000) (35,000)
Net loss............................... (11,373,208) (11,373,208)
---------- --------- ------------ ----------- -------------- --------------
Balance, December 31, 1998............. 3,699,539 36,995 5,060,436 (238,000) (23,452,301) (18,592,870)
Dividends on preferred stock........... (285,713) (285,713)
Net loss............................... (3,262,014) (3,262,014)
---------- --------- ------------ ----------- -------------- --------------
Balance, March 31, 1999 (unaudited).... 3,699,539 $ 36,995 $ 4,774,723 $ (238,000) $ (26,714,315) $ (22,140,597)
---------- --------- ------------ ----------- -------------- --------------
---------- --------- ------------ ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ------------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(1,846,094) $(8,314,507) $(11,373,208) $(2,492,983) $ (3,262,014)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. 157,490 674,202 1,532,413 347,590 497,293
Amortization of discount on
notes payable................ -- -- 525,300 -- --
Loss on disposal of fixed
assets....................... -- 86,372 120,044 -- --
Amortization of goodwill and
other assets................. -- 151,849 256,592 35,490 60,385
Bad debt expense............... 25,000
Issuance of warrants for the
purchase of common stock in
exchange for consulting
services..................... 56,100 330,000 446,700 -- --
Minority interest in net loss
of consolidated subsidiary... -- (265,428) (138,598) (71,252) --
Changes in assets and
liabilities
Accounts receivable.......... (5,152) (67,995) (11,123) (147,159) (533,156)
Inventory.................... (175,959) (78,515) (69,182) (14,486) (15,143)
Prepaid expenses and other
current assets............. (45,778) (236,196) 226,411 304,852 (250,301)
Other assets................. -- -- (182,796) (129,919) 29,792
Accounts payable............. 73,453 600,307 (684,065) 698,318 518,535
Accrued expenses............. 55,813 428,730 (84,980) 33,079 700,129
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities....................... (1,730,127) (6,691,181) (9,436,492) (1,436,470) (2,229,480)
----------- ----------- ------------ ----------- ------------
Cash flows from investing
activities:
Purchases of property and
equipment...................... (1,904,447) (1,449,721) (833,275) (61,410) (447,367)
Additions to purchased and
capitalized software........... (48,544) (1,386,197) (1,237,847) (367,900) (527,844)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities....................... (1,952,991) (2,835,918) (2,071,122) (429,310) (975,211)
----------- ----------- ------------ ----------- ------------
Cash flows from financing
activities:
Payments on notes receivable from
related parties................ (292,442) -- -- -- --
Proceeds from sale of common
stock.......................... -- 1,147,000 100 -- --
Proceeds from sale of common
stock of subsidiary............ -- 400,000 -- -- --
Proceeds from sale of preferred
stock.......................... 5,000,000 9,000,000 22,857,000 -- --
Proceeds from the exercise of
stock options.................. -- 89,840 61,909 -- --
Purchases of treasury stock...... -- (203,000) -- -- --
Dividend payments on preferred
stock.......................... -- (360,164) -- -- --
Issuance of notes receivable..... -- -- (35,000) -- --
Proceeds from notes
payable-related party.......... -- -- 600,000 600,000 --
Payments on notes payable-related
party.......................... -- -- (600,000) -- --
Proceeds from notes payable...... -- -- 7,000,000 -- --
Payments on notes payable........ -- -- (7,000,000) --
Principal payments on capital
lease obligations.............. (53,745) (105,435) (229,178) (55,213) (71,733)
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities....................... 4,653,813 9,968,241 22,654,831 544,787 (71,733)
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents................. 970,695 441,142 11,147,217 (1,320,993) (3,276,424)
Cash and cash equivalents,
beginning of period.............. 34,106 1,004,801 1,445,943 1,445,943 12,593,160
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents, end of
period........................... $ 1,004,801 $ 1,445,943 $ 12,593,160 $ 124,950 $ 9,316,736
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Supplemental disclosure of cash
flow information:
Cash paid for interest........... $ 31,000 $ 47,000 $ 495,000 $ 27,000 $ 14,000
Supplemental non-cash transactions:
Assets acquired with capital
lease obligations.............. $ 340,000 $ 267,000 $ 315,000 $ 202,000 $ 356,000
Issuance of subsidiary's stock
and warrants in connection with
acquisition (Note 3)........... -- 485,000 -- -- --
Assumption of liabilities in
connection with acquisition
(Note 3)....................... -- 370,000 -- -- --
Issuance of common stock in
connection with purchase of
minority interest
(Note 3)....................... -- -- 506,000 -- --
Issuance and remeasurement of
warrants in connection with
capitalized assets (Note 10)... -- 408,000 (34,000) 133,000
Issuance of warrants in
connection with debt (Note
5)............................. -- -- 525,000 -- --
Issuance of common stock for
services provided.............. -- -- 35,000 -- --
Common stock received in
consideration of note
receivable (Note 8)............ -- -- 35,000 -- --
Dividends accrued on preferred
stock (Note 7)................. 203,000 157,000 329,000 -- 286,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
1. DESCRIPTION OF BUSINESS
Streamline.com, Inc. ("Streamline.com" or the "Company") was incorporated in
the state of Delaware in 1993 and provides Internet-based ordering and home
delivery of a wide range of goods and services to consumers. The Company seeks
to simplify the shopping chores of busy suburban families who place a high value
on their time and demand service excellence. The Company consolidates products
and services currently offered by various suppliers into a single weekly
delivery to its customers, thus minimizing their need to make frequent trips to
multiple physical stores. The Company currently provides its products and
services from a single service center in the greater Boston suburbs which it
intends to replicate in other markets nationwide. Additionally, the Company has
working relationships with various consumer packaged goods companies to perform
market research on consumer purchasing behavior.
