<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 000-27541
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WEBVAN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0446411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
310 Lakeside Drive
Foster City, California 94404
(Address of principal executive offices)
(650) 627-3000
(Registrant's telephone number, including area code)
1241 E. Hillsdale Blvd, Suite 210, Foster City, California 94404
(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) and (2) has been subject to such
filing requirements for the past 90 days. YES__. NO X .(1)
As of September 30, 1999, there were 296,214,226 shares of the
Registrant's common stock, par value $0.0001, outstanding.(2)
(1) The Registrant became subject to the reporting requirements of the
Securities Exchange Act of 1934 at the time of its initial public offering on
November 4, 1999.
(2) This share number assumes the conversion of all then outstanding shares of
the Registrant's preferred stock into common stock which occurred on November
10, 1999 in connection with the Registrant's initial public offering.
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WEBVAN GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PART I. FINANCIAL INFORMATION
<TABLE>
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Item 1. Financial Statements (Unaudited)
(a) Condensed Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999.............................................................................. 3
(b) Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and September 30, 1999..................................... 3
(c) Condensed Consolidated Statements of Cash Flows for Nine Months
Ended September 30, 1998 and September 30, 1999................................................. 3
(d) Notes to Condensed Consolidated Financial Statements................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................... 5
Factors That May Affect Future Results.................................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 26
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
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Item 2. Changes in Securities and Use of Proceeds............................................... 26
Item 4. Submission of Matters to a Vote of Security Holders..................................... 28
Item 6. Exhibits and Reports on Form 8-K........................................................ 29
Signatures...................................................................................... 30
</TABLE>
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEBVAN GROUP, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 13,839 $ 26,391
Marketable securities 7,728 260,468
Inventories -- 1,313
Related party receivable -- 200
Prepaid expenses and other current assets 114 1,701
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Total current assets 21,681 290,073
Property, Equipment and Leasehold Improvements, Net 32,624 67,250
Loan Fees, Net 2,000 1,571
Investments 518 1,018
Deposits and other assets 1,418 5,091
Restricted Cash 1,768 3,465
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TOTAL ASSETS $ 60,009 $ 368,468
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 6,815 $ 9,565
Accrued liabilities 706 6,700
Current portion of capital lease obligation 133 643
Current portion of long-term debt 3,104 3,500
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Total current liabilities 10,758 20,408
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Deferred Rent 107 204
Capital Lease Obligations 637 1,967
Long-Term Debt 13,593 10,810
Redeemable Common Stock 1,302 1,641
Stockholders' Equity
Series A preferred stock, $0.0001 par value; 112,635 shares authorized;
112,635 shares outstanding at December 31, 1998 and September 30,
1999; (liquidation preferences of $10,794 at
December 31, 1998 and September 30, 1999) 10,759 10,759
Series B preferred stock, $0.0001 par value; 41,814 shares authorized;
39,101 and 39,113 shares issued and outstanding; liquidation
preference of $35,713 and $35,724 at December 31, 1998 and
September 30, 1999, respectively 34,823 34,834
Series C preferred stock, $0.0001 par value; 34,602 shares authorized;
32,491 shares issued and outstanding at September 30, 1999;
liquidation preference of $75,000 -- 73,125
Series D preferred stock, $0.0001 par value; 29,551 shares authorized;
21,671 shares issued and outstanding at September 30, 1999;
liquidation preference of $275,000 -- 274,900
Common stock, $0.0001 par value; 360,000 and 800,000 shares authorized;
78,590 and 85,474 issued and outstanding at December 31, 1998 and
September 30, 1999, respectively 11,921 153,061
Additional paid-in capital 1,686 5,250
Deferred compensation (10,737) (108,098)
Deficit accumulated during development stage (14,844) (110,415)
Accumulated other comprehensive income 4 22
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Total stockholders' equity 33,612 333,438
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 60,009 $ 368,468
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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WEBVAN GROUP, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------ ------------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ -- $ 3,841 $ -- $ 4,236
Cost of Goods Sold -- 3,491 -- 3,910
-------- -------- -------- --------
Gross Profit -- 350 -- 326
-------- -------- -------- --------
Software Development Expenses 1,034 4,330 1,968 10,638
General and Administrative Expenses 2,340 49,083 4,910 74,379
Amortization of Deferred Compensation 240 9,590 326 13,543
-------- -------- -------- --------
Total Expenses 3,614 63,003 7,204 98,560
-------- -------- -------- --------
Interest Income 431 3,017 716 4,658
Interest Expense 51 801 51 1,995
-------- -------- -------- --------
Net Interest Income 380 2,216 665 2,663
-------- -------- -------- --------
Net Loss (3,234) (60,437) (6,539) (95,571)
Unrealized Gain on Marketable Securities 11 81 9 22
-------- -------- -------- --------
Comprehensive Loss $ (3,223) $(60,356) $ (6,530) $(95,549)
======== ======== ======== ========
Basic and Diluted Net Loss Per Share $ (0.05) $ (0.77) $ (0.10) $ (1.27)
======== ======== ======== ========
Shares Used In Calculating Basic and
Diluted Net Loss Per Share 67,376 78,983 65,523 75,213
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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WEBVAN GROUP, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (6,539) $ (95,571)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 119 4,933
Accretion on redeemable common stock 963 339
Amortization of deferred compensation 326 13,543
Noncash stock compensation 0 28,643
Issuance of warrants 70 2,143
Changes in operating assets and liabilities:
Inventories 0 (1,313)
Prepaid and other current assets (1,189) (1,587)
Accounts payable 672 534
Accrued liabilities 460 4,001
Deferred rent 37 229
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NET CASH USED IN OPERATING ACTIVITIES (5,081) (44,106)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements (14,251) (34,856)
Purchases of marketable securities (3,278) (252,722)
Purchases of investments 0 (500)
Related party receivable 0 (200)
Deposits and other assets (302) (2,449)
Restricted cash (950) (1,697)
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NET CASH USED IN INVESTING ACTIVITIES (18,781) (292,424)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt 0 (2,387)
Proceeds from capital lease financing 290 2,200
Repayment of capital lease obligations (2) (360)
Net proceeds from Series B preferred stock 34,823 11
Net proceeds from Series C preferred stock 0 73,125
Net proceeds from Series D preferred stock 0 274,900
Proceeds from restricted common stock issued 67 1,593
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NET CASH PROVIDED BY FINANCING ACTIVITIES 35,178 349,082
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NET INCREASE IN CASH AND EQUIVALENTS 11,316 12,552
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,935 13,839
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 14,251 $ 26,391
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 FOR THE THREE MONTHS AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999)
1. Condensed Consolidated Financial Statements. The accompanying condensed
consolidated financial statements have been prepared by the Company
without audit and reflect all adjustments, consisting of normal
recurring adjustments and accruals, which are, in the opinion of
management, necessary for a fair statement of the financial position of
the Company as of September 30, 1999 and the results of operations and
cash flows for the interim periods indicated. The results of operations
covered are not necessarily indicative of the results to be expected for
future quarters or for the year ending December 31, 1999. The statements
have been prepared in accordance with the regulations of the Securities
and Exchange Commission; accordingly, certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These financial
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statements should be read in conjunction with the audited financial
statements and notes thereto of Webvan for the year ended December 31,
1998, which are included in Webvan's Registration Statement on Form S-1
(File No. 333-84703) filed with the Securities and Exchange Commission.
