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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
--- OF 1934. For the period ended July 1, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934. For the transition period from to
----- -----
Commission file number 000-26133
STREAMLINE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3187302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 DARTMOUTH STREET
WESTWOOD, MASSACHUSETTS 02090
(Address of principal executive offices)
(781) 407-1900
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports)
Yes X No
--- ---
(2) has been subject to such filing requirements for the past 90 days
Yes X No
--- ---
As of August 4, 2000, there were 22,407,429 shares outstanding of the
Company's common stock, $0.01 per value per share.
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STREAMLINE.COM, INC.
INDEX
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ITEM PAGE
NUMBER NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of January 1, 2000 and July 1, 2000................. 3
Consolidated Statements of Operations for the three and six months ended
June 30, 1999 and July 1, 2000..................................................... 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1999
and July 1, 2000................................................................... 6
Notes to the Unaudited Consolidated Financial Statements........................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................ 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.................................... 17
Item 6. Exhibits and Reports on Form 8-K....................................................... 18
SIGNATURE.............................................................................. 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
(unaudited)
<TABLE>
<CAPTION>
ASSETS JANUARY 1, 2000 JULY 1, 2000
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Current assets:
Cash, cash equivalents and marketable securities.................... $ 35,307 $ 4,817
Accounts receivable, net of allowance for doubtful accounts of $88
at January 1, 2000 and $43 at July 1, 2000....................... 455 752
Inventory........................................................... 1,179 1,444
Prepaid expenses and other current assets........................... 1,693 2,225
-------- --------
Total current assets................................. 38,634 9,238
Property and equipment, net......................................... 13,351 19,286
Purchased and capitalized software, net............................. 4,547 4,489
Goodwill, net of accumulated amortization........................... 818 684
Restricted cash..................................................... -- 2,142
Other assets, net................................................... 7,691 1,535
-------- --------
Total assets......................................... $65,041 $37,374
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations........................................... $1,139 $1,606
Accounts payable.................................................... 3,030 3,498
Notes payable....................................................... 7,432 --
Accrued expenses.................................................... 2,319 2,880
-------- --------
Total current liabilities............................ 13,920 7,984
Long-term portion of capital lease obligations......................... 5,701 6,286
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 authorized and none
outstanding at January 1, 2000 and July 1, 2000.................. -- --
Common stock, $0.01 par value;
Authorized: 50,000,000 at January 1, 2000 and July 1, 2000
Issued and outstanding: 22,143,252 issued and 22,109,252
outstanding at January 1, 2000, and 22,439,929 issued and
22,405,929 outstanding at July 1, 2000............................ 221 224
Additional paid-in capital........................................... 101,888 102,732
Treasury stock, at cost: 34,000 shares at January 1, 2000 and
July 1, 2000....................................................... (238) (238)
Accumulated other comprehensive loss................................ (8) (2)
Accumulated deficit................................................. (56,443) (79,612)
-------- --------
Total stockholders' equity........................... 45,420 23,104
-------- --------
Total liabilities and stockholders' equity........... $ 65,041 $ 37,374
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
3
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STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999 JULY 1, 2000
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Revenue:
Product and service revenue, net.................................... $ 4,807 $ 8,091
Subscription and delivery fees...................................... 176 408
Advertising, research and marketing fees............................ 277 360
---------- -----------
Total revenue.......................................................... 5,260 8,859
Operating expenses:
Cost of revenue..................................................... 3,633 5,990
Fulfillment center operations....................................... 2,444 5,714
Sales and marketing................................................. 1,510 3,535
Technology systems and development.................................. 1,158 2,031
General and administrative.......................................... 2,474 2,980
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Total operating expenses............................................... 11,219 20,250
---------- -----------
Loss from operations................................................ (5,959) (11,391)
Other income (expense):
Interest income..................................................... 139 223
Interest expense.................................................... (35) (280)
Other expense....................................................... (82) --
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Total other income (expense), net..................................... 22 (57)
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Net loss............................................................... $ (5,937) $ (11,448)
Dividends on preferred stock........................................... 263 --
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Net loss attributable to common stockholders........................... $ (6,200) $ (11,448)
Basic and diluted net loss per common share............................ $(0.66) $ (0.51)
Shares used in computing basic and diluted net loss per common share... 9,370,937 22,357,385
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
4
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STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 JULY 1, 2000
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Revenue:
Product and service revenue, net.................................... $ 9,059 $ 15,997
Subscription and delivery fees...................................... 316 684
Advertising, research and marketing fees............................ 510 639
---------- -----------
