<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-27499
VITAMINSHOPPE.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-3659179
(State of incorporation) (I.R.S. Employer Identification No.)
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444 MADISON AVENUE, SUITE 802, NEW YORK, NY 10022
(Address and zip code of principal executive offices)
(212) 308-6730
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
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<S> <C>
Number of shares of Common Stock outstanding as of May 1, 2000: Class A common stock 7,277,574
Class B common stock 13,081,500
</TABLE>
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<TABLE>
<S> <C>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
ITEM 2: Changes in Securities and Use of Proceeds
ITEM 6: Exhibits and Reports on Form 8-K
Signatures
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ITEM 1. FINANCIAL STATEMENTS
VITAMINSHOPPE.COM, INC.
BALANCE SHEETS
(In thousands, except share and per share data)
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<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,019 $ 25,246
Accounts receivable 259 280
Inventory 35 31
Prepaid expenses and other current assets 4,663 5,233
--------- ---------
Total current assets 42,976 30,790
Property and equipment, net 6,184 8,591
--------- ---------
Total assets $ 49,160 $ 39,381
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 10,587 $ 7,434
Due to The Vitamin Shoppe 2,635 5,742
--------- ---------
Total current liabilities 13,222 13,176
Stockholders' Equity:
Series A convertible preferred stock, $.01 par value, 2,000,000 shares
authorized, no shares issued or
outstanding at December 31, 1999 and March 31, 2000 --- ---
Class A common stock, $.01 par value; 30,000,000 shares
authorized; 7,277,574 shares outstanding at
December 31, 1999 and March 31, 2000 73 73
Class B common stock, $.01 par value; 15,000,000 shares
authorized; 13,081,500 shares outstanding at
December 31, 1999 and March 31, 2000 131 131
Additional paid in capital 64,242 62,637
Deferred stock-based compensation (2,732) (773)
Deficit (25,776) (35,863)
--------- ---------
Total stockholders' equity 35,938 26,205
--------- ---------
Total liabilities and stockholders' equity $ 49,160 $ 39,381
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VITAMINSHOPPE.COM, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
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<CAPTION>
For the Three Months Ended March 31,
1999 2000
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 1,913 $ 9,333
Cost of goods sold 936 5,916
------------ ------------
Gross profit 977 3,417
Operating expenses:
Marketing and sales expenses 1,832 9,326
Technology development expenses 517 1,626
General and administrative expenses 416 3,176
------------ ------------
Total operating expenses 2,765 14,128
------------ ------------
Loss from operations (1,788) (10,711)
Interest expense (income), net 98 (634)
------------ ------------
Loss before income tax provision $ (1,886) $ (10,077)
Income tax provision --- 10
------------ ------------
Net loss $ (1,886) $ (10,087)
============ ============
Basic and diluted net loss per share $ (0.14) $ (0.50)
============ ============
Weighted average shares outstanding
used to compute basic and
diluted net loss per share 13,081,500 20,359,074
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VITAMINSHOPPE.COM, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
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<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 1999 March 31, 2000
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (1,886) $ (10,087)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 16 179
Amortization of deferred stock-based compensation --- 354
Deferred rent payable/other --- 185
Changes in operating assets and liabilities:
Accounts receivable 11 (21)
Inventory --- 4
Prepaid expenses and other current assets 30 (570)
Accounts payable and accrued liabilities 123 (231)
---------- ----------
Net cash used in operating activities (1,706) (10,187)
---------- ----------
Cash flows from investing activities:
Capital expenditures (60) (2,586)
---------- ----------
Net cash used in investing activities (60) (2,586)
---------- ----------
Cash flows from financing activities
Increase in Due to The Vitamin Shoppe 1,766 ---
---------- ----------
Net cash provided by financing activities $ 1,766 $ ---
---------- ----------
Net decrease in cash and cash equivalents --- (12,773)
Cash and cash equivalents-beginning of period --- 38,019
---------- ----------
Cash and cash equivalents-end of period $ --- $ 25,246
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ --- $ ---
========== ==========
Income Taxes $ --- $ 97
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VITAMINSHOPPE.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
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<CAPTION>
Series A
Convertible Class A Class B
Preferred Stock Common Stock Common Stock
--------------- ------------ ------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 - $ - 7,277,574 $ 73 13,081,500 $ 131
Amortization of deferred
stock-based compensation - - - - - -
Elimination of deferred
stock-based compensation - - - - - -
Net loss (1/1/00-3/31/00) - - - - - -
------- ------- ---------- ---------- ---------- ----------
Balance, March 31, 2000 - $ - 7,277,574 $ 73 13,081,500 $ 131
======= ======= ========== ========== ========== ==========
<CAPTION>
Additional Deferred
paid-in stock-based
capital compensation Deficit Total
------- ------------ ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ 64,242 $ (2,732) $ (25,776) $ 35,938
Amortization of deferred
stock-based compensation - 354 - 354
Elimination of deferred
stock-based compensation (1,605) 1,605 - -
Net loss (1/1/00-3/31/00) - - (10,087) (10,087)
---------- ---------- ---------- ----------
Balance, March 31, 2000 $ 62,637 $ (773) $ (35,863) $ 26,205
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Description of Business
VitaminShoppe.com, Inc. (the "Company" or "VitaminShoppe.com") is an online
provider of products and content related to vitamins, nutritional supplements
and minerals. Until July 1999, the Company was wholly owned by Vitamin Shoppe
Industries Inc. ("The Vitamin Shoppe"). The Company commenced operations
effective October 1, 1997 as a division of The Vitamin Shoppe and operated in
the development stage until April 1998, when it began sales through its Web
site. The Company was incorporated in Delaware in May 1999 and capitalized by
The Vitamin Shoppe in June 1999.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Statements
The accompanying condensed balance sheet as of December 31, 1999, which has been
derived from audited financial statements, and the accompanying unaudited
condensed financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations. Although the Company believes
that the disclosures made are adequate to ensure that the information presented
is not misleading, it is suggested that these condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission.
The preparation of condensed financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of any contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Management's estimates and assumptions are reflective of, among other
things, prevailing market conditions, expected market conditions based on
published economic forecasts, current operating strategies and the availability
of capital, which are all subject to change. Changes to the aforementioned or
other conditions could in turn cause changes to such estimates and assumptions,
and as a result actual results could differ from the original estimates. Results
of operations for the interim period are not necessarily indicative of the
results to be expected for the year.
In the opinion of the Company's management, the accompanying condensed financial
statements contain all adjustments, which were normal and recurring adjustments,
necessary to present fairly the Company's financial position as of March 31,
2000 and December 31, 1999 and its results of operations for the three month
periods ended March 31, 2000 and 1999, cash flows for the three month periods
ended March 31, 2000 and 1999 and changes in shareholders' equity for the three
month period ended March 31, 2000.
Basis of Presentation
For all periods prior to July 1, 1999, the financial statements have been
prepared as if the Company operated as a stand-alone entity since inception.
Thus, the financial information related to those periods may not necessarily
reflect the financial position, results of operations or cash flows of the
Company in the future or what the balance sheets, results of operations or cash
flows of the Company would have been if it had actually been a separate,
stand-alone entity.