2. Net Income (Loss) per share. Webvan computes net income (loss) per share
of common stock in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under the
provisions of SFAS No. 128 basic net income per share ("Basic EPS") is
computed by dividing net income by the weighted average number of shares
of common stock outstanding. The following is a reconciliation of the
numerators and denominators used in computing basic and diluted net loss
per share (in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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1998 1999 1998 1999
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<S> <C> <C> <C> <C>
NET LOSS (NUMERATOR)
basic and diluted $ (3,234,000) $(60,437,000) $ (6,539,000) $(95,571,000)
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SHARES
(DENOMINATOR)
Weighted 83,241,412 87,660,006 74,782,749 85,681,064
Average
Common Shares
Outstanding
Weighted (15,864,938) (8,677,335) (9,259,893) (10,468,555)
Average Common
Shares
outstanding
and subject
to repurchase
------------------------------------------------------------------------
SHARES USED IN
computation,
b and diluted 67,376,474 78,982,671 65,522,856 75,212,510
========================================================================
Net Loss per share basic and
diluted $ (0.05) $ (0.77) $ (0.10) $ (1.27)
========================================================================
</TABLE>
3. Initial Public Offering. On November 10, 1999, Webvan completed the
initial public offering of its common stock (the "IPO"). A total of
28,750,000 shares of Webvan's common stock were sold to the public at a
price of $15.00 per share. Cash proceeds to Webvan, net of $25.85
million in underwriting discounts, were approximately $405.4 million.
Concurrent with the IPO, all of the shares of the Company's Series A,
Series B, Series C and Series D convertible preferred stock ("Preferred
Stock") were converted into shares of the Company 's common stock on a
share for share basis.
4. Stock Plans. In August 1999, Webvan's board of directors approved the
adoption of Webvan's 1999 Employee Stock Purchase Plan (the "Purchase
Plan"). Webvan's stockholders approved the Purchase Plan in September
1999. A total of 5,000,000 shares of common stock have been reserved for
issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase shares of common stock through payroll deductions
at 85% of the fair market value of the common stock, as defined in the
Purchase Plan, on the first or last day of the applicable offering
period, whichever is lower. No shares have been issued under the
Purchase Plan as of September 30, 1999.
In September 1999, Webvan's board of directors approved the adoption of
Webvan's 1999 Nonstatutory Stock Option Plan (the "NSO Plan"). The NSO
Plan provides for the grant employees, directors and consultants of
nonstatutory common stock options at or below the fair value on the date
of grant. A total of 23,000,000 shares of common stock have been
reserved for issuance under the NSO Plan. Options to purchase 15,750,000
shares have been granted under the NSO Plan as of September 30, 1999.
In September 1999, Webvan's board of directors and stockholders approved
the increase of common shares reserved under the Company's 1997 Stock
Plan from 72,000,000 shares to 79,500,000 shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Webvan Group, Inc. ("Webvan," the "Registrant" or the "Company") is an
Internet retailer offering same-day delivery of consumer products through an
innovative proprietary business design which integrates our Webstore,
distribution center and delivery system. Our current product offerings are
principally focused on food, non-prescription drug products and general
merchandise.
We were incorporated in December 1996 as Intelligent Systems for Retail,
Inc. In April 1999, we changed our name to Webvan Group, Inc. We commenced our
grocery delivery service in May 1999 on a test basis to approximately 1,100
persons and commercially launched our Webstore on June 2, 1999. For the period
from inception in December 1996 to June 1999, our primary activities consisted
of raising capital, recruiting and training employees, developing our business
strategy, designing a business system to implement our strategy, constructing
and equipping our first distribution center and developing relationships with
vendors. Since launching our service in June 1999, we have continued these
operating activities and have also focused on building sales momentum,
establishing additional vendor relationships, promoting our brand name and
enhancing our distribution, delivery and customer service operations. Our cost
of sales and operating expenses have increased significantly since inception and
are expected to continue to increase. This trend reflects the costs associated
with our formation as well as increased efforts to promote the Webvan brand,
build market awareness, attract new customers, recruit personnel, build our
operating systems and develop our Webstore and associated systems that we use to
process customers' orders and payments.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. These
risks for Webvan include an unproven business system and our ability to
successfully manage our growth. To address these risks, we must:
- develop and increase our customer base;
- implement and successfully execute our business and marketing
strategy;
- continue to develop, test, increase the capacity of and enhance
our Webstore, order fulfillment, transaction processing and
delivery systems;
- respond to competitive developments; and
- attract, retain and motivate quality personnel.
Since our inception, we have incurred significant losses, and as of
September 30, 1999, we had an accumulated deficit of $110.4 million. Our initial
distribution center in Oakland, California is currently operating at less than
25% of the capacity for which it was designed. We do not expect any of our
distribution centers to operate at designed capacity for several years following
their
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<PAGE> 8
commercial launch, and we cannot assure you that any distribution center will
ever operate at or near its designed capacity. Since the commercial launch of
our Webstore on June 2, 1999, we have delivered orders to over 21,000 separate
customers which generated approximately $4.2 million in net sales through
September 30, 1999. During that period, over 62% of our orders were from
customers who had previously used our service and our average order size was
approximately $71.00. We expect our average order size and number of orders
processed to fluctuate from time to time as we extend or modify our hours of
delivery and there can be no assurance that it will not decline significantly in
future periods. In light of our extremely limited operating history, and the
daily and weekly fluctuations in our operating data since our commercial launch,
we believe the most meaningful operating data, including data for average order
size, is the cumulative data since our commercial launch.
We believe that our success and our ability to achieve profitability
will depend on our ability to:
- substantially increase the number of customers and our average
order size;
- ensure that our technologies and systems function properly at
increased order volumes;
- realize repeat orders from a significant number of customers;
- achieve favorable gross and operating margins; and
- rapidly expand and build out distribution centers in new
markets.
To meet these challenges, we intend to continue to invest heavily in
marketing and promotion, distribution facilities and equipment, technology and
personnel. As a result, we expect to incur substantial operating losses for the
foreseeable future and the rate at which such losses will be incurred may
increase significantly from current levels. In addition, our limited operating
history makes the prediction of future results of operations difficult, and
accordingly, we cannot assure you that we will achieve or sustain revenue growth
or profitability.
In connection with the grant of stock options during 1998 and the first
nine months of 1999, we recorded deferred compensation of $11.8 million and
$110.9 million and amortization of deferred compensation expense of $1.1 million
and $13.5 million, respectively. Deferred compensation represents the difference
between the deemed fair value and the option exercise price as determined by our
Board of Directors on the date of grant. In connection with the grant of options
in the third quarter of 1999, we recorded deferred compensation of $45.9 million
and amortization of deferred compensation expense of approximately $9.6 million.
Additionally, in connection with the terms of employment entered into with
George T. Shaheen, in September 1999 we recorded deferred compensation of
approximately $48.0 million. Additionally, in the third quarter of 1999 we
recorded non-cash compensation and other non-cash expenses of approximately
$27.5 million, including approximately $27.0 million relating to a bonus and
options granted to Mr. Shaheen. The aggregate deferred compensation of $122.7
million amount is included as a component of stockholders' equity and is being
amortized over the four-year vesting period of the underlying options.
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Results of Operations
Net Sales
Net sales are comprised of the price of groceries and other products we
sell, net of returns and credits. We commenced commercial operations in June
1999. We had net sales of $3.8 million in the three months ended September 30,
1999 and $4.2 million in the nine months ended September 30, 1999. We did not
have any net sales in the comparable prior year periods.
Cost of Goods Sold
Cost of goods sold includes the cost of the groceries and other products
we sell, adjustments to inventory and payroll and related expenses for the
preparation of our home replacement meals. Cost of goods sold was $3.5 million
in the three months ended September 30, 1999 and $3.9 million in the nine month
period then ended. We did not have any cost of goods sold in the comparable
prior year periods. The Company's gross profit as a percentage of net sales was
9% for the three month period ended September 30, 1999 and 8 % for the nine
month period then ended. Gross profit is expected to fluctuate as a result of a
variety of factors, including the level of inventory spoilage related to
perishables which may be relatively high during the first several quarters of a
distribution center's operations. In the three months and nine months ended
September 30, 1999, inventory spoilage expenses amounted to $318,000 and
$372,000, respectively.
Operating Expenses
Software Development. Software development expenses include the payroll
and related costs for the software developers directly involved in programming
our computer systems. For the three months ended September 30, 1999, software
development expenses were $4.3 million compared to $1.0 million for the
comparable prior year period. The Company's software development expenses
increased to $10.6 million in the nine months ended September 30, 1999 from $2.0
million in the nine months ended September 30, 1998. These increases were
primarily attributable to increases in the number of employees and consultants
required for developing, enhancing and increasing the capacity of our Web site,
order processing, accounting, distribution center and delivery systems.