The Company has incurred cumulative losses through December 31, 1998 of
approximately $26,700,000. The Company expects to incur additional losses and
require additional financing as it expands its service into new and existing
markets. The Company plans to obtain additional equity financing during 1999
through an initial public offering of its common stock. In April 1999, the
Company received a commitment from a current stockholder to provide financing of
up to $10,000,000 if the Company requires additional financing prior to the end
of April 2000 and if the offering contemplated in this registration statement
has not been consummated by that time. This financing, if it occurs, will be in
the form of a sale by the Company of Series D redeemable convertible preferred
stock (the "Series D"). The sale would be on terms substantially similar to the
Series D (See Note 7) except that the Company shall redeem such shares, two
years from the date of issuance, for the aggregate purchase price plus accrued
interest at a rate of 6% per annum. The difference between the total fair value
of such Series D on the date of redemption and the redemption amount paid will
remain outstanding as preferred stock. In connection with this financing
commitment, the Company granted a warrant to purchase 75,000 shares of common
stock at an exercise price of $7.00 per share. This warrant expires in April of
2002. The Company expects to take a non-cash charge associated with this warrant
ratably over the financing commitment term. Upon the completion of an initial
public offering, the financing commitment terminates. Therefore, the Company
would take a non-cash charge for the remaining unamortized value of the warrant
at that time. The Company will use the Black-Scholes option pricing model to
determine the fair value of the warrant. The Company will use the mid-point of
the proposed offering price for the basis of the common stock value to be
utilized in the calculation of the fair value of the warrant.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. In 1998, the Company purchased the remaining
minority interest in its subsidiary (See Note 3). All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION
Product and service revenue is recognized upon delivery of goods and
services to the customer. Advertising, research and marketing fees are
recognized over the life of the contract or as the services are performed.
Subscription revenues are billed and recognized monthly.
F-7
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER ACQUISITION COSTS AND PRE-OPENING COSTS
Customer acquisition costs and pre-opening costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less at the time of purchase to be cash
equivalents. The Company invests its excess cash in money market funds which are
subject to minimal credit and market risk. Cash equivalents at December 31, 1997
and 1998 and March 31, 1999 included approximately $1,030,000, $12,256,000, and
$8,876,000 respectively, in money market funds. The Company's cash equivalents
are classified as available-for-sale and recorded at amortized cost which
approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives of three to seven years using the straight-line method.
Assets held under capital leases are amortized over the shorter of the lease
life or the estimated useful life of the asset. Repairs and maintenance costs
are expensed as incurred. Upon retirement or sale, the cost of the assets
disposed and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the results of operations.
PURCHASED SOFTWARE, CAPITALIZED SOFTWARE AND TECHNOLOGY SYSTEMS AND DEVELOPMENT
Purchased third party software and related implemention costs are recorded
at cost and are amortized over their estimated useful lives, typically three
years using the straight-line method. Internal and external costs incurred
related to the application development stage of internal use software are
capitalized and amortized over their estimated useful lives, typically three
years using the straight-line method. Amortization expense related to purchased
and capitalized software is included in technology systems and development
expense.
Technology development costs are charged to technology systems and
development expense as incurred. Technology development costs include internal
and external costs incurred in the development and enhancement of software used
internally or used in connection with services provided by the Company that do
not otherwise qualify for capitalization, the costs of maintenance and minor
enhancements and the costs associated with maintaining and supporting internal
information systems.
The Company capitalized approximately $1,386,000, $1,238,000, and $528,000
for purchased and capitalized software for the years ended December 31, 1997 and
1998, and the quarter ended March 31, 1999 respectively. Amortization expense
for purchased and capitalized software was approximately $13,000, $189,000,
$708,000, $114,000 and $260,000 for years ended December 31, 1996, 1997 and 1998
and the quarters ended March 31, 1998 and 1999, respectively.
GOODWILL
Goodwill is being amortized on a straight-line basis over a five-year term.
The Company periodically evaluates the possible impairment of long-lived assets,
including goodwill, whenever events or changes in circumstances indicate that
the carrying value of the assets may not be recoverable. If such an event
occurred, the Company would project the future undiscounted cash flows expected
to
F-8
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
result from the asset. If such projections indicated that the carrying value
would not be recoverable, the Company would reduce the carrying value of the
asset by the estimated excess of such value over future projected discounted
cash flows. Accumulated amortization of goodwill as of December 31, 1997 and
1998 and March 31, 1999 was approximately $146,000, $308,000, and $368,000,
respectively.
YEAR 2000 COSTS
Costs of modifying computer software to ensure Year 2000 compliance are
expensed as incurred.
ADVERTISING
The Company expenses costs related to advertising as incurred. Advertising
expense was approximately $43,000, $389,000, $557,000, $92,000 and $268,000 for
the years ended December 31, 1996, 1997 and 1998, and the quarters ended March
31, 1998 and 1999, respectively.
INVENTORY
The Company values all of its inventories at the lower of cost or market
value. Cost is determined on an average cost basis. All inventory items
represent finished goods.
INCOME TAXES
The Company provides for income taxes under the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between financial statement and tax bases of assets and
liabilities, as measured by the current tax rates. Under this method, a
valuation allowance is required against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Management periodically evaluates the recoverability of deferred tax assets
and the level of the adequacy of the valuation allowance. At such time as it is
determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be appropriately reduced.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts with fixed exercise prices at least equal to the fair market
value of the Company's common stock at the date of grant. The Company has
adopted the disclosure only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," (Note 9).
Stock-based awards, including warrants to non-employees are accounted for at
their fair value.
RISKS AND UNCERTAINTIES AND 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
F-9
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and liabilities and disclosure of contingent 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.
The Company has a limited operating history, has never achieved
profitability and is therefore subject to the risks and uncertainties such as
the uncertain nature of the markets in which the Company competes and the risk
that the Company may be unable to manage any future growth successfully.
In addition, the Company is subject to the risks encountered by companies
relying on the continued growth of on-line commerce and Internet infrastructure.
The risks include the use of the Internet as a viable commercial marketplace and
the potentially inadequate development of the necessary network infrastructure.