Total revenue.......................................................... 9,885 17,320
Operating expenses:
Cost of revenue..................................................... 6,846 11,899
Fulfillment center operations....................................... 4,435 10,434
Sales and marketing................................................. 2,315 6,937
Technology systems and development.................................. 2,193 3,610
General and administrative.......................................... 4,672 7,591
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Total operating expenses............................................... 20,461 40,471
---------- -----------
Loss from operations................................................ (10,576) (23,151)
Other income (expense):
Interest income..................................................... 344 615
Interest expense.................................................... (59) (595)
Loss on sale of assets.............................................. -- (39)
Other expense....................................................... (82) --
---------- -----------
Total other income (expense), net..................................... 203 (19)
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Net loss............................................................... $ (10,373) $ (23,170)
Dividends on preferred stock........................................... 549 --
---------- -----------
Net loss attributable to common stockholders........................... $ (10,922) $ (23,170)
Basic and diluted net loss per common share............................ $ (1.31) $ (1.04)
Shares used in computing basic and diluted net loss per common share... 8,362,502 22,302,555
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
5
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STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 JULY 1, 2000
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Cash flows from operating activities:
Net loss............................................................. $(10,373) $(23,170)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization..................................... 1,217 3,766
Amortization of goodwill and other assets......................... 210 134
Loss on sale of equipment......................................... -- 39
Issuance of options for the purchase of common stock in exchange
for services................................................... 387 --
Changes in assets and liabilities
Accounts receivable, net.......................................... (379) (298)
Inventory......................................................... (342) (265)
Prepaid expenses and other current assets......................... (461) (532)
Other assets...................................................... (118) (344)
Accounts payable.................................................. 1,688 469
Accrued expenses.................................................. 935 561
--------- ---------
Net cash used in operating activities.................................. (7,236) (19,640)
Cash flows from investing activities:
Purchase of marketable securities.................................... -- (5,310)
Proceeds from sale of marketable securities.......................... -- 23,071
Proceeds from sale and leaseback of property......................... -- 6,500
Purchase of assets held for resale (1,654) --
Purchases of property and equipment.................................. (2,413) (6,104)
Additions to purchased and capitalized software...................... (1,575) (1,635)
Increase in restricted cash.......................................... -- (2,142)
--------- ---------
Net cash (used in) provided by investing activities.................... (5,642) 14,380
Cash flows from financing activities:
Proceeds from the exercise of stock options.......................... 35 762
Proceeds from the sale of common stock through Employee Stock
Purchase Plan..................................................... -- 85
Proceeds from the sale of common stock............................... 40,545 --
Proceeds from notes payable.......................................... 1,500 --
Payments on notes payable............................................ -- (7,432)
Principal payments on capital lease obligations...................... (231) (891)
--------- ---------
Net cash provided by (used in) financing activities.................... 41,849 (7,476)
--------- ---------
Net increase (decrease) in cash and cash equivalents.................. $ 28,971 $(12,736)
Cash and cash equivalents beginning of period.......................... 19,834 14,561
--------- ---------
Cash and cash equivalents end of period................................ $ 48,805 $ 1,825
========= =========
Supplemental non-cash transactions:
Assets acquired with capital lease obligations....................... $ 675 $ 1,943
Dividends accrued on preferred stock................................. 549 --
Conversion of preferred stock to common.............................. 37,731 --
Issuance of warrants in connection with debt......................... 472 --
Issuance of warrants in connection with sale and leaseback of
property.......................................................... -- 190
Reduction in deferred financing costs related to recision of
warrants in connection with financing commitments................. (387) --
Unrealized loss on marketable securities............................. -- (2)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
6
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation. The unaudited interim financial statements
included herein have been prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain notes and other
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the interim financial statements presented in this quarterly report on Form
10-Q in accordance with such rules and regulations. In the opinion of the
Company's management, the accompanying financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to state
fairly the financial position of the Company as of July 1, 2000 and the results
of its operations and cash flows for the periods indicated. The results of
operations for the periods covered are not necessarily indicative of the results
to be expected for the full year.
The accompanying financials have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
These financial statements should be read in conjunction with the
audited financial statements and notes thereto of the Company for the year ended
January 1, 2000, which are included in the Company's annual report on Form 10-K,
filed with the Securities and Exchange Commission.
2. Reclassifications. Certain prior year balances have been
reclassified to conform with the current year presentation.
3. Current Financing Status. The Company has incurred cumulative losses
through July 1, 2000 of approximately $79.6 million and continues to have
recurring operating losses and negative cash flows from operating activities.
The Company expects to incur additional losses and will require additional
financing within the next several weeks in order to fund its existing operations
and to expand its service into new and existing markets.