Specifically, payroll and related expenses increased $1.4 million in the three
month period and $3.4 million in the nine month period ending September 30, 1990
from the comparable prior year periods, respectively, while software development
consulting expenses increased by $1.8 million and $5.1 million, respectively, in
the three month and nine month periods ending September 30, 1999 from comparable
prior year periods. We believe that continued investment in software development
is critical to attaining our strategic objectives and, as a result, expect
software development expenses to increase significantly in future quarters.
General and Administrative. General and administrative expenses include
costs related to fulfillment and delivery of products, real estate, technology
operations, equipment leases, merchandising, finance, marketing, and
professional services, as well as non-cash compensation and related expenses.
General and administrative expenses increased to $49.1 million in the three
months ended September 30, 1999 from $2.3 million in the comparable prior year
period. For the nine months ended September 30, 1999, the Company's general and
administrative expenses were $74.4
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<PAGE> 10
million compared to $4.9 million in the comparable prior year period. General
and administrative expenses pertaining to our distribution centers in the three
month and nine month periods ended September 30, 1999 totaled $10.6 million and
$20.6 million, respectively, compared to zero in the comparable prior year
periods. Payroll and related expenses at our headquarters increased by $30.8
million in the three months ended September 30, 1999 and $38.1 million in the
nine month period then ended. General and administrative expenses included $27.3
million of non-cash compensation and other expenses for the third quarter,
comprised primarily of payroll and related expenses in connection with Mr.
Shaheen's employment. Consulting and professional fees increased by $1.4 million
in the three month period ended September 30, 1999 and $3.1 million in the nine
month period then ended. In addition, marketing expenses were $3.0 million and
$4.3 million for the three and nine month periods ended September 30, 1999,
respectively. We expect general and administrative expenses to increase as we
expand our staff and incur additional costs to support the expected growth of
our business.
Amortization of Stock-Based Compensation. Deferred stock-based
compensation primarily represents the difference between the exercise price and
the deemed fair value of our common stock for accounting purposes on the date
certain stock options were granted. During the three months ended September 30,
1999, amortization of stock-based compensation was $9.6 million compared to
$240,000 for the three months ended September 30, 1998. During the nine months
ended September 30, 1999, amortization of stock-based compensation was $13.5
million compared to $330,000 for the nine months ended September 30, 1998.
Interest Income (Expense) Net
Interest income (expense), net consists of earnings on our cash and cash
equivalents and interest payments on our loan and lease agreements. Net interest
income increased to $2.2 million in the three months ended September 30, 1999
and $2.7 million in the nine month period then ended, compared to $380,000 and
$665,000 in the comparable prior year periods. These increases were primarily
due to earnings on higher average cash and cash equivalent balances during the
relevant periods.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through
private sales of preferred stock which through September 30, 1999 totaled $393.6
million (net of issuance costs). Net cash used in operating activities was $44.1
million in the nine months ended September 30, 1999. Operating activities in the
comparable prior year period used net cash of $5.1 million. Net cash used in
operating activities for each of these periods primarily consisted of net losses
as well as increases in prepaid expenses, partially offset by increases in
accounts payable, accrued liabilities and depreciation and amortization.
Net cash used in investing activities was $292.4 million in the nine
months ended September 30, 1999, of which $252.7 million was used to invest in
marketable securities. Net cash used in investing activities was $18.8 million
in the comparable prior year period, of which $3.3 million was used to invest in
marketable securities. Net cash used in investing activities for each of these
periods consisted, otherwise, primarily of leasehold improvements and purchases
of equipment and systems, including computer equipment and fixtures and
furniture.
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<PAGE> 11
Net cash provided by financing activities was $349.1 million and $35.2
million in the nine months ended September 30, 1999 and 1998, respectively. In
July 1999, we sold an aggregate of 21,670,605 shares of our Series D preferred
stock to investors at a price of $12.69 per share. Net cash provided by
financing activities during the nine months ended September 30, 1999 and the
year ended December 31, 1998 primarily consisted of proceeds from the issuance
of preferred stock of $348.0 million and $34.8 million, respectively. As of
September 30, 1999, our principal sources of liquidity consisted of $26.4
million of cash and cash equivalents and $260.5 million of marketable
securities.
In November 1999, the Company completed an initial public offering of
28,750,000 shares of Common Stock at a price of $15.00 per share. The proceeds
to the Company from the offering were approximately $405.4 million (net of
underwriters discount).
As of September 30, 1999, our principal commitments consisted of
obligations of approximately $16.9 million outstanding under capital leases and
loans. As of September 30, 1999, we had capital commitments of approximately
$19.0 million principally related to the construction of and equipment for our
Atlanta, Georgia distribution center. We anticipate a substantial increase in
our capital expenditures and lease commitments to support our anticipated growth
in operations, systems and personnel. We anticipate capital expenditures of from
$200 to $250 million for the 12 months ending September 30, 2000, although this
amount may fluctuate based on the number, actual cost and timing of the build
out of additional distribution centers. In July 1999, we entered into an
agreement with Bechtel Corporation for the construction of up to 26 additional
distribution centers over the next three years. Although the Company has no
specific capital commitment under this agreement, our expenditures under the
contract are estimated to be approximately $1.0 billion. Specific capital
commitments under this contract are incurred only as we determine to proceed
with a scheduled build out of a distribution center. The decision to proceed
with each distribution center will require us to commit to additional lease
obligations and to purchase equipment and install leasehold improvements.
We currently anticipate that our available funds, including the net
proceeds of our initial public offering, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through the next
12 to 24 months. Our future long-term capital needs will be highly dependent on
the number and actual cost of additional distribution centers we open, the
timing of these openings and the success of these facilities once they are
launched. Thus, any projections of future long-term cash needs and cash flows
are subject to substantial uncertainty. If our available funds and cash
generated from operations are insufficient to satisfy our long-term liquidity
requirements, we may seek to sell additional equity or debt securities, obtain a
line of credit or curtail our expansion plans. In addition, from time to time we
may evaluate other methods of financing to meet our longer term needs on terms
that are attractive to us. If we issue additional securities to raise funds,
those securities may have rights, preferences or privileges senior to those of
the rights of our common stock and our stockholders may experience additional
dilution. We cannot be certain that additional financing will be available to us
on favorable terms when required, or at all.
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<PAGE> 12
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. For example, we are dependent on the financial institutions involved
in processing our customers' credit card payments for Internet services and a
third party that hosts our servers. We are also dependent on telecommunications
vendors to maintain our communications network and suppliers to deliver products
to us.
Since inception, we have internally developed substantially all of the
systems for the operation of our web site. These systems include the software
used to provide our Webstore's search, customer interaction, and
transaction-processing and distribution functions, as well as monitoring and
back-up capabilities. Based upon our assessment to date, we believe that our
internally developed proprietary software is year 2000 compliant, but we cannot
assure you that unanticipated year 2000 problems will not occur.
We are completing our assessment of the year 2000 readiness of our
third-party supplied software, computer technology and other services, which
include software for use in our accounting, database and security systems. The
failure of any software or systems upon which we rely to be year 2000 compliant
could have a material negative impact on our corporate accounting functions and
the operation of our web site and distribution system. As part of the assessment
of the year 2000 compliance of these systems, we have sought assurances from
these vendors that their software, computer technology and other services are
year 2000 compliant. We have received assurance from most of the vendors whose
software, computer technology or other services we have assessed as of high
importance to the functionality of our systems. We have also engaged consulting
firms to assess the year 2000 compliance of two of our critical systems at a
cost estimated at $1.1 million, of which approximately $220,000 was incurred as
of September 30, 1999. Based upon the results of our assessments, we have, as
part of our remediation plan, upgraded or are in the process of upgrading our
software or are coding for year 2000 related bugs. We expect that required
remediation for issues currently identified will be resolved by mid December
1999. Based upon our experience to date, we estimate that the total costs
associated with our Year 2000 compliance efforts will be up to approximately
$3.0 million.
The failure of our software and computer systems and of our third-party
suppliers to be year 2000 compliant would have a material adverse effect on us.