Finally, the Company has historically experienced seasonal fluctuations in
revenue. This pattern may be expected to continue and results of financial
operations within any fiscal year or fiscal quarter cannot be expected to be
representative.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company's financial instruments consist primarily of cash and cash
equivalents. As of December 31, 1998 and March 31, 1999, these financial
instruments carrying values approximated fair value. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents. The Company primarily invests its cash
in a money market fund with a highly rated financial institution. The Company
has not experienced any significant losses on its cash equivalents.
UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of the Company's initial public offering, such as the one
contemplated in the Registration Statement in which the accompanying financial
statements have been included, all of the outstanding shares of the preferred
stock will automatically convert into 9,454,722 shares of common stock. In
addition, the Company has elected to convert the accrued dividends on the Series
D into 6,145 shares of Series D which will convert into 153,620 shares of common
stock for a total conversion amount of 9,608,342 common shares. These
conversions have been reflected in the unaudited pro forma balance sheet as of
March 31, 1999.
NET LOSS PER SHARE
The Company computes basic and diluted net loss per share in accordance with
SFAS No. 128, "Earnings Per Share." Basic net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding for the period. Diluted loss per
share does not differ from basic loss per share since potential common shares
from conversion of preferred stock, stock options and warrants are anti-dilutive
for all periods presented. The unaudited pro forma basic and diluted net loss
per share calculation assumes the conversion of all outstanding shares of
preferred stock and accrued preferred stock dividends into common shares, as if
the shares had converted immediately upon their issuance. As a result, dividends
to preferred stockholders are not included as an increase to net loss.
F-10
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and diluted loss per share were calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
---------------------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1996 1997 1998 1998 1998 1999 1999
----------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Numerator:
Loss before extraordinary item... $(1,846,094) $(8,314,507) $(10,628,790) $(10,628,790) $(2,492,983) $(3,262,014) $(3,262,014)
Dividends on preferred stock..... 202,900 157,264 328,765 -- -- 285,713 --
----------- ----------- ------------ ------------ ----------- ----------- -----------
Loss attributable to common
stockholders before
extraordinary item............. (2,048,994) (8,471,771) (10,957,555) (10,628,790) (2,492,983) (3,547,727) (3,262,014)
Extraordinary item............... -- -- 744,418 744,418 -- -- --
----------- ----------- ------------ ------------ ----------- ----------- -----------
Net loss attributable to common
stockholders................... $(2,048,994) $(8,471,771) $(11,701,973) $(11,373,208) $(2,492,983) $(3,547,727) $(3,262,014)
----------- ----------- ------------ ------------ ----------- ----------- -----------
----------- ----------- ------------ ------------ ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding.................... 3,284,625 3,424,035 3,522,458 3,522,458 3,497,032 3,665,539 3,665,539
Weighted average assumed number
of shares upon conversion of
preferred stock................ -- -- -- 5,396,007 -- -- 9,572,628
----------- ----------- ------------ ------------ ----------- ----------- -----------
Total weighted average number of
shares........................... 3,284,625 3,424,035 3,522,458 8,918,465 3,497,032 3,665,539 13,238,167
----------- ----------- ------------ ------------ ----------- ----------- -----------
----------- ----------- ------------ ------------ ----------- ----------- -----------
Basic and diluted net loss per
common share:
Loss per common share before
extraordinary item............. $ (0.62) $ (2.47) $ (3.11) $ (1.19) $ (0.71) $ (0.97) $ (0.25)
Extraordinary item............... -- -- (0.21) (0.09) -- -- --
----------- ----------- ------------ ------------ ----------- ----------- -----------
Net loss per common share........ $ (0.62) $ (2.47) $ (3.32) $ (1.28) $ (0.71) $ (0.97) $ (0.25)
----------- ----------- ------------ ------------ ----------- ----------- -----------
----------- ----------- ------------ ------------ ----------- ----------- -----------
</TABLE>
Outstanding options of 450,500, 726,750, 593,000, 818,750 and 1,211,000 as
of December 31, 1996, 1997 and 1998, and March 31, 1998 and 1999, respectively,
were not included in the diluted loss per share computation because their effect
would be anti-dilutive. Outstanding warrants of 50,000, 435,714, 788,714,
491,714 and 788,714 as of December 31, 1996, 1997 and 1998 and March 31, 1998
and 1999, respectively, were not included in the diluted loss per share
calculation because their effect would be anti-dilutive.
In April 1999, the Company authorized the issuance of 250,000 options to
purchase common stock to the Chairman, President and Chief Executive Officer.
The exercise price of these options shall be equal to the price at which the
Company sells common shares in the initial public offering. In May 1999, the
Company authorized the issuance of approximately 435,000 options to purchase
common stock upon the closing of the initial public offering contemplated in
this Registration Statement at an exercise price equal to the price at which the
Company sells common shares in the initial public offering. In connection with a
financing commitment received in April 1999, the Company granted a warrant to
purchase 75,000 shares of common stock at an exercise price of $7.00 per share.
This warrant expires in April 2002.
INTERIM FINANCIAL STATEMENTS
The financial statements of the Company as of March 31, 1999 and for the
quarters ended March 31, 1998 and 1999 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
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be expected for any future period.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting for Comprehensive Income"
for the year ended December 31, 1998 which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The Company's comprehensive
loss is the same as the net loss presented for the years ended December 31,
1996, 1997 and 1998, and for the quarters ended March 31, 1998 and 1999.
F-11
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 provides guidance
on accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and amortization of such
costs. SoP 98-1 is effective for the Company's fiscal 1999 financial statements
and the Company does not expect the adoption of this standard to have a material
effect on their current capitalization policy.
In April 1998, AcSEC issued SoP 98-5, "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SoP 98-5, the cost of start-up activities should be expensed as incurred.
SoP 98-5 is effective for the Company's fiscal 1999 financial statements and the
Company does not expect the adoption of this standard to have a material effect
on their current capitalization policy.
3. SUBSIDIARY AND MINORITY INTEREST
The Company established Streamline Mid-Atlantic, Inc. ("Mid-Atlantic") as a
wholly-owned subsidiary in February 1997, receiving 2,200,000 common shares of
Mid-Atlantic in exchange for $22,000 cash.