As discussed in the Company's Form 10-K filed for the year ended,
January 1, 2000, the Company's plans for 2000 were based upon an aggressive
expansion strategy including the introduction of several new facilities and the
acquisition of a significant number of new customers by year end. In addition,
the 2000 plan included funding the operating losses of a Chicago fulfillment
center, which the Company acquired in connection its merger with Beacon Home
Direct, Inc., d/b/a Scotty's Home Market, on January 5, 2000. In order to
implement the 2000 plan, the Company required additional financing. As a result,
the Company engaged an investment banker to assist in securing additional
financing from a private funding or other strategic transaction, which the
Company had expected to receive by the end of the second fiscal quarter.
In the event the Company was unable to secure additional financing, an
alternative plan, also discussed in the Company's Form 10-K, was developed to
significantly reduce cash expenditures including delaying the capital
expenditure costs and pre-opening expenses for the planned new facilities. In
such circumstances the Company would significantly reduce marketing
expenditures, reduce corporate headcount costs including all incentive
compensation and reduce consulting and other miscellaneous spending.
Furthermore, most corporate capital projects would be postponed until additional
financing was obtained and the Company would pursue financing for certain asset
purchases which were not originally anticipated to be financed.
The Company continued with its expansion strategy including the opening
of the New Jersey facility, entering into the lease for the Minnesota facility
and continued use of external marketing resources. In addition, the Company's
cash expenditures through the first half of 2000 were higher than initially
anticipated due to lower than expected sales associated with lower customer
acquisition and the unexpected increase during the second quarter in the
collateral requirements associated with the financing of equipment purchases.
The increase in collateral requirements resulted in the Company's funding the
majority of these purchases with working capital. Late in the second quarter, in
reaction to the inability to secure additional financing and the increase in
cash spending associated with these items, the Company began to implement an
alternative plan including the delay of most external marketing activities, the
delay of opening certain facilities, deferral of corporate headcount increases,
deferral of discretionary capital technology and reduced consulting spending.
However, the timing of implementing these initiatives will not result in
sufficient cash flow savings to fund operations through this fiscal year.
7
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As a result, the Company believes that access to capital during the
next several weeks will be necessary to continue operations. Although the
Company is still actively pursuing financing alternatives, no definitive
arrangements exist at this time. The Company has limited options, beyond those
currently being implemented, to reduce cash expenditures. Therefore, if
additional financing is not received in the next several weeks, the Company will
be unable to continue operations.
The accompanying financials have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
4. Restricted Cash. The Company has invested approximately $2.1 million
in certificates of deposit pledged to collateralize letters of credit issued as
security for certain leasing transactions.
5. Acquisition of Beacon Home Direct d/b/a Scotty's Home Market
("Scotty's"). On January 5, 2000, the Company acquired Scotty's pursuant to the
Agreement and Plan of Merger and Reorganization, dated as of October 18, 1999.
The Company issued 3,710,456 shares of its common stock in exchange for all of
the common stock of Scotty's. In addition, outstanding options and warrants to
acquire Scotty's common stock were converted into options and warrants to
acquire a total of approximately 597,595 shares of the Company's common stock.
Approximately $1.3 million of merger related costs were expensed in the quarter
ended April 1, 2000. The transaction was accounted for as a pooling of
interests. Accordingly, the Company's consolidated financial statements have
been restated to include the accounts and operations of Scotty's for all periods
presented.
6. Sale and Leaseback Transaction. On January 5, 2000 the Company
entered into a sale and leaseback transaction for its Chicago distribution
facility. The gross selling price for this transaction was $6.5 million and,
concurrent with the sale, the Company leased the property back for an initial
term of 20 years. No gain or loss was recorded in connection with the
transaction.
7. Net Loss Per Share. Net loss per share is presented under Statement
of Financial Accounting Standards No. 128, "Earnings per Share."
The following is the calculation of the net loss per share:
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999 JULY 1, 2000
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<S> <C> <C>
Numerator:
Net loss $ (5,937) $ (11,448)
Dividends on preferred stock 263 --
---------- -----------
Net loss attributable to
common stockholders $ (6,200) $ (11,448)
========== ===========
Denominator:
Weighted average common shares outstanding 9,370,937 22,357,385
Basic and diluted net loss per common share $ (0.66) $ (0.51)
---------- -----------
</TABLE>
8
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 JULY 1, 2000
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<S> <C> <C>
Numerator:
Net loss $ (10,373) $ (23,170)
Dividends on preferred stock 549 --
---------- -----------
Net loss attributable to
common stockholders $ (10,922) $ (23,170)
========== ===========
Denominator:
Weighted average common shares outstanding 8,362,502 22,302,555
Basic and diluted net loss per common share $ (1.31) $ (1.04)
---------- -----------
</TABLE>
Outstanding options of 1,910,043 and 2,711,878 as of June 30, 1999 and
July 1, 2000, respectively, were not included in the diluted loss per share
computation because their effect would be anti-dilutive. Outstanding warrants of
1,043,861 and 1,044,717 as of June 30, 1999 and July 1, 2000, respectively, were
not included in the diluted loss per share calculation because their effect
would be anti-dilutive.