The year 2000 readiness of the general system necessary to support our
operations is difficult to assess. For instance, we depend on the integrity and
stability of the Internet to provide our services. We also depend on the year
2000 compliance of the computer systems and financial services used by
consumers. Thus, the system necessary to support our operations consists of a
network of computers and telecommunications systems located throughout the world
and operated by numerous unrelated entities and individuals, none of which has
the ability to control or manage the potential year 2000 issues that may impact
the entire system. Our ability to assess the reliability of this system is
limited and relies solely on generally available news reports, surveys and
comparable industry data. Based on these sources, we believe most entities and
individuals that rely significantly on the Internet are reviewing and attempting
to remediate issues relating to year 2000 compliance, but it is not possible to
predict
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whether these efforts will be successful in reducing or eliminating the
potential negative impact of year 2000 issues.
A significant disruption in the ability of consumers to reliably access
the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for our services and would have a material adverse
effect on us. We are in the process of completing various contingency plans
based on the results of our year 2000 assessment and remediation efforts. A
reasonable worst case year 2000 scenario would involve a major failure of our
material systems, our vendors' material systems or the Internet to be year 2000
compliant, any of which could have material adverse consequences for us. These
consequences could include refrigeration failures resulting in spoilage of
perishable products and difficulties or interruptions in operating our web site
effectively, taking customer orders, processing orders in our distribution
center, making deliveries or conducting other fundamental parts of our business.
In many cases, there is a low technology alternative that involves additional
labor and which would allow us to continue to run our business. However, most of
the alternatives would result in increased costs, reduced revenues or service
delays, which would increase our operating losses. Extended disruptions may
impact long term customer and supplier relationships further impacting future
profitability.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains certain forward-looking statements (as such term is
defined in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) and information relating to the Company that
are based on the beliefs of the management of the Company as well as assumptions
made by and information currently available to the management of the Company
including statements related to the designed capacity of our distribution
centers, the time required for a distribution center to operate at designed
capacity, the timing and amount of our capital expenditures and financing needs,
and the economics of a distribution center including its revenue potential,
average order size, orders processed per day, cash flow potential and operating
margin. In addition, when used in this report, the words "likely," "will,"
"suggests," "may," "would," "could," "anticipate," "believe," "estimate,"
"expect," "intend," "plan," "predict" and similar expressions and their
variants, as they relate to the Company or the management of the Company, may
identify forward-looking statements. Such statements reflect the judgement of
the Company as of the date of this quarterly report on Form 10-Q with respect to
future events, the outcome of which is subject to certain risks, including the
risk factors set forth below, which may have a significant impact on the
Company's business, operating results or financial condition. Investors are
cautioned that these forward-looking statements are inherently uncertain. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein. Webvan undertakes no obligation to update forward
looking statements.
We are an early-stage company operating in a new and rapidly evolving market.
We were incorporated in December 1996. From 1997 through May 1999, we
were focused on developing our Webstore and constructing and equipping our first
distribution center serving the
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San Francisco Bay Area. We did not begin commercial operations until June 1999.
Our limited operating history makes an evaluation of our business and prospects
very difficult. You must consider our business and prospects in light of the
risks and difficulties we encounter as an early stage company in the new and
rapidly evolving market of e-commerce. These risks and difficulties include, but
are not limited to: a complex and unproven business system; lack of sufficient
customers, orders, net sales or cash flow; difficulties in managing rapid growth
in personnel and operations; high capital expenditures associated with our
distribution centers, systems and technologies; and lack of widespread
acceptance of the Internet as a means of purchasing groceries and other consumer
products.
We cannot be certain that our business strategy will be successful or
that we will successfully address these risks. Our failure to address any of the
risks described above could have a material adverse effect on our business.
Our business system is new and unproven at high volumes, and the actual capacity
of our system may be less than its designed capacity.
We have designed a new business system which integrates our Webstore,
highly automated distribution center and complex order fulfillment and delivery
operations. We have only been delivering products to customers commercially
since we launched our Webstore on June 2, 1999 and the average daily volume of
orders that we have had to fulfill to date has been significantly below our
designed capacity of 8,000 orders per day and the levels that are necessary for
us to achieve profitability. Although our initial distribution center was
designed to process product volumes equivalent to approximately 18 supermarkets,
we have only been operating at less than 25% of such designed capacity.
We do not expect our distribution centers to operate at designed
capacity for several years following their commercial launch, and we cannot
assure you that any distribution center will ever operate at or near its
designed capacity. If a distribution center is able to operate at its designed
capacity seven days per week, we estimate that it would generate annual revenue
of approximately $300 million assuming an average order size of approximately
$103.00. We recently increased our days of operations at our existing
distribution center to six days a week but we cannot assure you that we can
effectively operate at more than five days a week. We do not plan to attempt to
commercially operate our distribution center at seven days per week for several
months. Additionally, our average order size from our commercial launch on June
2, 1999 through September 30, 1999 was approximately $71.00. Thus, our average
order size will have to increase by over $30.00 for the distribution center to
be able to generate annual revenue of $300 million at its designed capacity. We
cannot assure you that our average order size will remain at current levels or
increase in the future. If our average order size does not increase
substantially or if a distribution center is not able to operate at designed
capacity seven days per week, our annual revenue at that distribution center
will be substantially less than $300 million.
It is not practicable to test our system at high volumes except by
processing commercial orders. As part of our testing process, we have
voluntarily limited the number of customer orders accepted in any given delivery
window in an effort to ensure that our systems and technologies function
properly while maintaining a high level of customer service. We plan to
incrementally
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<PAGE> 15
increase our voluntary limit on orders as our systems and technologies are
proven at each incremental volume level. As a result, the success of our system
in a high order volume environment has yet to be proven. Based on our
operational experiences, refinements and modifications to our business systems
and technologies may be necessary or advisable and the costs associated with
them may be material. We cannot assure you that our business system will be able
to accommodate a significant increase in the number of customers and orders, or
that our initial distribution center or other distribution centers will in fact
ever operate at or near designed capacity. If we are unable to effectively
accommodate substantial increases in customer orders, we may lose existing
customers or fail to add new customers, which would adversely affect our
business, net sales and operating margins.
Our business system is complex, and we are periodically affected by operational
difficulties.
Our business system relies on the complex integration of numerous
software and hardware subsystems that utilize advanced algorithms to manage the
entire process from the receipt and processing of goods at our distribution
center to the picking, packing and delivery of these goods to customers in a
30-minute delivery window. We have, from time to time, experienced operational
"bugs" in our systems and technologies which have resulted in order errors such
as missing items and delays in deliveries. Operational bugs may arise from one
or more factors including electro-mechanical equipment failures, computer server
or system failures, network outages, software performance problems or power
failures. We expect bugs to continue to occur from time to time, and we cannot
assure you that our operations will not be adversely affected. The efficient
operation of our business system is critical to consumer acceptance of our
service. If we are unable to meet customer demand or service expectations as a
result of operational issues, we may be unable to develop customer relationships
that result in repeat orders, which would adversely affect our business and net
sales.
Our business system may not be readily or cost-effectively replicable in
additional geographic markets.
A critical part of our business strategy is to expand our business by
opening additional distribution centers in new and existing markets to achieve
economies of scale and leverage our significant and ongoing capital investment
in our proprietary business system. While we currently plan to open three
additional distribution centers in 2000 in the Atlanta, Chicago and Seattle
markets, and seven additional distribution centers in 2001, our expansion
strategy is dependent upon the ability of our proprietary business system and
enabling software to be readily replicated to facilitate our expansion into
additional geographic markets on a timely and cost-effective basis. Because our
business system is extremely complex and we currently have only one distribution
center, we have not demonstrated whether our proprietary business system is in
fact readily and cost-effectively replicable.
Our ability to successfully and cost-effectively replicate our business
system in additional geographic markets will also depend upon a number of
factors, including: the availability of appropriate and affordable sites that
can accommodate our distribution centers; our ability to successfully and
cost-effectively hire and train qualified employees to operate new distribution
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<PAGE> 16
centers; our ability to develop relationships with local and regional
distributors, vendors and other product providers; acceptance of our product and
service offerings; and competition.