For the periods prior to July 1, 1999, the financial statements include
allocations of expenses incurred by The Vitamin Shoppe in support of the
Company. These allocations took into consideration personnel, business volume
and other appropriate factors and generally included costs related to
fulfillment, marketing, administrative, general management and other services
provided to the Company by The Vitamin Shoppe. Such allocated charges were $1.46
million for the three months ended March 31, 1999. Allocations of expenses were
estimates based on The Vitamin Shoppe management's best assessment of actual
expenses incurred on behalf of
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the Company. It is management's opinion that the expenses charged to the Company
were reasonable. In addition to these allocations, The Vitamin Shoppe supplied
the Company with inventory on an exclusive basis at a charge of 100 percent of
cost.
Effective July 1, 1999 the Company and The Vitamin Shoppe entered into several
intercompany agreements which replaced the expense allocations covering
inventory supply, fulfillment, marketing and administration that were in effect
prior to July 1, 1999 and which cover additional rights and obligations
regarding trademark licenses, co-marketing and databases. Under the intercompany
agreements for inventory supply and fulfillment, The Vitamin Shoppe supplies
inventory to the Company at a cost equal to 105 percent of The Vitamin Shoppe's
product cost and fulfills customer orders at a cost equal to 105 percent of The
Vitamin Shoppe's actual average unit cost per package, plus actual shipping
costs not paid directly by the Company. Both of these services were provided at
100 percent of cost under the allocation approach used prior to July 1, 1999.
The rights and obligations which were added when the intercompany agreements
became effective July 1, 1999 include trademark licenses and co-marketing. The
trademark license agreement provides the Company with the exclusive right to use
The Vitamin Shoppe's trademarks in connection with its marketing and sale of
products and services in online commerce. Under this agreement, the Company pays
The Vitamin Shoppe an annual royalty fee equal to $1 million plus a percentage
(which ranges from 5 percent to 1 percent depending upon volume) of the
Company's net sales of The Vitamin Shoppe brand products, and other products
identified by or branded with The Vitamin Shoppe's trademarks. Under the
co-marketing agreements, The Vitamin Shoppe and the Company provide certain
advertising and promotional references to each other in their respective
catalogue, retail store and web businesses for mutually agreed upon fees.
For the three months ended March 31, 2000, charges for services provided to the
Company by The Vitamin Shoppe were in accordance with the intercompany
agreements and totaled $1.5 million, as shown in the chart below. Accounts
payable and accrued expenses on the accompanying balance sheets at December 31,
1999 and March 31, 2000 include amounts due to The Vitamin Shoppe related to
these services in the amount of $1.1 million and $.9 million, respectively.
<TABLE>
<CAPTION>
Three months ended
March 31, 2000
(in thousands)
--------------------
<S> <C>
Trademark license $ 429
Co-marketing 350
Administrative 165
Supply and fulfillment 372
Merchandising 140
--------
Total Expense $ 1,456
========
</TABLE>
All merchandise purchases are made from The Vitamin Shoppe. Such purchases
aggregated $.9 million and $6.3 million for the three months ended March 31,
1999 and 2000, respectively. Accounts payable and accrued expenses on the
accompanying balance sheet at December 31, 1999 and March 31, 2000 include
amounts due to The Vitamin Shoppe related to these merchandise purchases in the
amount of $1.5 million and $3.6 million, respectively.
By implementing the intercompany agreements, new charges were created that were
not provided for in the historical financial statements prior to July 1, 1999.
On a pro forma basis, had the trademark license and the supply and fulfillment
agreements been in place for all periods presented, the net loss would have been
$2.26 million for the three months ended March 31, 1999. Since July 1, 1999, the
charges related to these intercompany agreements are included in the results of
operations.
8
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Computation of Basic and Diluted Net Loss Per Share
Net loss per share has been calculated under SFAS No. 128, Earnings per Share.
SFAS No. 128 requires companies to compute earnings per share under two
different methods (basic and diluted). Basic net loss per share is calculated by
dividing the net loss by the weighted average shares of common stock outstanding
during the period. Shares used for this computation consist of 13,081,500 shares
of Class B common stock issued in connection with the Company's initial
capitalization in June 1999 as if all shares were outstanding for all periods
presented. For the three months ended March 31, 2000, diluted net loss per share
is equal to basic net loss per share since potential common shares from the
exercise of the stock options and warrants are antidilutive.
3. Income Taxes
The Company's operating results through June 30, 1999 were included in the
consolidated income tax returns of The Vitamin Shoppe. Through June 30, 1999,
The Vitamin Shoppe did not allocate to the Company its share of income tax
liabilities or benefits attributable to the Company's proportionate share of
operating results. Since July 1, 1999, the Company is no longer included in the
consolidated income tax return of The Vitamin Shoppe and, therefore, the
Company's income tax provisions have been calculated on a separate return basis.
Since the capitalization of the Company on July 1, 1999, when the Company ceased
to be part of The Vitamin Shoppe's consolidated group, losses generated are
available to offset any future taxable income for 20 years. Deferred tax assets
normally recorded to reflect the future benefit may or may not be shown as
realizable, depending on the Company's ability to demonstrate the likelihood of
future profitability.
As of March 31, 2000, the Company has a net operating loss carry forward that,
if utilized, provides a future tax benefit of approximately $14.3 million at an
effective tax rate of 40 percent. Due to the uncertainty of the realization of
this net operating loss carry forward in the future, the Company has provided a
valuation allowance to offset this deferred tax asset.
Included in the statement of operations for the three months ended March 31,
2000 is an income tax provision of $10,000 for state and local taxes.
4. Significant Transactions
In January 2000, the president and CEO and the chief marketing officer resigned
their positions with the Company. In connection with these resignations, the
Company recorded approximately $855 of severance expense during the three months
ended March 31, 2000 representing approximately $620 of cash compensation in
accordance with their employment agreements, and approximately $235 of non-cash
compensation due to the accelerated vesting of stock options. Additionally, with
respect to forfeited stock options the Company eliminated approximately $1.6
million of unamortized deferred stock based compensation that was previously
recorded as additional paid in capital.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
As used in this document, "we," "our," "us" and the "Company" means
VitaminShoppe.com, Inc.
Except for the historical information contained in this report, some statements
made herein are "Forward-Looking Statements" within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. These Forward-Looking
Statements reflect our expectations regarding our future growth, results of
operations, performance and business prospects and opportunities. Words such as
"anticipates," "believes," "plans," "expects," "estimates," and similar
expressions have been used to identify these Forward-Looking Statements, but are
not the exclusive means of identifying these statements. These statements
reflect our current beliefs and are based on information currently available to
us. Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause our actual growth, results,
performance and business prospects and liquidity to differ from those expressed
in, or implied by, these Forward-Looking Statements. These risks, uncertainties
and other factors are described in our Registration Statement on Form S-1, as
amended (File No. 333-83849), under the caption "Risk Factors". We are not
obligated to update or revise these Forward-Looking Statements to reflect new
events or circumstances.