In February 1997, Mid-Atlantic issued 800,000 shares of common stock in a
private offering to third parties, in exchange for net proceeds of $400,000.
Mid-Atlantic acquired substantially all of the assets and liabilities of
Shopping Alternatives, Inc., a provider of home grocery shopping services. In
the same month, stockholders of Shopping Alternatives received 970,000 shares of
Mid-Atlantic common stock plus warrants to purchase 30,000 shares of
Mid-Atlantic common stock. The value ascribed to the warrants was nominal. In
accordance with the purchase method of accounting, the purchase price of
approximately $855,000, which includes approximately $370,000 of liabilities
assumed, was allocated first to the fair value of the net assets acquired from
Shopping Alternatives. The excess of the purchase price over the fair value of
the acquired assets of approximately $794,000 was recorded by Mid-Atlantic as
acquired goodwill, in the absence of other intangibles, to be amortized on a
straight-line basis over a period of five years. The accompanying financial
statements for the year ended December 31, 1997 reflect the resultant change in
interest of the Company's ownership of Mid-Atlantic from 100% to approximately
55%.
In November 1998, the Company acquired the outstanding minority ownership
interest of Mid-Atlantic in a single transaction in which minority stockholders
of Mid-Atlantic received 126,424 shares of the Company's common stock, $0.01 par
value, having a fair value of approximately $506,000 at the date of acquisition.
In accordance with the purchase method of accounting, the Company allocated the
purchase price first to the fair value of the net assets of Mid-Atlantic as of
the date of the transaction. The resulting total goodwill associated with
Mid-Atlantic, representing the excess of the purchase price over the fair value
of the acquired assets of approximately $1,300,000 at December 31, 1998, is
being amortized on a straight-line basis over a period of five years. Unaudited
pro forma combined results as
F-12
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
3. SUBSIDIARY AND MINORITY INTEREST (CONTINUED)
if the acquisition had occurred at the beginning of either of the fiscal years
are not materially different than the results presented.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES --------------------------- MARCH 31,
IN YEARS 1997 1998 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Computer equipment....................................... 3-5 $ 740,117 $ 821,695 $ 961,993
Equipment, furniture and fixtures........................ 5-10 1,407,258 2,070,683 2,386,251
Vehicles................................................. 5 264,626 589,168 863,349
Leasehold improvements................................... 5-10 1,673,029 1,631,510 1,705,826
------------ ------------- -------------
4,085,030 5,113,056 5,917,419
Accumulated depreciation and amortization................ (625,642) (1,449,575) (1,687,916)
------------ ------------- -------------
$ 3,459,388 $ 3,663,481 $ 4,229,503
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
At December 31, 1997 and 1998, and March 31, 1999, the costs of fixed assets
held under capital leases and included above amounted to approximately $714,000
and $1,029,000, $1,352,000, respectively, and accumulated amortization related
to such assets amounted to approximately $150,000 and $338,000 and $312,000,
respectively.
5. DEBT
In April 1998, the Company received proceeds of $7,000,000 in connection
with the issuance of Senior Discount Notes ("Discount Notes"). The Company
issued 777 units each consisting of a $10,000 aggregate principal amount of
Discount Notes and 546.88 warrants to purchase common stock. The $7,770,000 face
amount of the Discount Notes is due April 15, 2001. The Discount Notes bear
interest initially in the form of accretion in the principal amount outstanding
up to the face amount at the rate of 11% per annum until April 15, 1999.
Thereafter, the Discount Notes bear interest on the face amount at the rate of
12% per annum with interest payable semi-annually until maturity.
In conjunction with the issuance of the Discount Notes, the Company also
issued warrants for the purchase of up to a total of 425,000 shares of the
Company's common stock. Warrants to purchase 225,000 shares of common stock at
$7.00 per share vested immediately. The remaining 200,000 warrants vest
periodically at varying exercises prices until 2001 based upon the Company
obtaining certain amounts of financing. All of these warrants expire upon the
earlier of April 15, 2005 or five years after a public offering by the Company
raising at least $25,000,000. The Company recorded approximately $525,000 of
additional paid-in capital for the fair value of the warrants on the issuance
date as an additional discount associated with the Discount Notes.
On September 18, 1998, the Company redeemed all of the Discount Notes at a
price of $7,000,000 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 (Note 7). In addition, the Company modified the terms of the
warrants issued in connection with this debt such that the remaining unvested
warrants to purchase 200,000 shares of the common stock expired immediately in
exchange for the issuance of 5,000 shares of common stock for $100. The
redemption resulted in the Company recording an
F-13
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STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
5. DEBT (CONTINUED)
extraordinary loss on the extinguishment of debt of approximately $744,000
including approximately $257,000 for the call premium, approximately $452,000
for the unamortized discount value associated with the warrants and
approximately $35,000 for the issuance of the common shares and the remaining
deferred financing costs.
6. RELATED PARTY TRANSACTIONS
During 1996, the Company redeemed notes payable in the principal amounts of
approximately $176,000 from its Chairman, President and Chief Executive Officer
and $122,000 from several other stockholders of the Company. These notes payable
were redeemed at par plus accrued interest.
During 1997, the Company paid consulting fees under an agreement with a
marketing firm, the Chief Executive Officer of which is a director of the
Company. Total fees paid under this agreement during 1997 were approximately
$338,000. Additionally during 1997, the Company issued warrants valued at
$25,000 to this firm for the purchase of 50,000 shares of the Company's common
stock at an exercise price of $2.04 per share with an expiration date in 2001.
During 1997, the Company repurchased 11,500 shares of its common stock from
its Chairman and Chief Executive Officer at a purchase price of $7.00 per share,
which the Company's Board of Directors determined to be the fair value of those
shares at the date of repurchase.