The number, timing and cost of opening of new distribution centers are
dependent on these factors and are therefore subject to considerable
uncertainty. If the replication element of our expansion strategy fails, we
could incur substantial additional operating costs and be forced to delay our
entrance into other markets.
In addition, we currently obtain all of our carousels for our
distribution centers from Diamond Phoenix Corporation. In the event that the
supply of carousels from Diamond Phoenix was delayed or terminated for any
reason, we believe that we could obtain similar carousels from other sources;
however, the integration of other carousels into the complex systems of our
distribution centers could result in construction delays and could require
modifications to our software systems. Accordingly, any delay or termination of
our relationship with Diamond Phoenix could cause a material delay and increased
cost in our planned expansion program.
Our expansion plans are dependent on the performance of, and our relationship
with, Bechtel Corporation.
In July 1999, we entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over the next three
years. We expect that our next 26 distribution centers following our Atlanta,
Georgia distribution center will be constructed by Bechtel pursuant to this
agreement. These distribution centers may not necessarily be in 26 different
markets. The success of our expansion program is highly dependent on the success
of our relationship with Bechtel and Bechtel's ability to perform its
obligations under the contract. We have no prior working relationship with
Bechtel and we cannot assure you that we will not encounter unexpected delays or
design problems in connection with the build-out of our distribution centers. If
our relationship with Bechtel fails for any reason, we would be forced to engage
another contractor, which would likely result in a significant delay in our
expansion plans and could result in increased costs of constructing and
equipping our distribution centers.
We have no experience in managing geographically diverse operations.
Although we plan to expand geographically, we have no experience
operating in any other regions or in managing multiple distribution centers.
Accordingly, the success of our planned expansion will depend upon a number of
factors, including: our ability to integrate the operations of new distribution
centers into our existing operations; our ability to coordinate and manage
distribution operations in multiple, geographically distant locations; and our
ability to establish and maintain adequate management and information systems
and financial controls.
Our failure to successfully address these factors could have a material
adverse effect on our ability to expand and on our results of operations.
We anticipate future losses and negative cash flow.
We have experienced significant net losses and negative cash flow since
our inception. As of September 30, 1999, we had an accumulated deficit of $110.4
million. We incurred net losses of
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$12.0 million for the fiscal year ended December 31, 1998 and $95.6 million for
the nine months ended September 30, 1999. We will continue to incur significant
capital and operating expenses over the next several years in connection with
our planned expansion, including:
- the construction of and equipment for new distribution centers
in additional geographic markets at an estimated cost of $25.0
million to $35.0 million per distribution center based on our
experience to date and efficiencies we expect to result from our
relationship with Bechtel, such as savings associated with
procurement for multiple sites;
- the continued expansion and development of operations at our
existing distribution center;
- increases in personnel at our current and future distribution
centers;
- brand development, marketing and other promotional activities;
- the continued development of our computer network, Webstore,
warehouse management and order fulfillment systems and delivery
infrastructure; and
- the development of strategic business relationships.
If a distribution center, viewed as a stand-alone business unit without
regard to headquarters' costs, is able to successfully operate at the volume and
cost levels expected to be reached by a distribution center at the end of the
first year of operation, we expect that the annualized earnings before interest,
taxes, depreciation and amortization for that distribution center, would be
positive and the distribution center would start to generate significant cash
flow beginning in the fifth quarter of operations. As a result, we believe that
our core business of operating distribution centers is highly cash generative.
If a distribution center is able to generate positive cash flow from operations,
we plan to use the cash flow to fund capital expenditures for other distribution
centers. If a distribution center, viewed as a stand-alone business unit without
regard to headquarters' costs, is able to operate successfully at volumes and
costs expected to be reached through the end of the third year of operation, we
expect that the annualized earnings before interest, taxes, depreciation and
amortization for that distribution center, from its launch through the end of
that three-year period, would approximate the expected costs of constructing and
equipping such distribution center. We cannot assure you that our distribution
centers will be able to successfully operate at expected volume or cost levels.
As a result of the factors described above, we expect to continue to
have operating losses and negative cash flow on a quarterly and annual basis for
the foreseeable future. To achieve profitability, we must accomplish the
following objectives: substantially increase our number of customers and the
number of orders placed by our customers; generate a sufficient average order
size; realize a significant number of repeat orders from our customers; and
achieve favorable gross and operating margins. We cannot assure you that we will
be able to achieve these objectives.
With respect to operating margins, we estimate that, as a result of the
potential advantages of our business model compared to traditional supermarkets,
if our distribution center is able to operate
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<PAGE> 18
at its designed capacity of 8,000 orders per day seven days per week and at an
average order size of $103.00 per order, we can achieve an operating margin of
12% compared to a 4% operating margin for a traditional supermarket based on our
analysis of publicly available data. However, we cannot assure you that we will
be able to achieve 8,000 orders per day at an average order size of $103.00 and
at expected cost levels or that we will be able to operate seven days per week,
and any failure to do so will result in lower operating margins.
In addition, because of the significant capital and operating expenses
associated with our expansion plan, our overall losses will increase
significantly from current levels. If we do achieve profitability, we cannot be
certain that we would be able to sustain or increase such profitability on a
quarterly or annual basis in the future. If we cannot achieve or sustain
profitability, we may not be able to meet our working capital requirements,
which would have a material adverse effect on our business.
The significant capital investment required by our business design may adversely
affect our ability to enter additional markets in a timely and effective manner
and could harm our competitive position.
Our business design requires a significant capital investment to build,
equip and launch distribution centers and local stations in the markets in which
we seek to operate. Our competitors have developed or may develop systems that
are not as highly automated or capital-intensive as ours. This could enable them
to commence operations in a particular geographic market before we are able to
do so, which could harm our competitive position. In addition, because of the
substantial capital costs associated with the development of our distribution
centers, we will be unable to achieve profitability or reduce our operating
losses if we do not process sufficient order volumes.
We face intense competition from traditional and online retailers of grocery
products.
The grocery retailing market is extremely competitive. Local, regional,
and national food chains, independent food stores and markets, as well as online
grocery retailers comprise our principal competition, although we also face
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters, and drugstore chains. Many
of our existing and potential competitors, particularly traditional grocers and
retailers, are larger and have substantially greater resources than we do. We
expect this competition will intensify as more traditional and online grocery
retailers offer competitive services.
Our initial distribution center in Oakland, California operates in the
San Francisco Bay Area market. In this market, we compete primarily with
traditional grocery retailers and with online grocers NetGrocer and Peapod. The
number and nature of competitors and the amount of competition we will
experience will vary by market area. In other markets, we expect to compete with
these and other online grocers, including HomeGrocer, HomeRuns and Streamline.
The principal competitive factors that affect our business are location, breadth
of product selection, quality, service, price and consumer loyalty to
traditional and online grocery retailers. If we fail to effectively compete in
any one of these areas, we may lose existing and potential customers which would
have a material adverse effect on our business, net sales and operating margins.
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<PAGE> 19
If we fail to generate sufficient levels of repeat orders and market
penetration, our business and net sales will be adversely affected.
In the online retail industry, customer attrition rates, or the rates at
which subscribers cancel a service, are generally high. Although we do not
charge on a subscription basis for our service, we do depend upon customers to
continue to order from us after their initial order is placed, and we compete to
retain customers once they have used our service.
In addition, the success of our business depends on our ability to
establish sufficient levels of market penetration in each market in which we
operate. For instance, we believe that if approximately 1% of the households in
the San Francisco Bay Area use our service on a consistent basis, we can achieve
positive earnings before interest, taxes, depreciation and amortization, for the
distribution center serving that area viewed as a stand-alone business unit
without regard to headquarters' costs. In general, in most other markets, we
believe we will need to achieve penetration levels of approximately 1% to 3% in
order to achieve positive earnings on a similar basis. However, we cannot assure
you as to the levels of penetration we will achieve in the San Francisco Bay
Area or in other markets, and even if we do achieve these levels of penetration,
we cannot assure you that we will achieve positive earnings.