8. Recently Issued Accounting Pronouncements. In March 2000, the
Financial Accounting Standards Board released FASB Interpretation No. 44 ("FIN
No. 44"), "Accounting for Certain Transactions involving Stock Compensation - an
interpretation of Accounting Principles Board Opinion No. 25." FIN 44 provides
guidance for certain issues that arise in applying Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company does not
expect that the adoption of FIN 44 will have a significant impact on the
Company's results of operations or financial position.
9. Subsequent Events. On July 3, 2000, the Company entered into a sale
and leaseback transaction for equipment located in its New Jersey distribution
facility. The gross selling price for the equipment was $1.6 million and,
concurrent with the sale, the Company leased the equipment back for a term of
three years. No gain or loss was recorded in connection with the transaction.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY
REPORT ON FORM 10-Q MAY CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, BUT NOT LIMITED TO, (I) STATEMENTS ABOUT THE
ADEQUACY OF THE COMPANY'S CASH, CASH EQUIVALENTS, OTHER CAPITAL RESOURCES,
INTEREST INCOME AND FUTURE REVENUES AND (II) CERTAIN STATEMENTS IDENTIFIED OR
QUALIFIED BY WORDS SUCH AS "LIKELY," "WILL," "SUGGESTS," "MAY," "WOULD,"
"COULD," "SHOULD," "EXPECTS," "ANTICIPATES," "ESTIMATES," "PLANS," "PROJECTS,"
"BELIEVES," OR SIMILAR EXPRESSIONS (AND VARIANTS OF SUCH WORDS OR EXPRESSIONS).
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN REPRESENT THE COMPANY'S JUDGMENT
AS OF THE DATE OF THIS QUARTERLY REPORT ON FORM 10-Q, AND THE COMPANY CAUTIONS
READERS NOT TO PLACE UNDUE RELIANCE ON SUCH STATEMENTS. INVESTORS ARE CAUTIONED
THAT FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN. ACTUAL PERFORMANCE AND
RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE PROJECTED OR SUGGESTED IN
THE FORWARD-LOOKING STATEMENTS DUE TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING:
- RISKS THAT WE MAY HAVE DIFFICULTY RAISING THE ADDITIONAL
CAPITAL WE NEED TO FUND OUR CONTINUING OPERATIONS
- RISKS RELATING TO STREAMLINE'S LIMITED OPERATING HISTORY AND
HISTORY OF LOSSES
- RISKS PERTAINING TO OUR ABILITY TO EXECUTE OUR EXPANSION
STRATEGY
- RISKS ASSOCIATED WITH OUR RELIANCE ON THE GROWTH OF E-COMMERCE
AND THE INFRASTRUCTURE OF THE INTERNET
- RISKS OF INCREASED COMPETITION
- RISKS RELATING TO OUR DEPENDENCE ON CUSTOMER ACCEPTANCE OF
DIRECT, UNATTENDED DELIVERY OF GOODS AND SERVICES
OVERVIEW
Streamline.com, Inc. ("Streamline" or the "Company") simplifies the
lives of busy suburban families by providing Internet-based ordering and home
delivery of a wide range of consumer goods and services such as groceries,
household goods, health and beauty care items, dry cleaning, video rentals and
film processing. Our typical customer tends to be a dual income household with
at least one child and access to the Internet. We also provide consumer packaged
goods companies insight into consumer Internet purchasing behavior to help
facilitate the development of their Internet merchandising capabilities and to
broaden other research and marketing programs.
Streamline has grown rapidly, with revenue increasing to $22.5 million
in 1999 from $6.5 million in 1997. During this same period, our net loss
increased to $26.5 million in 1999 from $10.3 million in 1997. 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 July 1, 2000, we had significant federal and state
net operating loss carry forwards. These net operating losses are available to
offset future income tax obligations unless federal or state tax law
restrictions, such as those related to an ownership change as defined in the
Internal Revenue Code, limit us from doing so.
10
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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 continued to expand our product and service offerings and
launched our Consumer Learning Center, which provides research and merchandising
opportunities to consumer packaged goods companies. In addition, we acquired
substantially all of the assets of Shopping Alternatives, Inc., a consumer
direct company based in the Washington, DC area.
In June 1999, the Company completed an initial public offering of its
stock (NASDAQ: SLNE) raising approximately $45 million to fund its expansion
plans and in October 1999, entered into a definitive agreement to acquire Beacon
Home Direct, Inc. d/b/a Scotty's Home Market, a grocery home delivery company
located in the Chicago, Illinois area. The Scotty's acquisition was completed in
January 2000. In addition, in October 1999, the Company signed a lease for a
102,000 square foot distribution facility in Carlstadt, New Jersey, and began
operations in the northern New Jersey marketplace in May 2000.