OVERVIEW
We began development of our online operations in October 1997 and launched our
Web site on April 7, 1998. For the period from our inception through the launch
of the Web site, our primary activities consisted of:
- developing the business model;
- developing strategic relationships;
- designing and developing our Web site;
- recruiting and training employees;
- negotiating advertising contracts with several major web portals;
and
- developing the VitaminShoppe.com brand.
Since the launch of the Web site, these operating activities have continued. We
have also focused on acquiring new customers, building sales momentum, promoting
the brand, enhancing the search and transactional features of our Web site,
expanding customer service operations, increasing the information content
available to our customers and building the infrastructure of the business.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the risks,
expenses and difficulties encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets such as
online commerce. In view of these factors, we believe that period-to-period
comparisons of our operating results should not be relied upon as an indication
of future performance.
We have incurred net losses of $44.0 million from inception through March 31,
2000. We believe that net losses will continue for the foreseeable future.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 ("FIRST QUARTER 2000") COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1999 ("FIRST QUARTER 1999")
Net Sales. Net sales consist of product sales net of allowances for product
returns. Revenues are recognized when the related product is shipped. The level
of our sales depends on many factors, including:
- the number of customers that we are able to attract;
- the frequency of customers' purchases;
- the quantity and mix of products that customers purchase;
- the price that we charge for our products; and
- the level of customer returns that we experience.
Net sales for the first quarter 2000 totaled $9.33 million, an increase of $7.42
million or 388 percent from net sales of $1.91 million during the first quarter
1999. Orders increased 118,000 or 437 percent to 145,000 in the first quarter
2000 from 27,000 in the first quarter 1999; more than 58,000 new customers were
added, nearly five times the 12,000 in first quarter 1999. We have made
enhancements to our Web site to improve navigation and the overall user
experience, and we have significantly increased advertising, marketing and
promotional expenditures in the first quarter 2000 as compared to the first
quarter 1999. We believe these factors have contributed to growth in our
customer base and continuation of a favorable repeat buying pattern.
Cost of Goods Sold. Cost of goods sold consists primarily of the costs of
products sold to customers. Vitamin Shoppe Industries Inc. ("The Vitamin
Shoppe") supplies inventory to us on an exclusive basis. Under our supply and
fulfillment agreement with The Vitamin Shoppe which began on July 1, 1999, we
pay The Vitamin Shoppe an amount equal to 105% of The Vitamin Shoppe's product
cost. Prior to that time, inventory was provided to us by The Vitamin Shoppe at
100% of its product cost. As a result, cost of goods sold as a percentage of
sales is higher in the first quarter 2000 than in the first quarter 1999.
In the future, we may expand or increase the discounts we offer to our customers
and may otherwise alter our pricing structures and policies. These changes would
negatively reduce our gross margins. In addition to pricing strategy, our gross
margins will fluctuate based on other factors, including:
- the cost of our products, including the extent of purchase volume
discounts that The Vitamin Shoppe is able to obtain from
suppliers;
- promotions or special offers that we offer to attract new
customers;
- the mix of The Vitamin Shoppe(R) brand products versus other
branded products that our customers purchase; and
- the mix of products within each brand category that our customers
purchase.
Cost of goods sold for the first quarter 2000 was $5.92 million or 63 percent of
net sales versus $.94 million or 49 percent of net sales for the first quarter
1999. The increase in cost of sales as a percent of net sales is mainly
attributable to the offering of promotional discount coupons to customers during
the first quarter 2000 and the implementation of our supply and fulfillment
agreement with The Vitamin Shoppe. In addition, we sold a somewhat lower
proportion of The Vitamin Shoppe(R) branded products versus other brands as a
percent of total sales in the first quarter 2000 as compared to the first
quarter 1999. The Vitamin Shoppe(R) brand products carry a higher gross margin
than other brands.
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Marketing and Sales Expenses. Marketing and sales expenses consist primarily of
advertising and promotional expenditures, merchandising, distribution expenses,
including order processing and fulfillment charges, net shipping costs,
equipment and supplies and payroll and related expenses for personnel engaged in
these activities. Some of these expenses represent charges for services provided
by The Vitamin Shoppe. Prior to July 1, 1999 these charges were in the form of
allocations based on The Vitamin Shoppe's best estimate of actual expenses. As
of July 1, 1999 various intercompany agreements were put in place to cover these
expenses. Under these agreements The Vitamin Shoppe will continue to provide
warehousing and fulfillment services for customer orders on an exclusive basis.
We pay The Vitamin Shoppe for fulfillment services an amount equal to 105
percent of The Vitamin Shoppe's actual average unit cost per package, multiplied
by the number of packages shipped to our customers, plus actual shipping costs
that we do not pay directly. While this amount is higher than the 100 percent
cost of these services to us under the historical allocation method, we believe
that the increase will not have a material effect on our results of operations
because our fulfillment costs have historically been less than 4 percent of our
net sales. Under the trademark license agreement with The Vitamin Shoppe which
provides us with the exclusive right to use The Vitamin Shoppe's trademarks,
including the logo and name, in connection with the marketing and sale of
products and services in online commerce, we pay an annual royalty fee equal to
$1 million plus an amount based on a percentage of net sales volume of The
Vitamin Shoppe(R) branded product. Prior to July 1, 1999, there was no royalty
fee charged by The Vitamin Shoppe.
Marketing and sales expenses increased by $7.49 million to $9.33 million or 100
percent of net sales for the first quarter 2000 from $1.83 million or 96 percent
of net sales for the first quarter 1999. The increase is largely attributable to
our multi-media marketing campaign and strategic relationships with web portals
and health-oriented channels. Subsequent to or during the first quarter 1999,
agreements with drkoop.com (March 1999), OnHealth (March 1999), Time Inc. (June
1999) and America Online (October 1999) were added. We expect marketing and
sales expenses to decrease as a percentage of sales for the remainder of 2000
compared to first quarter 2000.
Technology Development Expenses. Technology development expenses consist
primarily of consulting fees and payroll and related expenses for applications
development and information technology personnel, licensing and service
agreements, Web site hosting and communications charges and Web site content
development and design expenses. For the first quarter 2000 technology
development expenses increased by $1.11 million to $1.63 million from $.52
million for the first quarter 1999. As a percentage of first quarter net sales,
these expenses were 18 percent in 2000 and 27 percent in 1999. Expenses
increased in the areas of technology development personnel and use of
third-party service providers, consultants and contract labor. The increase in
expense and in our overall investment in technology reflects our commitment to
providing a superior web commerce experience to our customers. We believe that
our new Web site, its ongoing technology-based enhancements and the
infrastructure supporting the site will contribute significantly to customer
satisfaction and retention. Continued investment is therefore anticipated, to
provide improvements to the capabilities of the site and to expand the
infrastructure necessary to support it.
General and Administrative Expenses. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel, corporate facility expenses, severance, professional services
expenses, travel, deferred stock-based compensation and other general corporate
expenses. General and administrative expenses increased by $2.76 million to
$3.18 million or 34 percent of net sales for the first quarter 2000 from $.42
million or 22 percent of net sales for the first quarter 1999. This increase was
primarily due to severance, the addition of personnel, professional fees and
other expenses associated with building our infrastructure and the addition of
deferred stock-based compensation.