If we experience significant decreases in repeat customer orders as a
percentage of orders delivered, or if we are unable to establish sufficient
market penetration levels, our business and net sales could be materially
adversely affected.
The Internet may fail to become a widely accepted medium for grocery shopping.
We rely solely on product orders received through our Webstore for
sales. The market for e-commerce is new and rapidly evolving, and it is
uncertain whether e-commerce will achieve and sustain high levels of demand and
market acceptance, particularly with respect to the grocery industry. Our
success will depend to a substantial extent on the willingness of consumers to
increase their use of online services as a method to buy groceries and other
products and services. Our success will also depend upon our vendors' acceptance
of our online service as a significant means to market and sell their products.
Moreover, our growth will depend on the extent to which an increasing number of
consumers own or have access to personal computers or other systems that can
access the Internet. If e-commerce in the grocery industry does not achieve high
levels of demand and market acceptance, our business will be materially
adversely affected.
Our efforts to build strong brand identity and customer loyalty may not be
successful.
Since we only recently launched the Webvan brand, we currently do not
have strong brand identity or brand loyalty. We believe that establishing and
maintaining brand identity and brand loyalty is critical to attracting consumers
and vendors. Furthermore, we believe that the importance of brand loyalty will
increase with the proliferation of Internet retailers. In order to attract and
retain consumers and vendors, and respond to competitive pressures, we intend to
increase spending substantially to create and maintain brand loyalty among these
groups. We plan to accomplish this goal by expanding our current radio and
newspaper advertising campaigns and by conducting online and television
advertising campaigns. We believe that advertising rates, and the cost of our
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advertising campaigns in particular, could increase substantially in the future.
If our branding efforts are not successful, our net sales and ability to attract
customers will be materially and adversely affected.
Promotion and enhancement of the Webvan brand will also depend on our
success in consistently providing a high-quality consumer experience for
purchasing groceries and other products. If consumers, other Internet users and
vendors do not perceive our service offerings to be of high quality, or if we
introduce new services that are not favorably received by these groups, the
value of the Webvan brand could be harmed. Any brand impairment or dilution
could decrease the attractiveness of Webvan to one or more of these groups,
which could harm our reputation, reduce our net sales and cause us to lose
customers.
If we are unable to obtain sufficient quantities of products from our key
vendors, our net sales would be adversely affected.
We expect to derive a significant percentage of our net sales from
high-volume items, well-known brand name products and fresh foods. We source
products from a network of manufacturers, wholesalers and distributors. We
currently rely on national and regional distributors for a substantial portion
of our items. We also utilize premium specialty suppliers or local sources for
gourmet foods, farm fresh produce, fresh fish and meats. From time to time, we
may experience difficulty in obtaining sufficient product allocations from a key
vendor. In addition, our key vendors may establish their own online retailing
efforts, which may impact our ability to get sufficient product allocations from
these vendors. Many of our key vendors also supply products to the retail
grocery industry and our online competitors. If we are unable to obtain
sufficient quantities of products from our key vendors to meet customer demand,
our net sales and results of operations would be materially adversely affected.
We currently operate only one distribution center which is located in the San
Francisco Bay Area.
We currently operate only one distribution center, which is located in
Oakland, California and serves the San Francisco Bay Area. We do not expect to
begin operating a second distribution center until the second quarter of 2000.
Therefore, our business and operations would be materially adversely affected if
any of the following events affected our current distribution center or the San
Francisco Bay Area and our insurance was inadequate to cover us for losses
associated with: prolonged power or equipment failures; disruptions in our web
site, computer network, software and our order fulfillment and delivery systems;
disruptions in the transportation infrastructure including bridges, tunnels and
roads; refrigeration failures; or fires, floods, earthquakes or other disasters.
Since the San Francisco Bay Area is located in an earthquake-sensitive
area, we are particularly susceptible to the risk of damage to, or total
destruction of, our distribution center and the surrounding transportation
infrastructure caused by earthquakes. We cannot assure you that we are
adequately insured to cover the total amount of any losses caused by any of the
above events. In addition, we are not insured against any losses due to
interruptions in our business due to damage to or destruction of our
distribution center caused by earthquakes or to major transportation
infrastructure disruptions or other events that do not occur on our premises.
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We will need substantial additional capital to fund our planned expansion, and
we cannot be sure that additional financing will be available.
We require substantial amounts of working capital to fund our business.
In addition, the opening of new distribution centers and the continued
development of our order fulfillment and delivery systems requires significant
amounts of capital. Since our inception, we have experienced negative cash flow
from operations and expect to experience significant negative cash flow from
operations for the foreseeable future. In the past, we have funded our operating
losses and capital expenditures through proceeds from equity offerings, debt
financing and equipment leases. We continue to evaluate alternative means of
financing to meet our longer term needs on terms that are attractive to us. We
expect to require substantial additional capital to fund our expansion program
and operating expenses. We currently anticipate that our available funds, will
be sufficient to meet our anticipated needs for working capital and capital
expenditures through the next 12 to 24 months. In July 1999, we entered into an
agreement with Bechtel for the construction of up to 26 additional distribution
centers over the next three years. Although the Company has no specific capital
commitment under this agreement, our expenditures under the contract are
estimated to be approximately $1.0 billion. Specific capital commitments under
this contract are incurred only as we determine to proceed with a scheduled
build out of a distribution center. Our future capital needs will be highly
dependent on the number and actual cost of additional distribution centers we
open, the timing of openings and the success of our facilities once they are
launched. We cannot assure you of the actual cost of our additional distribution
centers. Therefore, we will need to raise additional capital to fund our planned
expansion. We cannot be certain that additional financing will be available to
us on favorable terms when required, or at all. If we are unable to obtain
sufficient additional capital when needed, we could be forced to alter our
business strategy, delay or abandon some of our expansion plans or sell assets.
Any of these events would have a material adverse effect on our business,
financial condition and our ability to reduce losses or generate profits. In
addition, if we raise additional funds through the issuance of equity,
equity-linked or debt securities, those securities may have rights, preferences
or privileges senior to those of the rights of our common stock and our
stockholders may experience dilution.
Our limited operating history makes financial forecasting difficult for us and
for financial analysts that may publish estimates of our financial results.
As a result of our limited operating history, it is difficult to
accurately forecast our total revenue, revenue per distribution center, gross
and operating margins, real estate and labor costs, average order size, number
of orders per day and other financial and operating data. We have a limited
amount of meaningful historical financial data upon which to base planned
operating expenses. Due to our limited operating history, we do not currently
have a cash budget. We base our current and future expense levels on our
operating plans and estimates of future revenue, and our expenses are dependent
in large part upon our facilities and product costs. Sales and operating results
are difficult to forecast because they generally depend on the growth of our
customer base and the volume of the orders we receive, as well as the mix of
products sold. As a result, we may be unable to make accurate financial
forecasts and adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. We believe that these difficulties also apply to
financial analysts that may publish estimates of our financial results. This
inability to accurately forecast our results could cause our net losses in a
given quarter to be greater than expected and could cause a decline in the
trading price of our common stock.
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Our quarterly operating results are expected to be volatile and difficult to
predict based on a number of factors that will also affect our long-term
performance.
We expect our quarterly operating results to fluctuate significantly in
the future based on a variety of factors. These factors are also expected to
affect our long-term performance. Some of these factors include the following:
the timing of our expansion plans as we construct and begin to operate new
distribution centers in additional geographic markets; changes in pricing
policies or our product and service offerings; increases in personnel, marketing
and other operating expenses to support our anticipated growth; our inability to
obtain new customers or retain existing customers at reasonable cost; our
inability to manage our distribution and delivery operations to handle
significant increases in the number of customers and orders or to overcome
system or technology difficulties associated with these increases; our inability
to adequately maintain, upgrade and develop our Webstore, our computer network
or the systems that we use to process customer orders and payments; competitive
factors; and technical difficulties, system or web site downtime or Internet
brownouts.
In addition to these factors, our quarterly operating results are
expected to fluctuate based upon seasonal purchasing patterns of our customers
and the mix of groceries and other products sold by us.