In April 2000, the Company announced the signing of a lease for a
108,000 square foot facility in Shakopee, Minnesota, in order to facilitate
entry into the Minneapolis market in late 2000. This will be the fifth major
market in its plan to serve customers in the top 20 US metropolitan markets by
year-end 2004. In addition, the Company has also recently signed a lease for a
147,000 square foot building in Norwood, Massachusetts which will replace its
existing facility in Westwood, Massachusetts. This facility will include
approximately 47,000 square feet of space for the Company's corporate offices
and a 100,000 square foot distribution facility adequate to meet its growing
needs in the Boston marketplace for the foreseeable future.
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. 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 that elect scheduled delivery service also
pay us a monthly subscription fee of $30. 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
THREE MONTHS ENDED JULY 1, 2000 AND JUNE 30, 1999
TOTAL REVENUE. Total revenue increased to $8.9 million in the three
months ended July 1, 2000 from $5.3 million in the comparable period ended June
30, 1999, an increase of 68.4%. This increase was primarily due to the
continuing expansion of our customer base and the opening of operations in the
Washington, DC area.
PRODUCT AND SERVICE REVENUE, NET. Product and service revenue, net is
comprised of the retail prices our customers pay us for the products and
services we sell to them, net of returns. Sale of products and services, net of
returns increased to $8.1 million in the three months ended July 1, 2000 from
$4.8 million in the comparable period ended June 30, 1999, an increase of 68.3%.
The increase in revenue was the result of an increase in our customer base to
approximately 11,500 at July 1, 2000 from approximately 6,700 at June 30, 1999
and an increase in the number of invoices for product and service revenue to
approximately 74,000 in the three months ended July 1, 2000 from 45,000 in the
comparable period ended June 30, 1999. Average
11
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product and service revenue per invoice increased to approximately $110 in the
three months ended July 1, 2000 from approximately $108 in the three month
period ended June 30, 1999. Product and service revenue, net as a percentage of
total revenue decreased slightly to 91.3% in the three months ended July 1, 2000
from 91.4% in the comparable period ended June 30, 1999.
SUBSCRIPTION FEES. Scheduled delivery customers pay monthly
subscription fees in addition to the amounts paid for the products and services
we deliver to their homes. Revenue from these fees increased to $408,000 in the
three months ended July 1, 2000 from $176,000 in the comparable period ended
June 30, 1999, an increase of 131.9%, due to our expanded customer base.
Subscription fees as a percentage of total revenue increased to 4.6% in the
three months ended July 1, 2000 from 3.3% in the comparable period ended June
30, 1999.
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 $360,000 in the three months ended July 1, 2000 from $277,000 in
the comparable period ended June 30, 1999, an increase of 29.6%.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $20.3
million, or 228.6% of total revenues, in the three months ended July 1, 2000
from $11.2 million, or 213.3% of total revenues, in the comparable period ended
June 30, 1999, an increase of 80.5%. The increase in operating expenses is a
result of an increase in order volume and the opening of operations in the
Washington, DC and New Jersey markets.
COST OF REVENUE. The cost of revenue is comprised of wholesale costs of
products and services we sell to our customers and the costs associated with
generating advertising, research and marketing fees. The cost of revenue
increased to $6.0 million, or 67.6% of total revenues, in the three months ended
July 1, 2000 from $3.6 million, or 69.1% of total revenues in the comparable
period ended June 30, 1999, an increase of 64.9%. The increased cost of revenue
is attributable to the increase in revenue. The decrease in cost of revenue as a
percentage of total revenue is primarily attributable to improved inventory
management and product mix.
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 $5.7 million, or 64.5% of total
revenue, in the three months ended July 1, 2000 from $2.4 million, or 46.5% of
total revenue, in the comparable period ended June 30, 1999, an increase of
133.8%. The increase in fulfillment center expense was primarily attributable to
an increase in the number of orders processed. The increase in fulfillment
center expense as a percentage of total revenue was primarily attributable to
the opening of the Company's new facilities in Gaithersburg, Maryland and
Carlstadt, New Jersey. New facilities typically incur operating expenses at a
higher percentage of revenue than more mature facilities until sufficient order
volume is achieved to allow the facility to begin to leverage fixed costs such
as rent, depreciation and utility expense.
SALES AND MARKETING. Sales and marketing expenses include general
marketing expenses and the sale and marketing costs associated with acquiring
customers. Sales and marketing expenses increased to $3.5 million, or 39.9% of
total revenue, for the three months ended July 1, 2000 from $1.5 million, or
28.7% of total revenue, for the comparable period ended June 30, 1999, an
increase of 134.1%. This increase, as well as the higher percentage of total
revenue, was due to additional advertising and promotional activities undertaken
to acquire new customers.