Interest expense (income), net. Interest expense (income), net consists of
interest charges allocated from The Vitamin Shoppe and interest income earned on
cash and cash equivalents. In the first quarter 1999, interest expense was
charged to us at the rate of 8.75 percent on the note due to The Vitamin Shoppe
and advances which
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totaled $98,000. Since the note due to The Vitamin Shoppe was repaid in November
1999, the Company had no interest expense in the first quarter 2000. Interest
income was earned since the sale of Series A convertible preferred stock on July
27, 1999 and our initial public offering on October 8, 1999 and amounted to
$634,000 in the first quarter 2000.
Amortization of stock-based compensation. Amortization of deferred stock-based
compensation expense, included in general and administrative expenses, was
$354,000 in the first quarter 2000 as compared to zero in the first quarter
1999. Due to the resignation of two officers during the first quarter 2000, we
eliminated approximately $1.6 million of unamortized deferred stock-based
compensation that was previously recorded as additional paid-in capital.
Intercompany agreements. In summary, the intercompany agreements cover rights
and obligations regarding trademark licenses, inventory supply and fulfillment,
promotional and co-marketing activities, databases and administrative services.
We incurred a total of $6.31 million of merchandise purchases and $1.46 million
of other expenses under the intercompany agreements with The Vitamin Shoppe
during the first quarter 2000. The intercompany agreements were not in place
during the first quarter 1999. During the first quarter 1999, allocations were
made by The Vitamin Shoppe for services provided to us. These allocations did
not include charges for the trademark license or co-marketing activities.
Further, inventory and fulfillment charges were allocated at the rate of 100% of
cost rather than the 105% as provided in the intercompany agreements. Had the
intercompany agreements been in place during the first quarter 1999, our net
loss would have been increased to $2.26 million.
Income taxes. Our operating results through June 30, 1999 were included in the
consolidated income tax returns of The Vitamin Shoppe, and accordingly, The
Vitamin Shoppe did not allocate to us its share of income tax liabilities or
benefits attributable to our proportionate share of operating results. Since
July 1, 1999, we are no longer included in the consolidated income tax return of
The Vitamin Shoppe and, therefore, our income tax provisions have been
calculated on a separate return basis.
Since our capitalization on July 1, 1999, when we ceased to be part of The
Vitamin Shoppe's consolidated group, losses generated are available to offset
any future taxable income for 20 years. Deferred tax assets normally recorded to
reflect the future benefit may or may not be shown as realizable, depending on
our ability to demonstrate the likelihood of future profitability.
As of March 31, 2000, we had a net operating loss carry forward that, if
utilized, provides a future tax benefit of approximately $14.3 million at an
effective tax rate of 40 percent. Due to the uncertainty of the realization of
this net operating loss carry forward in the future, we have provided a
valuation allowance to offset this deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our operations have not generated sufficient cash flow to
satisfy our current obligations. The Vitamin Shoppe funded these obligations
through June 1999. On June 30, 1999, we issued a promissory note to The Vitamin
Shoppe for approximately $5.8 million payable upon demand by The Vitamin Shoppe.
This amount represented funds advanced to us by The Vitamin Shoppe for operating
losses and working capital requirements through June 30, 1999 and was repaid in
full in October 1999.
On July 9, 1999, we issued promissory notes of $10 million in aggregate
principal amount due in June 2000. These notes were held by stockholders of The
Vitamin Shoppe or affiliates of these stockholders. Later in July 1999, these
notes were converted into Series A convertible preferred stock and approximately
$13.6 million of additional Series A convertible preferred stock was issued.
Together, these shares of Series A convertible preferred stock were converted
into an aggregate of 2,732,119 shares of Class A common stock.
13
<PAGE> 14
On October 8, 1999, we sold 4,545,455 shares of our Class A common stock in an
initial public offering at a price of $11.00 per share. The gross proceeds from
this offering were $50 million. The net proceeds were approximately $45 million
after deducting underwriting discounts and commissions of $3.5 million and other
offering expenses of $1.5 million.
During the first quarter 2000, net cash used in operating activities was $9.68
million, an increase of $7.97 million from first quarter 1999. Net cash used in
investing activities was $2.54 million during the first quarter 2000, an
increase of $2.48 million from first quarter 1999. We expect that cash flows
from operating activities will continue to be negative as we grow our
infrastructure and continue our efforts to grow and retain our customer base.
As of March 31, 2000, we had accounts payable and accrued liabilities of $7.42
million and amounts payable to The Vitamin Shoppe of $5.74 million due under the
intercompany agreements. At this date, our principal commitments going forward
consisted of obligations outstanding under online marketing agreements with web
portals and strategic partners aggregating $9.34 million through February 2001
and a sublease agreement for our office space aggregating $1.61 million through
November 2003.
As of March 31, 2000, we had approximately $25.2 million in cash and cash
equivalents. Based upon our current plans for fiscal 2000, we expect to have
sufficient cash available to meet our operating and capital expenditure needs
through December 31, 2000, but we cannot assure you that our expected growth or
expenditures will take place as planned. If we fail to meet our planned growth
or otherwise need additional working capital, we could reduce certain
expenditures or seek to raise cash. Our principal use of cash is to fund our
advertising and Internet sponsorship arrangements, to pay for our Web site
development costs and to fund our payroll and other operating costs. Our
contractual commitments for Internet sponsorship arrangements total
approximately $7.96 million in the remainder of 2000. If necessary, we could
reduce our discretionary advertising expenditures to mitigate the impact on our
available cash. Further, our technology development in 2000 will take place in
stages, the first of which is the launch of our new Web site. Other components
of our technology development can be delayed, if necessary. While such a
reduction in advertising spending or Web site development may negatively impact
sales, we believe that we can generate sufficient sales and cash flow at levels
which, although below our planned amount, would enable us to fund our operations
through December 31, 2000. We may seek to raise additional cash through other
sources, including the issuance of capital stock or debt. We cannot assure you
that such additional financing will be available to us when required on
favorable terms or at all.
YEAR 2000 COMPLIANCE
We have not experienced any disruptions in our operations associated with issues
related to the year 2000. We incurred no costs with respect to the year 2000
issue in the first quarter 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires recognition of all
derivatives on the balance sheet at fair value. We have determined that the
adoption of this new standard will not have a material effect on our financial
statements or disclosures for all periods presented.
14
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that inflation has not had a material impact on our results of
operations since inception for each of our first quarters ended March 31, 1999
and 2000. However, there can be no assurance that future inflation would not
have an adverse impact on our operating results and financial condition.
We are not subject to currency fluctuations since we do not have any
international operations. We have limited market risk exposure since we do not
have any outstanding variable rate debt or derivative financial and commodity
instruments as of May 1, 2000.
As of May 1, 2000, we have no outstanding long-term debt instruments.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On October 7, 1999, the Securities and Exchange Commission declared effective a
registration statement on Form S-1 (File No. 333-83849) with respect to our
Class A common stock. Pursuant to the registration statement, we offered and
sold 4,545,455 shares of Class A common stock at $11.00 per share to an
underwriting syndicate. The managing underwriters of this syndicate were Thomas
Weisel Partners LLC, William Blair & Company and PaineWebber Incorporated. The
offering terminated because all shares offered were sold.