Due to all of these factors, we expect our operating results to be
volatile and difficult to predict. As a result, quarter-to-quarter comparisons
of our operating results may not be good indicators of our future performance.
In addition, it is possible that in any future quarter our operating results
could be below the expectations of investors generally and any published reports
or analyses of Webvan. In that event, the price of our common stock could
decline, perhaps substantially.
If we experience problems in our delivery operations, our business could be
seriously harmed.
We use our own couriers to deliver products from our distribution center
to our local stations, and from the local stations to our customers. We are
therefore subject to the risks associated with our ability to provide delivery
services to meet our shipping needs, including potential labor activism or
employee strikes, inclement weather, disruptions in the transportation
infrastructure, including bridges, roads and traffic congestion. In addition,
our failure to deliver products to our customers in a timely and accurate manner
or to meet our targeted delivery times would harm our reputation and brand,
which would have a material adverse effect on our business and net sales.
Our net sales would be harmed if our online security measures fail.
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, we lose many customers,
our net sales and results of operations would be harmed. We rely on security and
authentication technology to perform real-time credit card authorization and
verification with our bank. We cannot predict whether events or developments
will result in a compromise or breach of the technology we use to protect a
customer's personal information.
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Furthermore, our computer servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. We may need to expend
significant additional capital and other resources to protect against a security
breach or to alleviate problems caused by any breaches. We cannot assure you
that we can prevent all security breaches, and any failure to do so could have a
material adverse effect on our reputation and results of operations.
The loss of the services of one or more of our key personnel, or our failure to
attract, integrate new hires and retain other highly qualified personnel in the
future would seriously harm our business.
The loss of the services of one or more of our key personnel could
seriously harm our business. We depend on the continued services and performance
of our senior management and other key personnel, particularly Louis H. Borders,
our founder and Chairman of the Board, and George T. Shaheen, our President and
Chief Executive Officer. Our future success also depends upon the continued
service of our executive officers and other key software development,
merchandising, marketing and support personnel. None of our officers or key
employees are bound by an employment agreement and our relationships with these
officers and key employees are at will. Several key members of our management
team have recently joined us. If we do not effectively integrate these employees
into our business, or if they do not work together as a management team to
enable us to implement our business strategy, our business will suffer.
Additionally, there are low levels of unemployment in the San Francisco Bay Area
and in many of the regions in which we plan to operate. These low levels of
unemployment have led to pressure on wage rates, which can make it more
difficult and costly for us to attract and retain qualified employees. The loss
of key personnel, or the failure to attract additional personnel, could have a
material adverse effect on our business, results of operations and performance
in specific geographic markets.
We may need to change the manner in which we conduct our business if government
regulation of the internet increases or if regulation directed at large-scale
retail operations is deemed applicable to us.
The adoption or modification of laws or regulations relating to the
Internet and large-scale retail store operations could adversely affect the
manner in which we currently conduct our business. In addition, the growth and
development of the market for online commerce may lead to more stringent
consumer protection laws which may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States government recently enacted
Internet laws regarding privacy, copyrights, taxation and the transmission of
sexually explicit material. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. In
addition, the Governor of California recently vetoed legislation which would
have prohibited a public agency from authorizing retail store developments
exceeding 100,000 square feet if more than a small portion of the store were
devoted to the sale of non-taxable items, such as groceries. While it is not
clear whether our operations would be considered a retail store for purposes of
this kind of legislation, we cannot assure you that other state or local
governments will not seek to enact similar laws or that we would be successful
if forced to challenge the applicability of this kind of legislation to our
distribution facilities. The expenses associated with any challenge to this kind
of legislation could be material. If
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<PAGE> 24
we are required to comply with new regulations or legislation or new
interpretations of existing regulations or legislation, this compliance could
cause us to incur additional expenses or alter our business model.
We may incur significant costs or experience product availability delays in
complying with regulations applicable to the sale of food products.
We are not currently subject to regulation by the United States
Department of Agriculture, or USDA. Whether the handling of food items in our
distribution facility, such as meat and fish, will subject us to USDA regulation
in the future will depend on several factors, including whether we sell food
products on a wholesale basis or whether we obtain food products from non-USDA
inspected facilities. Although we have designed our food handling operations to
comply with USDA regulations, we cannot assure you that the USDA will not
require changes to our food handling operations. We will also be required to
comply with local health regulations concerning the preparation and packaging of
our prepared meals and other food items. Any applicable federal, state or local
regulations may cause us to incur substantial compliance costs or delay the
availability of a number of items at one or more of our distribution centers. In
addition, any inquiry or investigation from a food regulatory authority could
have a negative impact on our reputation. Any of these events could have a
material adverse effect on our business and expansion plans and could cause us
to lose customers.
We may not be able to obtain required licenses or permits for the sale of
alcohol and tobacco products in a cost-effective manner or at all.
We will be required to obtain state licenses and permits for the sale of
alcohol and tobacco products in each location in which we seek to open a
distribution center. We cannot assure you that we will be able to obtain any
required permits or licenses in a timely manner, or at all. We may be forced to
incur substantial costs and experience significant delays in obtaining these
permits or licenses. In addition, the United States Congress is considering
enacting legislation which would restrict the interstate sale of alcoholic
beverages over the Internet. Changes to existing laws or our inability to obtain
required permits or licenses could prevent us from selling alcohol or tobacco
products in one or more of our geographic markets. Any of these events could
substantially harm our net sales, gross profit and ability to attract and retain
customers.
In the future we may face potential product liability claims.
We cannot assure you that the products that we deliver will be free from
contaminants. Grocery and other related products occasionally contain
contaminants due to inherent defects in the products or improper storage or
handling. If any of the products that we sell cause harm to any of our
customers, we could be subject to product liability lawsuits. If we are found
liable under a product liability claim, or even if we are required to defend
ourselves against such a claim, our reputation could suffer and customers may
substantially reduce their orders or stop ordering from us.
Our net sales would be harmed if we experience significant credit card fraud.
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<PAGE> 25
A failure to adequately control fraudulent credit card transactions
would harm our net sales and results of operations because we do not carry
insurance against this risk. We may suffer losses as a result of orders placed
with fraudulent credit card data even though the associated financial
institution approved payment of the orders. Under current credit card practices,
we are liable for fraudulent credit card transactions because we do not obtain a
cardholder's signature. Because we have had an extremely short operating
history, we cannot predict our future levels of bad debt expense.
If the protection of our trademarks and proprietary rights is inadequate, our
business may be seriously harmed.
We regard patent rights, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to our success. We rely
on patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights; however, the steps we take to
protect our proprietary rights may be inadequate. We currently have no patents.
We have filed, and from time to time expect to file, patent applications
directed to aspects of our proprietary technology. We cannot assure you that any
of these applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by third
parties. In addition, other parties may independently develop similar or
competing technology or design around any patents that may be issued to us. Our
failure to protect our proprietary rights could materially adversely affect our
business and competitive position.
Intellectual property claims against us can be costly and could result in the
loss of significant rights.
Patent, trademark and other intellectual property rights are becoming
increasingly important to us and other e-commerce vendors. Many companies are
devoting significant resources to developing patents that could affect many
aspects of our business. Other parties may assert infringement or unfair
competition claims against us that could relate to any aspect of our
technologies, business processes or other intellectual property. We cannot
predict whether third parties will assert claims of infringement against us, the
subject matter of any of these claims, or whether these assertions or
prosecutions will harm our business. If we are forced to defend ourselves
against any of these claims, whether they are with or without merit or are
determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, inability to use our current web site
technology, or product shipment delays. As a result of a dispute, we may have to
develop non-infringing technology or enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of patent
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology on a timely basis, our business
and competitive position may be materially adversely affected.
Any deficiencies in our systems or the systems of third parties on which we rely
could adversely affect our business and result in a loss of customers.