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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 $2.0 million, or 22.9%
of total revenue, for the three months ended July 1, 2000 from $1.2 million, or
22.0% of total revenue, for the comparable period ended June 30, 1999, an
increase of 75.3%, due to the costs associated with maintaining, enhancing and
integrating our technology systems, along with the respective increased
depreciation expense and includes accelerated amortization expense on certain
software systems that will be replaced during the current fiscal year.
GENERAL AND ADMINISTRATIVE. General and administrative costs include
corporate salaries and wages, employee benefits, corporate facility costs and
depreciation, amortization and general and administrative expenses including
office equipment and supplies, telephone expenses, travel costs and legal, audit
and other consulting fees. These costs increased to $3.0 million, or 33.6% of
total revenues, for the three months ended July 1, 2000 from $2.5 million, or
47.0% of total revenues, for the comparable period ended June 30, 1999, an
increase of 20.5%, due to the addition of necessary infrastructure and corporate
staff to support the Company's continued growth. The decrease in general and
administrative costs as a percentage of total revenue reflects the leveraging of
these costs as revenues increase.
OTHER INCOME (EXPENSE), NET. Other income, net decreased to $(57,000)
in the three months ended July 1, 2000 from $22,000 in the comparable period
ended June 30, 1999, primarily due to increased interest expense from
capitalized equipment leases.
SIX MONTHS ENDED JULY 1, 2000 AND JUNE 30, 1999
TOTAL REVENUE. Total revenue increased to $17.3 million in the six
months ended July 1, 2000 from $9.9 million in the comparable period ended June
30, 1999, an increase of 75.2%. This increase was primarily due to the
continuing expansion of our customer base and the opening of operations in the
Washington, DC area.
PRODUCT AND SERVICE REVENUE, NET. Sale of products and services, net of
returns increased to $16.0 million in the six months ended July 1, 2000 from
$9.1 million in the comparable period ended June 30, 1999, an increase of 76.6%.
The increase in revenue was the result of an increase in our customer base to
approximately 11,500 at July 1, 2000 from approximately 6,700 at June 30, 1999
and an increase in the number of invoices for product and service revenue to
approximately 147,000 in the six months ended July 1, 2000 from 82,000 in the
comparable period ended June 30, 1999. Average product and service revenue per
invoice decreased slightly to approximately $109 in the six months ended July 1,
2000 from approximately $110 in the six month period ended June 30, 1999.
Product and service revenue, net as a percentage of total revenue increased to
92.4% in the six months ended July 1, 2000 from 91.6% in the comparable period
ended June 30, 1999.
SUBSCRIPTION FEES. Revenue from subscription fees increased to $684,000
in the six months ended July 1, 2000 from $316,000 in the comparable period
ended June 30, 1999, an increase of 116.6%, due to our expanded customer base.
Subscription fees as a percentage of total revenue increased to 4.0% in the six
months ended July 1, 2000 from 3.2% in the comparable period ended June 30,
1999.
ADVERTISING, RESEARCH AND MARKETING FEES. Advertising, research and
marketing fees increased to $639,000 in the six months ended July 1, 2000 from
$510,000 in the comparable period ended June 30, 1999, an increase of 25.2%.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $40.5
million, or 233.7% of total revenues, in the six months ended July 1, 2000 from
$20.5 million, or 207.0% of total revenues, in the comparable period ended June
30, 1999, an increase of 97.8%. The increase in operating expenses is a result
of an increase in order volume and the opening of operations in the Washington,
DC and New Jersey markets.
COST OF REVENUE. The cost of revenue increased to $11.9 million, or
68.7% of total revenues, in the six months ended July 1, 2000 from $6.8 million,
or 69.3% of total revenues in the comparable period ended June 30, 1999, an
increase of 73.8%. The increased cost of revenue is attributable to the increase
in revenue.
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FULFILLMENT CENTER OPERATIONS. Fulfillment center operations expense
increased to $10.4 million, or 60.2% of total revenue, in the six months ended
July 1, 2000 from $4.4 million, or 44.9% of total revenue, in the comparable
period ended June 30, 1999, an increase of 135.2%. The increase in fulfillment
center expense was primarily attributable to an increase in the number of orders
processed. The increase in fulfillment center expense as a percentage of total
revenue was primarily attributable to the opening of the Company's new
facilities in Gaithersburg, Maryland and Carlstadt, New Jersey. New facilities
typically incur operating expenses at a higher percentage of revenue than more
mature facilities until sufficient order volume is achieved to allow the
facility to begin to leverage fixed costs such as rent, depreciation and utility
expense.