During 1997 and 1998, the Company paid fees for technology development and
consulting under an agreement with a firm, the Chief Executive Officer of which
is a current director and former officer of the Company. Fees paid by the
Company under this agreement totaled approximately $1,250,000 in 1997,
$1,676,000 in 1998 and $375,000 and $450,000 for the quarters ended March 31,
1998 and 1999, respectively. In addition during 1997, the Company issued
warrants valued at approximately $330,000 to this firm for the purchase of
50,000 shares of the Company's common stock at an exercise price of $2.04 per
share with an expiration date in 2007. During 1998, the Company issued
additional warrants valued at approximately $447,000 to this firm for the
purchase of 100,000 shares of its common stock at an exercise price of $4.00 per
share with an expiration date in 2003. Costs associated with these transactions
have been recorded as additions to capitalized software of approximately
$595,000 and $683,000 for the years ended December 31, 1997 and 1998 and
$214,000 for the quarter ended March 31, 1999, respectively and as technology
systems and development expense of $985,000 and $1,440,000 for the years ended
December 31, 1997 and 1998, and $236,000 for each of the quarters ended March
31, 1998 and 1999, respectively.
During 1998, the Company issued convertible subordinated notes payable in
the amount of $200,000 to two directors of the Company, and $400,000 to five
stockholders of the Company, which were redeemed during 1998 at par value plus
accrued interest.
The Company has capital equipment lease arrangements with one of its
stockholders and affiliated entities. The Company paid approximately $33,000,
$69,000, $198,000, $22,000 and $67,000 in the years ended December 31, 1996,
1997 and 1998 and the quarters ended March 31, 1998 and 1999, respectively under
these capital lease arrangements. As of December 31, 1997 and 1998 and March 31,
1999, amounts due to these related parties are $392,000, $458,000, and $640,000,
respectively and have been included as capital lease obligations on the balance
sheet.
F-14
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
All warrant activity described in Note 10 during the years ended December
31, 1997 and 1998 was with stockholders of the Company.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The following table reflects redeemable convertible preferred stock activity
from December 31, 1995 through March 31, 1999:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D TOTAL
------------------ ------------------ ------------------ -------------------- -------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares of Series A issued..... 50,000 $5,000,000 50,000
Accrual of Series A
dividends................... -- 202,900 --
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Balance at December 31,
1996........................ 50,000 5,202,900 50,000
Shares of Series B issued..... -- -- 80,000 $8,000,000 80,000
Shares of Series C issued..... -- -- -- -- 10,000 $1,000,000 10,000
Accrual of Series A
dividends................... -- 157,264 -- -- -- -- --
Payment of Series A
dividends................... -- (360,164) -- -- -- -- --
------ ---------- ------ ---------- ------ ---------- -------
Balance at December 31,
1997........................ 50,000 5,000,000 80,000 8,000,000 10,000 1,000,000 140,000
Shares of Series D issued..... -- -- -- -- -- -- 228,570 $22,857,000 228,570
Accrual of Series D
dividends................... -- -- -- -- -- -- -- 328,765 --
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Balance at December 31,
1998........................ 50,000 5,000,000 80,000 8,000,000 10,000 1,000,000 228,570 23,185,765 368,570
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Accrual of Series D
dividends................... -- -- -- -- -- -- -- 285,713 --
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Balance at
March 31, 1999.............. 50,000 $5,000,000 80,000 $8,000,000 10,000 $1,000,000 228,570 $23,471,478 368,570
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
<CAPTION>
AMOUNT
-----------
<S> <C>
Shares of Series A issued..... $ 5,000,000
Accrual of Series A
dividends................... 202,900
-----------
Balance at December 31,
1996........................ 5,202,900
Shares of Series B issued..... 8,000,000
Shares of Series C issued..... 1,000,000
Accrual of Series A
dividends................... 157,264
Payment of Series A
dividends................... (360,164)
-----------
Balance at December 31,
1997........................ 14,000,000
Shares of Series D issued..... 22,857,000
Accrual of Series D
dividends................... 328,765
-----------
Balance at December 31,
1998........................ 37,185,765
-----------
-----------
Accrual of Series D
dividends................... 285,713
-----------
Balance at
March 31, 1999.............. $37,471,478
-----------
-----------
</TABLE>
At December 31, 1996, the Company had issued and outstanding 50,000 shares
of Series A redeemable cumulative convertible preferred stock, $1.00 par value,
(the "Series A") which entitled its holders to cumulative dividend rights
payable in either cash, shares of Series A or shares of common stock.
During 1997, the Company amended its certificate of incorporation to amend
the rights of the Series A and to create two new series of redeemable
convertible preferred stock, designated as Series B (the "Series B") and Series
C (the "Series C"). The Company is authorized to issue up to 100,000 shares of
each of these series of preferred stock, and each series has a par value of
$1.00 per share. These series of preferred stock are not cumulative as to
dividends. In connection with the amendment, the Company made a cash payment of
approximately $360,000 representing the total accrued dividends
F-15
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
due to the holders of the Series A, of which $203,000 and $157,000 of dividends
were accrued during the years ended December 31, 1996 and 1997, respectively. In
addition, the Company issued 80,000 and 10,000 shares of Series B and Series C,
respectively, for gross proceeds of $8,000,000 and $1,000,000, respectively.
During 1998, the Company amended its certificate of incorporation to amend
certain terms of Series A, Series B and Series C and authorize the issuance of
up to 380,000 shares of preferred stock designated as Series D. In September
1998, the Company issued 228,570 shares of Series D at $100 per share resulting
in gross proceeds of $22,857,000.
The significant characteristics of the Company's Series A, Series B, Series
C and Series D are summarized as follows:
REDEMPTION
The Company is required to redeem each series of preferred stock in the
amount of $100 per share plus accumulated and unpaid dividends in two equal
annual installments commencing on the fifth anniversary upon request by holders
of at least two-thirds of such series of preferred stock. Each holder of
preferred stock may elect immediate redemption upon the sale of substantially
all of the Company's capital stock or assets to a third party. Additionally, a
holder of Series D may elect redemption if the Company has violated certain
covenants. However, a stockholder is not entitled to elect redemption if that
holder or a Director nominated by the holder voted its shares in favor of the
sale. As of December 31, 1998, future redemption requirements for the preferred
stock are $2,500,000, $7,000,000, $16,093,000, and $11,593,000 in the years
ended December 31, 2001, 2002, 2003 and 2004 respectively, plus additional
accrued dividends.