The gross proceeds from the offering were $50.0 million. Total expenses that we
incurred in connection with the issuance and distribution of the Class A common
stock from the date that the offer commenced to March 31, 2000 were $5.0
million. No discounts, commissions or other offering expenses were paid to
directors, officers or general partners of VitaminShoppe.com, our associates or
persons owning 10% or more of any class of our equity securities. Payments to
underwriters, printers, accountants and legal counsel were made directly to
those parties. After deducting these expenses and the write-off of prepaid
offering costs, the net proceeds of the offering were approximately $45.0
million. Prior to the first quarter 2000 we used approximately $21.9 million of
such proceeds for various issues, including capital expenditures, advertising
and marketing and the repayment of a note due to The Vitamin Shoppe.
During first quarter 2000, we used $2.05 million of the net proceeds for
enhancements to our Web site and other capital expenditures, and $5.41 million
for advertising and marketing activities. Other than principal and accrued
interest paid to our principal stockholder, none of these payments were made to
directors, officers or general partners of VitaminShoppe.com or our associates
or to persons owning 10% or more of any class of our equity securities. The
remainder of the proceeds of the offering have been invested in short-term,
investment-grade, interest-bearing obligations and we expect that they will be
used for general corporate purposes, including working capital, capital
expenditures and advertising and marketing activities. A portion of the net
proceeds may also be used to acquire or invest in complementary businesses,
technologies, product lines or products. We have no current agreements or
commitments with respect to such an acquisition. The amounts actually expended
by us for such purposes may vary significantly and will depend upon a number of
factors, including our future revenue and cash generated by operations.
Accordingly, we retain broad discretion in the allocation of the net proceeds of
the offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit 10.1: Cross Promotional Agreement dated as of January 31,
2000 between the registrant and barnesandnoble.com, llc.*
Exhibit 27.1: Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K:
None.
- -----------------------
*Confidential treatment requested. Confidential portions of this document have
been redacted and filed separately with the Securities and Exchange Commission.
16
<PAGE> 17
SIGNATURES
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.
VITAMINSHOPPE.COM, INC.
(Registrant)
Date: May 12, 2000 /s/ Jeffrey J. Horowitz
--------------------------------
Jeffrey J. Horowitz, President and
Chief Executive Officer
/s/ Ann M. Sardini
--------------------------------
Ann M. Sardini, Chief Financial Officer,
Treasurer and Secretary
17
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
CROSS PROMOTIONAL AGREEMENT
CROSS PROMOTIONAL AGREEMENT, dated as of January 31, 2000 (this
"Agreement"), between VitaminShoppe.com, Inc., a Delaware corporation (the
"Company"), and barnesandnoble.com llc, a Delaware limited liability company
("bn.com").
W I T N E S S E T H:
WHEREAS, the Company has a web site currently located at the URL,
http://www.VitaminShoppe.com, on the World Wide Web (such web site, and any
successor web site thereto, the "Company Site"), and bn.com has a web site
located at the URL http://www.bn.com, on the World Wide Web (such web site, and
any successor web site thereto, the "bn.com Site") (the Company Site and the
bn.com Site, each individually a "Site"); and
WHEREAS, the parties hereto desire to engage in a strategic relationship
pursuant to which each party will promote the other party and the other party's
web site through both online and offline promotional efforts all on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Exclusivity.
a. During the Term (as hereinafter defined), the Company shall not
permit any bn.com Competitor (as hereinafter defined) to sell books or music
online in any area of the Company Site. In furtherance and not in limitation of
the foregoing, the Company shall not display anywhere on the Company Site links
to any web site of a bn.com Competitor. The Company further agrees that, during
the Term, it will not promote any bn.com Competitor in any emails or shipments
sent to Company Site customers (or prospective customers), or through any other
promotional medium described in Section 2 hereof.
b. During the Term, bn.com shall not permit any Company Competitor
(as hereinafter defined) to sell nutritional supplements online in any area of
the bn.com Site. In furtherance and not in limitation of the foregoing, bn.com
shall not display anywhere on the bn.com Site links to any web site of a Company
Competitor. bn.com further agrees that it will not promote any Company
Competitor in any emails or shipments sent to bn.com Site customers (or
prospective customers), or through any other promotional medium described in
Section 2 hereof.
i. "bn.com Competitor" shall mean those parties listed on
Exhibit A hereto.
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
ii. "Company Competitor" shall mean those parties listed on
Exhibit B hereto.
2. Delivery; Content.
a. On or before January 31, 2000, each party will deliver
to the other party, in such form as shall be mutually agreed upon by both
parties, information and materials that will permit the other party to commence
performance of such party's promotional obligations under Section 3 or Section 4
hereof, as the case may be, and on or before [*****], the parties concurrently
shall commence performance of such promotional obligations (the date on which
both parties commence performance of their promotional obligations is
hereinafter referred to as the "Launch Date").
b. The promotional materials (including a party's
trademark, tradename, logo, etc.) provided by a party hereunder shall be
referred to herein as such party's "Promotional Content."
3. Promotional Obligations of bn.com. Commencing on the Launch
Date, bn.com agrees to promote the Company and the Company Site as follows:
a. Links to the Company Site. bn.com will display a link
(consisting of the Company's logo) on the bn.com Site purchase confirmation
page, which link shall access a mutually agreed upon page on the Company Site.
Such logo will appear permanently on each bn.com Site confirmation page until
the earlier of: (i) the end of the Promotional Term (as hereinafter defined), or
(ii) the delivery by bn.com of a minimum of [*****] impressions of such logo. If
bn.com should deliver [*****] impressions of the logo prior to the end of the
Promotional Term, the parties agrees to use their best efforts to renegotiate in
good faith the terms under which bn.com would continue the delivery of
impressions of such logo for the remainder of the Term. The exact placement and
prominence of the Company logo shall be mutually determined by the parties
hereto. bn.com agrees that within the promotional space of each confirmation
page that includes the Company's logo, bn.com will promote no more than seven
(7) additional third party web sites therein, exclusive of any web sites that
are owned or operated by Barnes & Noble, Inc. or bn.com.
b. Email Promotions. In no less than [*****] outgoing
bn.com emails sent to bn.com Site users, a prominently placed promotional offer
of the Company (containing a link to the Company Site) will appear; the content
of such offer to be mutually agreed upon by the parties. The offer will receive
[*****] placement. In such emails, the Company shall be the [*****] party
promoted by bn.com; no mention or logo of any other party, with the exception of
bn.com, may appear in emails containing an offer by the Company. With respect to
the content of such emails, no less than [*****]% of the promotional space of
each email shall be used solely to promote the Company and the Company Site; the
remainder of such promotional space may be used by bn.com in any
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
manner it deems appropriate, provided that it is in compliance with the
preceding sentences of this clause (b). The selection of customers to whom such
emails shall be sent will be entirely within the discretion of bn.com.
c. Package Inserts. In no less than [*****] shipments sent
by bn.com to bn.com Site users who have purchased bn.com Site products, bn.com
will include promotional package inserts provided by the Company. The content of
such package inserts shall be mutually agreed upon by the parties hereto. bn.com
agrees that the number of promotional package inserts of parties other than the
Company (excluding package inserts promoting bn.com) shall be limited to a
maximum of [*****] per shipment.