SALES AND MARKETING. Sales and marketing expenses increased to $6.9
million, or 40.1% of total revenue, for the six months ended July 1, 2000 from
$2.3 million, or 23.4% of total revenue, for the comparable period ended June
30, 1999, an increase of 199.7%. This increase, as well as the higher percentage
of total revenue, was due to additional advertising and promotional activities
undertaken to acquire new customers.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Technology systems and development
costs increased to $3.6 million, or 20.8% of total revenue, for the six months
ended July 1, 2000 from $2.2 million, or 22.2% of total revenue, for the
comparable period ended June 30, 1999, an increase of 64.6%, due to the costs
associated with maintaining, enhancing and integrating our technology systems,
along with the respective increased depreciation and amortization expense, and
includes accelerated amortization expense on certain software systems that will
be replaced during the current fiscal year.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased
to $7.6 million, or 43.8% of total revenue, for the six months ended July 1,
2000 from $4.7 million, or 47.3% of total revenues, for the comparable period
ended June 30, 1999, an increase of 62.5%, due to the addition of necessary
infrastructure and corporate staff to support the Company's continued expansion
and the expenditure of approximately $1.3 million in merger costs associated
with the acquisition of Scotty's. The decrease in general and administrative
costs as a percentage of total revenue reflects the leveraging of these costs as
revenues increase.
OTHER INCOME (EXPENSE), NET. Other income, net decreased to $(19,000)
in the six months ended July 1, 2000 from $203,000 in the comparable period
ended June 30, 1999, primarily due to increased interest expense from
capitalized equipment leases.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $19.6 million in the six months ended
July 1, 2000 as compared to $7.2 million in the six months ended June 30, 1999,
primarily due to the increased net loss incurred in the period. Investing
activities provided cash of $14.4 million in the six month period ended July 1,
2000, net purchases and sales of marketable securities provided approximately
$17.8 million, proceeds from the sale and leaseback of the company's Chicago
distribution facility provided $6.5 million, and approximately $7.7 million was
used for the purchase of equipment and capitalized software. In addition, the
Company invested approximately $2.1 million in certificates of deposit pledged
as collateral for letters of credit issued to secure certain lease financing
arrangements. Investing activities in the six month period ended June 30, 1999
used cash of approximately $5.6 million for the purchase of equipment,
capitalized software, and assets held for resale.
Financing activities used approximately $7.5 million in the six months
ended July 1, 2000 and included the payment of approximately $7.4 million in
notes payable primarily related to the construction of the Chicago distribution
facility. In addition, the Company made approximately $891,000 in principal
payments for capitalized equipment leases and received proceeds of approximately
$762,000 from the exercise of stock options. In addition, the company received
proceeds of approximately $85,000 for issuance of stock through its Employee
Stock Purchase Plan. Financing activities in the six month period ended June 30,
1999, provided $41.8 million, primarily related to proceeds from the Company's
initial public offering.
The Company has incurred cumulative losses through July 1, 2000 of
approximately $79.6 million and continues to have recurring operating losses and
negative cash flows from operating activities. The
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Company expects to incur additional losses and will require additional financing
within the next several weeks in order to fund its existing operations and to
expand its service into new and existing markets.
The Company has incurred cumulative losses through July 1, 2000 of
approximately $79.6 million and continues to have recurring operating losses and
negative cash flows from operating activities. The Company expects to incur
additional losses and will require additional financing within the next several
weeks in order to fund its existing operations and to expand its service into
new and existing markets.
As discussed in the Company's Form 10-K filed for the year ended
January 1, 2000, the Company's plans for 2000 were based upon an aggressive
expansion strategy including the introduction of several new facilities and
the acquisition of a significant number of new customers by year end. In
addition, the 2000 plan included funding the operating losses of a Chicago
fulfillment center, which the Company acquired in connection with its merger
with Beacon Home Direct, Inc., d/b/a Scotty's Home Market, on January 5,
2000. In order to implement the 2000 plan, the Company required additional
financing. As a result, the Company engaged in February 2000 with an
investment banker to assist in securing additional financing from a private
funding or other strategic transaction, which the Company had expected to
receive by the end of the second fiscal quarter.
In the event the Company was unable to secure additional financing,
an alternative plan, also discussed in the Company's Form 10-K, was developed
to significantly reduce cash expenditures including delaying the capital
expenditure costs and pre-opening expenses for the planned new facilities. In
such circumstances, the Company would significantly reduce marketing
expenditures, reduce corporate headcount costs including all incentive
compensation and reduce consulting and other miscellaneous spending.
Furthermore, most corporate capital projects would be postponed until
additional financing was obtained and the Company would pursue financing for
certain asset purchases which were not originally anticipated to be financed.