LIQUIDATION
In the event of any liquidation, dissolution, or winding-up of the Company,
the holders of the Series D are entitled to a liquidation preference of up to
$100 per share plus all accrued but unpaid dividends before any payments are
made to the holders of the Series A, Series B or Series C. After payments to the
Series D stockholders, the holders of the Series A, Series B or Series C shall
be entitled to receive a liquidation payment of $100 per share and any
accumulated and unpaid dividends. Any assets remaining after such liquidation
payment to the preferred stockholders will be available for distribution ratably
to common stockholders.
DIVIDENDS
The holders of Series D are entitled to cumulative dividend rights at a rate
of 5% per annum of the Series D liquidation preference. The dividend rights may
be payable in cash, as an addition to the liquidation preference or an issuance
of Series D shares at the discretion of the Company or any combination of the
foregoing. Series D accumulated dividends must be paid before dividends or
distributions are made to the holders of the Series A, Series B or Series C. The
Company must pay a dividend or distribution on the same terms and at the same or
equivalent rate on each share of Series A, Series B, Series C and Series D
whenever a dividend or distribution is declared or paid on
F-16
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
any shares of the common stock. At December 31, 1998 and March 31, 1999, Series
D stockholders are entitled to cumulative dividends in arrears of approximately
$329,000 and $614,000, respectively. The Company expects to pay the dividends in
arrears in the form of additional Series D shares and as a result has included
the accrued dividends in the redeemable convertible preferred stock.
CONVERSION
The number of shares of common stock into which the Series A, Series B,
Series C and Series D may be convertible is determined by multiplying each share
by the quotient of $100 divided by the conversion price as follows: Series A -
approximately $2.04 per share; Series B and C - $7.00 per share; Series D -
$4.00 share. All unpaid dividends must be paid upon conversion.
Each share of Series A, Series B and Series C is convertible into the
Company's common stock at the option of the holder at any time prior to
redemption, or will be automatically converted upon the closing of a public
offering of the Company's common stock resulting in a price of at least $8.00
per share and gross proceeds of at least $25,000,000, subject to anti-dilution
provisions.
Each share of Series D is convertible into the Company's common stock at the
option of the holder at any time after the earlier of a conversion event or
March 18, 2000. A conversion event includes any transaction that would be deemed
a liquidation, Mr. DeMello's ceasing to be an officer, director or consultant of
the Company, certain actions by the Company without a prior affirmative vote by
a majority of the Series D stockholders, a change in persons constituting the
majority of the board of directors or a material adverse change in the Company's
business. Each Series D share will be automatically converted upon the closing
of the first sale of a public offering resulting in at least $25,000,000 of
gross proceeds for at least $8.00 per share provided that an investment banker
delivers an opinion that deems the conversion is necessary to facilitate a
successful public offering, or upon a sale of the Company's assets to a third
party.
VOTING
Holders of Series A, Series B, Series C and Series D do not have voting
rights but holders of Series A and Series C, voting together, and holders of
Series B, voting separately, have the right to elect one director of the
Company, or in lieu thereof, one individual as an observer at all meetings of
the Company's board of directors. Holders of Series D have the right to elect
one director of the Company and one individual as an observer at all meetings of
the Company's board of directors. The Company is required to request the consent
of the Series D stockholders before engaging in certain activities such as the
modification of the rights of the Series D stockholders, a merger or
acquisition, the declaration of dividends for all capital stock and the issuance
of common stock at a price less than $7.00 per share and more than $4.00 per
share.
8. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
The holders of common stock are entitled to one vote for each share held at
all meetings of the stockholders. Dividends on common stock may be paid out of
lawfully available funds as and when
F-17
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STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
8. STOCKHOLDERS' EQUITY (CONTINUED)
determined by the board of directors, subject to any preferential dividend
rights of preferred shareholders. In April 1999, the Company's board of
directors adopted, and the stockholders approved, effective upon the closing of
an initial public offering, an increase in the authorized capital stock of the
Company to 50,000,000 shares of common stock and 5,000,000 shares of preferred
stock, each having a par value of $0.01 per share. The board of directors is
authorized, without further stockholder approval, to fix or alter the relative
rights, preferences, qualifications, limitations or restrictions thereof,
including any dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series.
TREASURY STOCK
During 1997, the Company repurchased 29,000 shares of its common stock from
certain employees and directors of the Company for a total of approximately
$203,000. During 1998, the Company received 5,000 shares of common stock as
consideration for payment of a $35,000 employee note receivable.
STOCK SPLIT
On April 8, 1999, the board of directors declared a 1-for-2 reverse stock
split of common stock. All common shares and per share amounts in the
consolidated financial statements and related footnotes have been restated to
reflect the effect of the reverse stock split for all periods presented.
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN
STOCK OPTION PLANS
On June 10, 1993, the Company adopted two stock option plans. The 1993
Employee Option Plan ("Employee Plan") initially allowed for the granting of
202,750 shares of either statutory or non-statutory options as defined by
Section 422 of the Internal Revenue Code. As of December 31, 1998, the Company
has authorized 1,500,000 shares to be issued in connection with the Employee
Plan. As of December 31, 1998 and March 31, 1999, there were approximately
882,500 and 264,500 shares available for future grants under the Employee Plan,
respectively. In April 1999, the Company increased the number of authorized
shares to be issued under this plan to 2,500,000.
The Director Option Plan ("Director Option Plan") allows for the granting of
shares of non-statutory options and are not intended to meet the requirements of
Internal Revenue Code Section 422. An aggregate of 125,000 shares of common
stock have been reserved for issuance upon the exercise of options available
under the Director Option Plan. As of December 31, 1998 and March 31, 1999,
there were approximately 37,500 shares available for future grants under the
Director Option Plan. In April 1999, the Company increased the number of
authorized shares to be issued under this plan to 250,000. In May 1999, the
Company increased the number of authorized shares to be issued under this plan
to 400,000.