d. Rotational Display of Special Offer. bn.com will rotate
displays of a promotional offer of the Company (the content of such offer to be
mutually agreed upon by the parties hereto) on the bn.com Site home page. Such
offer shall link to a mutually agreed upon page on the bn.com Site which
provides further details regarding such offer.
e. Co-Branded Pages/Back Button. bn.com shall, with the
assistance of the Company, activate on the bn.com Site one "back button" to the
Company Site, which shall be provided by the Company and will allow users of the
Company Site who connected to the bn.com Site through a link described in
Section 4 hereof ("Company Linked Users") to return to the Company Site. Such
"back button" will appear on substantially all of the pages of the bn.com Site
at the time such page is visited by the Company Linked User.
i. "bn.com Linked Users" shall mean users of the
bn.com Site who connect to the Company Site through a link described in this
Section 3.
f. Branding/Placement/Inclusion of Hyperlink. bn.com will
include (i) the Company's name (the placement of which shall be in [*****]), and
(ii) a brief message (the content of which shall be [*****]) in bn.com's
confirmation emails sent to Company Linked Users who have made purchases on the
bn.com Site. In addition, at the Company's option, bn.com will include within
such confirmation emails a Company-branded text link which will access the
Company Site.
4. Promotional Obligations of the Company. Commencing on the Launch
Date, the Company agrees to promote bn.com and the bn.com Site as follows:
a. Links to the Company Site. The Company will display a
link (consisting of bn.com's logo) on the Company Site purchase confirmation
page, which link shall access a mutually agreed upon page on the bn.com Site.
Such logo will appear permanently on each Company Site confirmation page until
the earlier of: (i) the end of the Promotional Term (as hereinafter defined), or
(ii) the delivery by the Company of a minimum of [*****] impressions of such
logo. If the Company should deliver [*****] impressions of the logo prior to the
end of the Promotional Term, the parties agrees to use
-3-
<PAGE> 4
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
their best efforts to renegotiate in good faith the terms under which the
Company would continue the delivery of impressions of such logo for the
remainder of the Term. The exact placement and prominence of the bn.com logo
shall be mutually determined by the parties hereto. The Company agrees that
within the promotional space of each confirmation page that includes bn.com's
logo, the Company will promote no more than [*****] additional third party web
sites therein, with the exclusion of any web sites that are owned or operated by
the Company or affiliates of the Company.
b. Email Promotions. In no less than [*****] outgoing
Company emails sent to Company Site users, a prominently placed promotional
offer of bn.com (containing a link to the bn.com Site) will appear; the content
of such offer to be mutually agreed upon by the parties. The offer will receive
[*****] placement. In such emails, bn.com shall be the [*****] party promoted by
the Company; no mention or logo of any other party, with the exception of the
Company, may appear in emails containing an offer by bn.com. With respect to the
content of such emails, no less than [*****]% of the promotional space of each
email shall be used solely to promote bn.com and the bn.com Site; the remainder
of such promotional space may be used by the Company in any manner it deems
appropriate, provided that it is in compliance with the preceding sentences of
this clause (b). The selection of customers to whom such emails shall be sent
will be entirely within the discretion of the Company.
c. Package Inserts. In no less than [*****] Company Site
shipments and no less than [*****] catalog shipments sent by the Company to its
customers who have purchased Company products, the Company will include
promotional package inserts provided by bn.com. The content of such package
inserts shall be mutually agreed upon by the parties hereto. The Company agrees
that the number of promotional package inserts of parties other than bn.com
(excluding package inserts promoting the Company) shall be limited to a maximum
of [*****] per shipment.
d. Display of Special Offer. The Company will display a
promotional offer of bn.com (the content of such offer to be mutually agreed
upon by the parties hereto) on the Company Site home page. Such offer shall link
to a mutually agreed upon page on the Company Site which provides further
details regarding such offer. The Company will deliver a minimum of [*****]
impressions of such offer on its home page.
e. Branding/Placement/Inclusion of Hyperlink. The Company
will include (i) bn.com's name (the placement of which shall be in the Company's
sole discretion), and (ii) a promotional offer (the content of which shall be
subject to the mutual approval of the parties) in no less than [*****] of the
Company's confirmation emails sent to Company Site users who purchase the
Company's products. In addition, at bn.com's option, the Company will include
within such confirmation emails a bn.com-branded text link which will access the
bn.com Site.
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<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
5. Site Responsibility. Each party will be solely responsible for
the development, operation and maintenance of its Site and, except to the extent
that such party is using Promotional Content provided by the other party, for
all materials that appear on its Site. Such responsibilities include, but are
not limited to: (a) ensuring the technical operation of its Site and all related
equipment; (b) except with respect to Promotional Content provided by the other
party, ensuring the accuracy and appropriateness of materials posted on its
Site; (c) except with respect to Promotional Content provided by the other
party, ensuring that materials posted on its Site do not violate any law, rule
or regulation, or infringe upon the rights of any third party (including, for
example, copyright, trademarks, privacy or other personal or proprietary
rights); and (d) except with respect to Promotional Content provided by the
other party, ensuring that materials posted on its Site are not libelous or
otherwise illegal. Each party disclaims all liability for all such matters with
respect to the other party's Site.
6. Licenses.
a. Subject to the terms and conditions of this Agreement,
including, but not limited to, the provisions of Section 11 hereof, bn.com
hereby grants to the Company a non-exclusive, non-transferable, limited license
to reproduce and display the bn.com trademarks, trade names and logos provided
by bn.com to the Company hereunder (the "bn.com Trademarks") and to use bn.com's
Promotional Content, all as contemplated in this Agreement; provided, however,
that the Company shall not make any specific use of any bn.com Trademarks or
bn.com's Promotional Content without first submitting a sample of such use to
bn.com and obtaining bn.com's prior consent, which consent shall not be
unreasonably withheld. Such license shall terminate upon the effective date of
the expiration or termination of this Agreement, and the Company shall
immediately remove all bn.com Trademarks and bn.com's Promotional Content from
the Company Site and any other Company materials.
b. Subject to the terms and conditions of this Agreement,
including, but not limited to, the provisions of Section 11 hereof, the Company
hereby grants to bn.com a non-exclusive, non-transferable, limited license to
reproduce and display the Company trademarks, trade names and logos provided by
the Company to bn.com hereunder (the "Company Trademarks") and to use the
Company's Promotional Content, all as contemplated in this Agreement; provided,
however, that bn.com shall not make any specific use of any Company Trademarks
or the Company's Promotional Content without first submitting a sample of such
use to the Company and obtaining the Company's prior consent, which consent
shall not be unreasonably withheld. Such license shall terminate upon the
effective date of the expiration or termination of this Agreement, and bn.com
shall immediately remove all Company Trademarks and the Company's Promotional
Content from the bn.com Site and any other bn.com materials.