The Company did not implement this alternative plan and continued
with its expansion strategy including the opening of the New Jersey facility,
entering into the lease for the Minnesota lease and continued use of external
marketing resources. In addition, the Company's cash expenditures through the
first half of 2000 were higher than initially anticipated due to lower than
expected sales associated with lower customer acquisition and the unexpected
increase during the second quarter in the collateral requirements associated
with the financing of equipment purchases. The increase in collateral
requirements resulted in the Company's funding the majority of these
purchases with working capital. Late in the second quarter, in reaction to
the inability to secure additional financing and the increase in cash
spending associated with these items, the Company began to implement an
alternative plan including the delay of most external marketing activities,
the delay of opening certain facilities, deferral of corporate headcount
increases, deferral of discretionary capital technology and reduced
consulting spending. However, the timing of implementing these initiatives
will not result in sufficient cash flow savings to fund operations through
this fiscal year.
As a result, the Company believes that access to capital during the
next several weeks will be necessary to continue operations. Although the
Company is still actively pursuing financing alternatives, no definitive
arrangements exist at this time. The Company has limited options, beyond
those currently being implemented, to reduce cash expenditures. Therefore, if
additional financing is not received in the next several weeks, the Company
will be unable to continue operations.
The accompanying financials have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, Streamline.com has not utilized derivative financial
instruments or derivative commodity instruments. Streamline.com invests its cash
in high quality (i.e., A1/P1), short-term commercial paper, corporate bonds,
money market funds and United States government securities, which are subject to
minimal credit, market and interest rate risk, and have no debt. Due to its
short-term duration, the fair value of the Company's cash and investment
portfolio at July 1, 2000 approximated carrying value. Therefore, Streamline.com
believes the market and interest rate risks associated with these financial
instruments are not material.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 17, 1999 in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (Reg. No. 333-76383) was declared
effective by the Securities and Exchange Commission, pursuant to which 4,500,000
shares of the Company's common stock were offered and sold at a price of $10.00
per share, generating gross offering proceeds of $45 million. The managing
underwriters were Banc of America Securities LLC, PaineWebber Incorporated and
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated. After deducting
approximately $3.15 million in underwriting discounts and $1.10 million in other
related expenses, the net proceeds to the Company were approximately $40.75
million.
On July 16, 1999 the underwriters of the initial public offering
exercised their over-allotment option to purchase an additional 498,482 shares
from the Company at a price of $10.00 per share, generating gross proceeds of
$4,984,820. The net proceeds to the Company, after deducting the underwriters'
discount, was approximately $4.6 million.
Through July 1, 2000, Streamline.com spent $44 million of the $45
million net proceeds received from the initial public offering for the following
uses and in the following amounts per use: $4.2 million for the construction of
plant, building and facilities; $1.3 million for merger-related costs; $3.6
million to pay off Scotty's notes payable; $2.0 million paid to Genco, a former
third party CRC operations partner; $4.9 million paid for advertising services
to Ogilvy; $2.5 million for fees and services related to the implementation of
the SAP enterprise system; $300,000 for general software maintenance; and $25.2
million for working capital. None of these amounts entailed direct or indirect
payments to directors, officers, or persons holding 10% or more of the Company's
outstanding common stock, other than payments for salaries and reimbursements to
officers and directors, and payments aggregating $498,000 to Elm Square
Technologies, Inc. for technology consulting services. Thomas Jones, a director
of the Company, is President of Elm Square Technologies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2000, at the 2000 Annual Meeting of Shareholders, the Company's
shareholders met to consider and vote upon the following two proposals:
1. To elect John P. Fitzsimons, Charles C. Conaway and Michael Stein as
Class I directors of the Company.
2. To consider and vote upon a proposal to ratify the selection by the Board
of Directors of PricewaterhouseCoopers LLP as independent auditors of the
Company for the fiscal year ended December 30, 2000.
Results with respect to the voting on each of the above proposals were as
follows:
Proposal 1: John P. Fitzsimons
For: 15,998,450 Withhold Authority: 10,818
Charles C. Conaway
For: 15,999,050 Withhold Authority: 10,218
Michael Stein
For: 15,993,050 Withhold Authority: 16,218
Proposal 2:
15,987,724 Votes For
18,929 Votes Against
2,615 Abstentions
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.38 Amended and Restated Employment Agreement dated May
25, 2000, by and between the Registrant and Timothy
A. DeMello.
10.39 Change in Control Agreement dated May 25, 2000, by
and between the Registrant and Edward Albertian.
(b) Reports on Form 8-K
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STREAMLINE.COM, INC.
August 15, 2000 By: /s/ Lawrence P. Anderson
-----------------------------
Lawrence P. Anderson,
Chief Accounting Officer
(Authorized Officer and Chief
Accounting Officer)
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