Options are generally granted at a price established by the board of
directors to be not less than the fair market value of the stock on the date of
grant. The options vest at various rates over periods
F-18
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
up to three years and expire up to ten years from the grant date for the
Employee Option Plan and five years from the grant date for the Director Option
Plan.
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for stock options granted
at or above fair value. Had compensation cost been determined based on the fair
value at the grant dates for awards in 1996, 1997 and 1998 consistent with the
provisions of SFAS No. 123, the Company's pro forma net loss attributable to
common stockholders and pro forma basic and diluted net loss per common share
for fiscal 1996, 1997 and 1998 would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net loss attributable to common
stockholders
As reported...................... $(2,048,994) $ (8,471,771) $(11,701,973)
Pro forma........................ (2,105,094) (8,553,803) (11,782,638)
Basic and diluted net loss per
common share
As reported...................... $(0.62) $(2.47) $(3.32)
Pro forma........................ (0.64) (2.50) (3.35)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model to apply the minimum value method with
the following assumptions for grants in 1996, 1997 and 1998: no dividend yield;
no volatility; risk-free interest rates of 6.1% in 1996, 5.6% for 1997, 5.3% for
1998, and expected lives of five years for the Employee Plan and three years for
the Directors Plan. The weighted average fair value of options granted was
$0.31, $0.45, and $0.14 per share for the years ended December 31, 1996, 1997
and 1998, respectively. All options granted during the years ended December 31,
1996, 1997 and 1998 were issued at exercise prices in excess of the fair market
value of the common stock.
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants may be made each
year, future effects on reported pro forma net income or net loss may differ
from the above pro forma disclosures.
F-19
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
The following table summarizes the activity in the Company's option plans at
December 31, 1996, 1997 and 1998 and March 31, 1999, and changes during the
periods then ended:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------- MARCH 31,
1996 1997 1998 1999
------------------------ ------------------------ ------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES
--------- ------------- --------- ------------- --------- ------------- ---------
Outstanding at beginning of period...... 273,500 $ 1.60 450,500 $ 1.76 726,750 $ 2.84 593,000
Granted............................... 180,000 2.00 398,750 3.62 119,750 6.76 618,000
Exercised............................. -- -- (77,550) 1.16 (34,583) 1.80 --
Forfeited............................. (3,000) 1.80 (44,950) 1.80 (218,917) 2.30 --
--------- ----- --------- ----- --------- ----- ---------
Outstanding at end of period............ 450,500 $ 1.76 726,750 $ 2.84 593,000 $ 3.88 1,211,000
--------- ----- --------- ----- --------- ----- ---------
--------- ----- --------- ----- --------- ----- ---------
Options exercisable at end of
period.............................. 151,000 $ 1.44 162,250 $ 1.84 307,415 $ 2.80 408,408
--------- ----- --------- ----- --------- ----- ---------
--------- ----- --------- ----- --------- ----- ---------
<CAPTION>
<S> <C>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-------------
Outstanding at beginning of period...... $ 3.88
Granted............................... 7.74
Exercised............................. --
Forfeited............................. --
-----
Outstanding at end of period............ $ 5.85
-----
-----
Options exercisable at end of
period.............................. $ 3.45
-----
-----
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
TOTAL NUMBER WEIGHTED AVERAGE NUMBER OF
OF OPTIONS REMAINING OPTIONS
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- ------------------------------------------------------ ------------- ---------------- -----------
<S> <C> <C> <C>
$1.50................................................. 12,500 4.5 12,500
$1.80................................................. 142,000 6.2 129,500
$2.04................................................. 212,500 7.7 110,583
$4.00................................................. 2,000 9.8 666
$7.00................................................. 224,000 9.0 54,166
$10.00................................................ -- -- --
------------- -------- -----------
593,000 7.8 years 307,415
------------- -------- -----------
------------- -------- -----------
</TABLE>
In April 1999, the Company authorized the issuance of 250,000 options to
purchase common stock to the Chairman, President and Chief Executive Officer.
The exercise price of these options shall be equal to the price at which the
Company sells common shares in the initial public offering. In May 1999, the
Company authorized the issuance of approximately 435,000 options to purchase
common stock upon the closing of the initial public offering contemplated in
this Registration Statement at an exercise price equal to the price at which the
Company sells common shares in the initial public offering.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Company's board of directors and stockholders approved
the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"). The Company
has reserved 250,000 shares of common stock for issuance under the 1999 Purchase
Plan.
F-20
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
10. COMMON STOCK WARRANTS
The following table summarizes the activity related to warrants at December
31, 1996, 1997 and 1998, and March 31, 1999 and changes during the periods then
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
MARCH 31,
1996 1997 1998 1999
-------------------------- ------------------------ ------------------------ ---------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES
----------- ------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 22,500 $ 1.80 50,000 $ 1.93 435,714 $ 5.28 788,714
Granted................................ 27,500 2.04 385,714 5.72 553,000 6.46 --
Cancelled.............................. -- -- -- -- (200,000) 7.00 --
----------- --------- --------- ---------
----------- --------- --------- ---------
Outstanding at end of period........... 50,000 $ 1.93 435,714 $ 5.28 788,714 $ 5.67 788,714
----------- --------- --------- ---------
----------- --------- --------- ---------
Warrants exercisable at end of
period............................... 22,500 $ 1.80 193,929 $ 3.84 681,571 $ 5.46 681,571
----------- --------- --------- ---------
----------- --------- --------- ---------
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-------------
<S> <C>
Outstanding at beginning of period....... $ 5.67
Granted................................ --
Cancelled.............................. --
Outstanding at end of period........... $ 5.67
Warrants exercisable at end of
period............................... $ 5.46
</TABLE>
The weighted average fair value of warrants granted in 1996 were based upon
an estimated value of $2.04. The weighted average fair value of warrants granted
during 1997 and 1998 estimated on the date of grant using the Black-Scholes
option pricing model was $2.74 and $1.82, respectively. The fair value was
estimated using an expected volatility of 50% in 1997 and 80% in 1998, risk free
rates of 5.8% to 6.3% in 1997 and 4.1% to 5.5% in 1998 and the contractual term
of the warrant.