7. Reporting Requirements.
a. Within ten (10) days after the end of each quarter
during the Term, each party will deliver to the other party a report setting
forth the number of impressions, promotional emails, and promotional package
inserts delivered by such party for such three month period. In addition, with
respect to links (displayed on a Site or via email) delivered by the reporting
party,
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CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
such party, if technically feasible, will report the number of "click throughs"
of the links as well as the number of recipients of the reporting party's emails
who actually opened the emails.
b. bn.com, to the extent technically feasible, will include
in the reports described in clause (a) above, the number of Company Linked Users
who place orders on the bn.com Site, broken down by new and returning customers.
c. The Company, to the extent technically feasible, will
include in the reports described in clause (a) above, the number of bn.com
Linked Users who place orders on the Company Site, broken down by new and
returning customers.
d. Each party is only obligated to deliver the same
categories of information that the other party is technically capable of
delivering. Both parties agree to use their best efforts to fulfill their
obligations under this Section.
8. Policies and Customer Information.
a. bn.com considers all users who visit the bn.com Site,
including, without limitation, Company Linked Users, to be customers of bn.com.
Accordingly, all of bn.com's rules, policies and operating procedures concerning
customer orders, customer service and sales will apply to those customers.
bn.com may change its policies and operating procedures at any time. The parties
hereto agree that bn.com shall have no obligation to share any customer
information collected by bn.com, including but not limited to the name, address,
e-mail address of the customer, or any titles ordered.
b. The Company considers all users who visit the Company
Site, including, without limitation, bn.com Linked Users, to be customers of the
Company. Accordingly, all of the Company's rules, policies and operating
procedures concerning customer orders, customer service and sales will apply to
those customers. The Company may change its policies and operating procedures at
any time. The parties hereto agree that the Company shall have no obligation to
share any customer information collected by the Company.
9. Representations and Warranties.
a. The Company hereby represents and warrants to bn.com as
follows:
i. This Agreement has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
ii. The Company is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to execute, deliver and perform this
Agreement.
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CONFIDENTIAL MATERIALS OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
iii. The execution, delivery and performance by the
Company of this Agreement and the consummation by it of the transactions
contemplated hereby will not, with or without the giving of notice, the lapse of
time or both, conflict with or violate (A) any provision of law, rule or
regulation to which the Company is subject, (B) any order, judgment or decree
applicable to the Company or binding upon its assets or properties, (C) any
provision of the by-laws or certificate of incorporation of the Company or (D)
any agreement or other instrument applicable to the Company or binding upon its
assets or properties.
iv. To the best of its knowledge, the Company is the
sole and exclusive owner of the Company Trademarks and the Company's Promotional
Content and/or has the right and power to license to bn.com the Company
Trademarks and the Company's Promotional Content in the manner contemplated
herein, and such license does not and will not (A) breach, conflict with or
constitute a default under any agreement or other instrument applicable to the
Company or binding upon its assets or properties, or (B) to the best of its
knowledge, infringe upon any trademark, trade name, service mark, copyright or
other proprietary right of any other person or entity.
v. To the best of its knowledge, no consent,
approval or authorization of, or exemption by, or filing with, any governmental
authority or any third party is required to be obtained or made by the Company
in connection with the execution, delivery and performance of this Agreement or
the taking by the Company of any other action contemplated hereby.
vi. There is no pending or, to the best knowledge of
the Company, threatened claim, action or proceeding against the Company, or any
affiliate thereof, with respect to the execution, delivery or consummation of
this Agreement and, to the best knowledge of the Company, there is no basis for
any such claim, action or proceeding.
b. bn.com hereby represents and warrants to the Company as
follows:
i. This Agreement has been duly and validly
executed and delivered by bn.com and constitutes the legal, valid and binding
obligation of bn.com, enforceable against bn.com in accordance with its terms.
ii. bn.com is duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has full power and
authority to execute, deliver and perform this Agreement.
iii. The execution, delivery and performance by
bn.com of this Agreement and the consummation by it of the transactions
contemplated hereby will not, with or without the giving of notice, the lapse of
time or both, conflict with or violate (A) any provision of law, rule or
regulation to which bn.com is subject, (B) any order, judgment or decree
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AND EXCHANGE COMMISSION. ASTERISKS
DENOTE OMISSIONS.
applicable to bn.com or binding upon its assets or properties, (C) any provision
of the organizational documents of bn.com or (D) any agreement or other
instrument applicable to bn.com or binding upon its assets or properties.
iv. To the best of its knowledge, bn.com is the sole
and exclusive owner of the bn.com Trademarks and bn.com's Promotional Content
and/or the right and power to license to the Company the bn.com Trademarks and
bn.com's Promotional Content in the manner contemplated herein, and such license
does not and will not (A) breach, conflict with or constitute a default under
any agreement or other instrument applicable to bn.com or binding upon its
assets or properties, or (B) to the best of its knowledge, infringe upon any
trademark, trade name, service mark, copyright or other proprietary right of any
other person or entity.
v. To the best of its knowledge, no consent,
approval or authorization of, or exemption by, or filing with, any governmental
authority or any third party is required to be obtained or made by bn.com in
connection with the execution, delivery and performance of this Agreement or the
taking by bn.com of any other action contemplated hereby.
vi. There is no pending or, to the best knowledge of
bn.com, threatened claim, action or proceeding against bn.com, or any affiliate
thereof, with respect to the execution, delivery or consummation of this
Agreement and, to the best knowledge of bn.com, there is no basis for any such
claim, action or proceeding.
10. Term; Termination.
a. The term of this Agreement shall commence on the date
hereof and shall continue for a period of [*****] months after the Launch Date,
unless earlier terminated as provided in clauses (b) or (c) below (the "Term");
provided, however, that the promotional obligations of the parties set forth in
Sections 3 and 4 hereof shall continue only for a period of [*****] months from
the Launch Date (the "Promotional Term"). At the end of the Promotional Term,
the parties shall use their best efforts to renegotiate in good faith each such
party's obligations under Section 3 or Section 4, as the case may be. The
parties' failure to renegotiate such provisions shall not, however, relieve the
parties of all of their other obligations hereunder for the remainder of the
Term.
b. Either party shall have the right to terminate this
Agreement by delivery of written notice of termination to the other party hereto
in the event such other party materially breaches any representation, warranty,
covenant or agreement made by it hereunder or otherwise fails to perform any of
its material obligations hereunder and such breach or failure is not cured
within ten (10) days after delivery of such notice; provided, however, that each
party shall be entitled to terminate this Agreement effective upon delivery of
notice (i) in the event of a breach by the other party of the provisions of
Sections 12 or 13 hereof or (ii) in the event that the other party becomes
insolvent in that its liabilities exceed its assets, or is adjudicated
insolvent, or
-8-
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takes advantage of or is subject to any insolvency proceeding, or makes an
assignment for the benefit of creditors or is subject to receivership,
conservatorship or liquidation.
c. If either party shall cease to exist, or if any law
prohibits online commerce such as that conducted by bn.com, this Agreement shall
automatically terminate.
d. Upon the effective date of termination or expiration of
this Agreement, (i) each party shall return to the other party any confidential
information of the other party, and shall immediately cease to use any of the
party's trademarks and Promotional Content, and (ii) the rights and obligations
of each party hereunder shall terminate; provided, however, that notwithstanding
the foregoing, the rights and obligations of the parties hereto under Section 5
and Sections 11 through 16 hereof shall survive such expiration and termination.
11. Trademarks. Each party hereby covenants and agrees that the
trademarks, trade names, service marks, copyrights and other proprietary rights
of the other party are and shall remain the sole and exclusive property of that
party and neither party shall hold itself out as having any ownership rights
with respect thereto or, except as specifically granted hereunder, any other
rights therein. In addition, except as expressly permitted hereunder, each party
hereby covenants and agrees that it will make no use of the trademarks, trade
names, service marks, copyrights and other proprietary rights of the other
party. Any and all goodwill associated with any such rights shall inure directly
and exclusively to the benefit of the owner thereof.
12. Confidentiality. Except as otherwise provided in this Agreement
or with the consent of the other party hereto, each of the Company and bn.com
agrees that all information including, without limitation, the terms of this
Agreement, business and financial information, customer and vendor lists and
pricing and sales information, concerning the Company or bn.com, or any of their
respective affiliates, provided by or on behalf of any of them shall remain
strictly confidential and secret and shall not be utilized, directly or
indirectly, by the party receiving such information for its own business
purposes or for any other purpose, except and solely to the extent that any such
information is generally known or available to the public through a source or
sources other than such party hereto or its affiliates. Notwithstanding the
foregoing, each party is hereby authorized to deliver a copy of any such
information (a) to any person pursuant to a subpoena issued by any court or
administrative agency, (b) to its accountants, attorneys or other agents on a
confidential basis and (c) otherwise as required by applicable law, rule,
regulation or legal process including, without limitation, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
13. Publicity. Subject to Section 12 hereof, neither party shall (i)
create, publish, distribute or permit any written material which makes reference
to the other party hereto without first submitting such material to the other
party and receiving the prior written consent of such party, which consent shall
not be unreasonably withheld or delayed, nor (ii) disclose to the public or any
third party the relationship between them or the transactions contemplated by
this
-9-
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Agreement without receiving the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed. The Company is prohibited
from issuing a press release describing the relationship or the terms of this
Agreement without bn.com's prior approval.
14. Indemnification. Each party (the "Indemnifying Party") hereby
agrees to indemnify and hold harmless the other party (the "Indemnified Party")
and its subsidiaries and affiliates, and their respective directors, officers,
employees, agents, shareholders, partners, members and other owners, against any
and all claims, actions, demands, liabilities, losses, damages, judgments,
settlements, costs and expenses (including reasonable attorneys' fees) (any or
all of the foregoing hereinafter referred to as "Losses") insofar as such Losses
(or actions in respect thereof) arise out of or are based on (i) any
representation or warranty made by the Indemnifying Party being untrue, (ii) any
breach by the Indemnifying Party of any covenant or agreement made by it herein,
(iii) the use by the Indemnified Party of the Trademarks or Promotional Content
of the Indemnifying Party in accordance with the terms hereof or (iv) the sale
of the Indemnifying Party's products or the offering or the Indemnifying Party's
services.
15. Limitation of Liability.
a. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR LOSS OF REVENUE OR LOST PROFITS, ARISING FROM
ANY PROVISION OF THIS AGREEMENT, EVEN IF SUCH PARTY HAD BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
b. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
16. Disclaimers. Neither party makes any express or implied
warranties or representations with respect to any items sold by the respective
party (including, without limitation, warranties of fitness, merchantability,
non-infringement or any implied warranties arising out of course of performance,
dealing or trade usage). In addition, neither party makes any representation
that the operation of its Site will be uninterrupted or error free, and such
party will not be liable for the consequences of any interruptions or errors.
17. Miscellaneous.
a. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflict of law principles thereof.
-10-
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b. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior agreement, written and oral, with respect thereto. No change,
amendment or modification of any provision of this Agreement shall be valid
unless set forth in a written instrument signed by both parties.
c. Any and all notices and other communications to either
party hereunder shall be in writing and deemed delivered (i) upon receipt if by
hand, overnight courier or telecopy (provided that in the event of a telecopy,
concurrently therewith a copy is mailed in accordance with clause (ii) hereof)
and (ii) three days after mailing by first class, certified mail, postage
prepaid, return receipt requested (1) if to the Company to 444 Madison Avenue,
New York, New York 10022, attention: President's Office, telecopier no.:
212-308-6186, and (2) if to bn.com to 76 Ninth Avenue, New York, New York 10011,
attention: Senior Vice President, telecopier no.: 212-414-6120, or to such other
address for a party as shall be specified by like notice.
d. This Agreement does not constitute either party an
agent, legal representative, joint venturer, partner or employee of the other
for any purpose whatsoever and neither party is in any way authorized to make
any contract, agreement, warranty or representation or to create any obligation,
express or implied, on behalf of the other party hereto.
e. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
f. This Agreement and the provisions hereof shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their successors and permitted assigns; provided, however, that
neither party shall have the right to assign its rights or obligations hereunder
to any other person or entity except that bn.com may assign its rights and
obligations hereunder to a subsidiary or affiliate of bn.com provided that
bn.com remains jointly and severally liable with respect to such obligations.
g. Each provision of this Agreement shall be considered
severable and if, for any reason, any provision hereof is determined to be
invalid and contrary to, or in conflict with, any existing or future law or
regulation by any court or agency having valid jurisdiction, such provision
shall be given the maximum permissible effect, and such invalidity or illegality
shall not impair the operation or affect the remaining provisions of this
Agreement; and the latter shall continue to be given full force and effect and
bind the parties hereto and such invalid provisions shall be deemed not to be a
part of this Agreement.
h. Neither party shall be liable to fulfill its obligations
hereunder, or for delays in performance, due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts or omissions of civil
or military authority, fires, strikes, floods, epidemics, riots or acts of war.
-11-
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VITAMINSHOPPE.COM, INC.
By: /s/
----------------------
BARNESANDNOBLE.COM LLC
By: /s/
----------------------
-12-
<PAGE> 13
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EXHIBIT A
bn.com Competitors
1) Amazon.com
2) Borders
3) Powells
4) CDNOW
5) Buy.com
-13-
<PAGE> 14
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EXHIBIT B
Company Competitors
1) MotherNature.com
2) Vitamins.com
3) Healthshop.com
4) Healthquick.com
5) Allherbs.com
6) Vitamindiscount.com
7) Selfcare.com
8) E-nutrition.com
9) Vitamins.net
10) More.com
11) Cybervitamins.com
12) Vitaminconnection.com
-14-
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 25,246
<SECURITIES> 0
<RECEIVABLES> 280
<ALLOWANCES> 0
<INVENTORY> 31
<CURRENT-ASSETS> 5,233
<PP&E> 9,017
<DEPRECIATION> 426
<TOTAL-ASSETS> 39,381
<CURRENT-LIABILITIES> 13,176
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 26,001
<TOTAL-LIABILITY-AND-EQUITY> 39,381
<SALES> 9,333
<TOTAL-REVENUES> 9,333
<CGS> 5,916
<TOTAL-COSTS> 9,326
<OTHER-EXPENSES> 4,802
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<INTEREST-EXPENSE> (634)
<INCOME-PRETAX> (10,077)
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<DISCONTINUED> 0
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