The following table summarizes information about warrants outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
TOTAL AVERAGE
NUMBER REMAINING NUMBER OF
OF WARRANTS CONTRACTUAL WARRANTS
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE
- ---------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
$1.80..................................................... 22,500 2.0 22,500
2.04..................................................... 127,500 4.7 127,500
4.00..................................................... 100,000 5.0 100,000
7.00..................................................... 538,714 4.1 431,572
------------- ----------- -----------
788,714 4.2 years 681,572
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
During 1996, the Company issued warrants for the purchase of a total of
27,500 shares of common stock at an exercise price of $2.04 per share with an
expiration date of 2001 in exchange for services provided to the Company. The
Company recorded the fair value of these warrants as consulting expense.
During 1997, the Company issued warrants for the purchase of a total of
385,714 shares of its common stock at exercise prices ranging from $2.04 - $7.00
per share and expiration dates from 2001 through 2007. These warrants were
principally issued in lieu of cash consideration for services provided to the
Company. Certain of these warrants were issued with immediate vesting while some
of the warrants had vesting that was contingent on additional services being
provided. In 1997, in connection with the issuance of these warrants, the
Company recorded $330,000 of technology systems and development costs, $281,000
of capitalized software and $77,000 of deferred financing costs based upon
F-21
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
10. COMMON STOCK WARRANTS (CONTINUED)
the appraised value of the warrants at the date of grant. As of December 31,
1997, approximately 214,500 of these warrants were subject to vesting upon
certain conditions and are subject to adjustment until the measurement date is
reached. In 1998, the remeasurement of these warrants resulted in the Company
reducing capitalized software recorded in 1997 by approximately $67,000. As of
December 31, 1998 and March 31, 1999, 107,143 warrants granted in 1997 were
subject to vesting upon certain future events and no significant value has been
ascribed to these unvested warrants.
During 1998, the Company issued warrants for the purchase of a total of
553,000 shares of its common stock at exercise prices ranging from $4.00 - $7.00
per shares as described below.
Warrants for the purchase of 425,000 common shares were issued in connection
with the Discount Notes at an exercise price of $7.00 per share. These warrants
expire upon the earlier of April 15, 2005 or five years after a public offering
by the Company raising at least $25,000,000. In connection with the repayment of
the Discount Notes, the Company modified the terms of the warrants issued in
association with this debt such that the remaining unvested warrants to purchase
200,000 shares of the common stock expired immediately in exchange for the
issuance 5,000 shares of common stock for $100. (See Note 5).
In addition, the Company issued warrants for the purchase of a total of
100,000 shares of its common stock at an exercise price of $4.00 per share with
an expiration date in 2003 in exchange for services provided to the Company.
(See Note 6.)
The Company issued warrants for the purchase of 28,000 shares of common
stock at an exercise price of $7.00 per share which are all vested as of
December 31, 1998. These warrants expire in 2001. These warrants were
principally issued in lieu of cash consideration for services provided to the
Company. The Company recorded approximately $33,000 to capitalized software for
the fair value of the warrants.
F-22
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
11. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company leases its facilities and certain equipment under noncancellable
leases. Future minimum lease obligations at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- -------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
1999................................................................ $ 924,000 $ 294,000
2000................................................................ 799,000 221,000
2001................................................................ 483,000 115,000
2002................................................................ 495,000 80,000
2003................................................................ 508,000 12,000
Thereafter.......................................................... 2,068,000 --
------------ ----------
Total future payments............................................... $ 5,277,000 722,000
------------ ----------
------------ ----------
Less: amount representing interest.................................. 105,000
----------
Present value of capital leases..................................... $ 617,000
----------
----------
</TABLE>
All capital lease obligations are fully collateralized by the equipment and
are at interest rates ranging from 7% to 18%.
Total rent expense for the years ended December 31, 1996, 1997 and 1998 and
the quarters ended March 31, 1998 and 1999 was approximately $299,000, $639,000
and $948,000 and $178,000 and $267,000, respectively.
12. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ------------- -------------
Deferred provision
Federal.......................................... $ (628,000) $ (2,827,000) $ (3,867,000)
State............................................ (116,000) (521,000) (713,000)
Change in valuation allowance.................... 744,000 3,348,000 4,396,000
Other............................................ -- -- 184,000
----------- ------------- -------------
Total provision................................ $ -- $ -- $ --
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets are
approximately $4,809,000 and $9,205,000 as of December 31, 1997 and 1998,
respectively, which are primarily related to net operating losses. Realization
of total deferred tax assets is contingent upon the generation of future taxable
income. Due to the uncertainty of
F-23
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
12. INCOME TAXES (CONTINUED)
realization of these tax benefits, the Company has provided a valuation
allowance for the full amount of its deferred tax assets.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $22,600,000 and state net operating losses
of approximately $22,400,000. The federal and state net operating loss
carryforwards begin to expire in 2008 and 1999, respectively.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss carryforwards which could be utilized annually
to offset future taxable income and income tax liability. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.
13. RETIREMENT SAVINGS PLAN
In 1997, the Company adopted the Streamline 401(k) Plan (the "Plan") for its
employees, which has been qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the Plan through payroll
deductions within statutory limitations and subject to any limitations included
in the Plan. To date, the Company has made no contributions to the Plan.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,500,000 Shares
[LOGO]
-------------------
Prospectus
June 17, 1999
-------------------
Banc of America Securities LLC
PaineWebber Incorporated
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Until July 12, 1999, all dealers that buy, sell or trade our common stock
may be required to deliver a prospectus, regardless of whether they are
participating in this offering. This is in addition to the obligation of dealers
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