Our Webstore has experienced in the past and may experience in the
future slower response times or disruptions in service for a variety of reasons
including failures or interruptions in our
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<PAGE> 26
systems. In addition, our users depend on Internet service providers, online
service providers and other web site operators for access to our Webstore. Many
of them have experienced significant outages in the past and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. Moreover, the Internet infrastructure may not be able to support
continued growth in its use. Any of these problems could have a material adverse
effect on our business and could result in a loss of customers.
Our communications hardware and certain of our other computer hardware
operations are located at the facilities of Exodus Communications, Inc. in Santa
Clara, California. The hardware for our warehouse management and materials
handling systems is maintained in our Oakland, California distribution center.
Fires, floods, earthquakes, power losses, telecommunications failures, break-ins
and similar events could damage these systems or cause them to fail completely.
For instance, a power failure in October 1999 at the facilities of Exodus caused
our Webstore to be inaccessible for approximately two hours. To date, we have
experienced several other instances when our Webstore was inaccessible for
unexpected reasons. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our Webstore. Our business could
be adversely affected if our systems were affected by any of these occurrences.
Problems faced by Exodus, with the telecommunications network providers with
whom it contracts or with the systems by which it allocates capacity among its
customers, including Webvan, could adversely impact the customer shopping
experience and consequently, our business. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems.
We may be adversely impacted if the software, computer technology and other
systems we use are not year 2000 compliant.
Any failure of our material systems, our vendors' material systems or
the Internet to be year 2000 compliant would have material adverse consequences
for us. These consequences would include difficulties in operating our Webstore
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business. We also depend on the year 2000
compliance of the computer systems and financial services used by consumers. We
are in the process of completing identified remediation plans and implementing
contingency plans as part of our year 2000 initiative program, based on an
inventory and risk assessment of our critical assets and third party systems.
Exodus Communications, which hosts our web servers, has informed us that their
internal systems are year 2000 compliant. However, Exodus has not assured us as
to the year 2000 compliance of the third party systems and software upon which
they depend. A significant disruption in the ability of consumers to reliably
access the Internet, especially our Webstore, or to use their credit cards would
have an adverse effect on our operations and demand for our services.
Our officers and directors and their affiliates will exercise significant
control over Webvan.
Our executive officers and directors and their immediate family members
and affiliated venture capital funds beneficially owned, in the aggregate,
approximately 55.3% of our outstanding common stock as of November 10, 1999. As
a result, these stockholders are able to exercise significant control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could delay or prevent
someone from acquiring or merging with us.
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<PAGE> 27
It may be difficult for a third party to acquire us due to anti-takeover
provisions.
Provisions in our charter, as well as provisions of Delaware law, could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders
Our stock price could be volatile and could decline substantially.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
consumer-oriented Internet-related companies, have been highly volatile. The
price at which our common stock trades is likely to be volatile and may
fluctuate substantially due to factors such as: our historical and anticipated
quarterly and annual operating results; variations between our actual results
and the expectations of investors or published reports or analyses of Webvan;
announcements by us or others and developments affecting our business, systems
or expansion plans; and conditions and trends in e-commerce industries,
particularly the online grocery industry.
In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market price
of their securities. This type of litigation could result in substantial costs
and a diversion of management's attention and resources.
Future sales of our common stock may cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could decline. All of the
28,750,000 shares of our common stock sold in our initial public offering in
November 1999 are freely tradeable, without restriction, in the public market.
Our directors, officers and stockholders have entered into lock-up agreements in
connection with that offering generally providing that they will not offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
our common stock or any securities exercisable for or convertible into our
common stock without the prior written consent of Goldman, Sachs & Co. According
to the lock-up agreements, at any time beginning on the third day following the
public release of our earnings for the year ended December 31, 1999, each
stockholder may offer, sell, transfer, assign, pledge or otherwise dispose of up
to 15% of his or her shares beneficially owned as of December 31, 1999; and at
any time beginning on the 48th day following the public release of our earnings
for the year ended December 31, 1999, each stockholder may offer, sell,
transfer, assign, pledge or otherwise dispose of an additional 25% of his or her
shares beneficially owned as of December 31, 1999. The lock-up restrictions will
expire as to the remaining shares on May 3, 2000. As a result, a substantial
number of shares of our common stock will be eligible for sale in the public
market prior to the expiration of the customary 180-day lock-up period following
an initial public offering.
In addition, approximately 71.6 million shares under outstanding options
and warrants and approximately 10.2 million shares reserved for future issuance
under our stock option plans as of October 20, 1999 will be eligible for sale in
the public market subject to vesting, the expiration of lock-up agreements and
restrictions imposed under Rules 144 and 701 under the Securities Act of 1933,
as amended (the "Act").
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<PAGE> 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Webvan maintains a short-term investment portfolio primarily consisting
of corporate debt securities with maturities of thirteen months or less. These
available-for-sale securities are subject to interest rate risk and will rise
and fall in value if market interest rates change. The extent of this risk is
not quantifiable or predictable due to the variability of future interest rates.
Webvan does not expect any material loss with respect to its investment
portfolio.
Webvan's restricted cash balance is invested in certificates of deposit.
Accordingly, changes in market interest rates have no material effect on
Webvan's operating results, financial condition and cash flows. There is
inherent roll over risk on these certificates of deposit as they mature and are
renewed at current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.
The following table provides information about Webvan's investment
portfolio, restricted cash, capital lease obligations and long-term debt as of
September 30, 1999, and presents principal cash flows and related weighted
averages interest rates by expected maturity dates.
<TABLE>
<CAPTION>
YEAR OF MATURITY
----------------------------------------------------------------------- TOTAL
AFTER CARRYING
1999 2000 2001 2002 2003 2003 VALUE
---- ---- ---- ---- ---- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Equivalents .............. $26,391 -- -- -- -- -- $ 26,391
Average interest rate ........... 5.16% -- -- -- -- -- 5.16%
Corporate Debt Securities ......... $ 260,468 -- -- -- -- $ 260,468
Average interest rate ........... 5.93% -- -- -- -- 5.93%
Restricted Cash - Certificates
of Deposit ...................... $ 3,465 -- -- -- -- -- $ 3,465
Average interest rate ........... 4.72% -- -- -- -- -- 4.72%
Capital Lease Obligations ......... $ 151 $ 669 $ 773 $ 734 $ 283 -- $ 2,610
Average fixed interest rate ..... 15.75% 15.77% 15.81% 15.28% 13.81% -- 15.43%
Long-term Debt .................... $ 608 $ 3,931 $ 4,570 $ 5,140 $ 55 $ 6 $ 14,310
Average fixed interest rate ..... 16.19% 16.24% 16.24% 16.25% 9.68% 8.57% 16.21%
</TABLE>
Fair value approximates carrying value for the above financial instruments.
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
Item 2(c)
In July and August 1999, and prior to the closing of our initial public
offering, we issued an aggregate of 21,670,605 shares of Series D-2 Preferred
Stock to SOFTBANK Holdings, Inc., Goldman, Sachs & Co. and Sequoia Capital and
their affiliates for an aggregate amount of $274,999,997.40.
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<PAGE> 29
In July 1999 and prior to the closing of
our initial public offering, we issued warrants to purchase an aggregate of
1,812,000 shares of Series C Preferred Stock to Bechtel Corporation and Vintage
Island Partners with an aggregate exercise price of $4,209,880.
In August and September 1999, and prior to the closing of our initial
public offering, we issued 15,000 shares of common stock to Ramsey Beirne
Associates for services provided.
In September 1999, and prior to the closing of our initial public
offering, we issued 150,000 shares of Series C Preferred Stock to Bechtel
Corporation upon the exercise of an outstanding warrant for net proceeds of
$348,500.
During the quarter ended September 30, 1999 and prior to the closing of
our initial public offering we granted options to purchase 23,340,275 shares of
common stock to employees, consultants and other service providers of the
Company under our stock plans.
During the quarter ended September 30, 1999, we issued 2,345,387 shares
of Common Stock pursuant to the exercise of stock options at exercise prices
ranging from $0.00083 to $10.79. All of these stock options were granted under
our 1997 Stock Plan prior to our initial public offering.
There were no underwriters involved in connection with any transaction
set forth above. The issuances of these securities were deemed to be exempt from
registration under the Act in reliance upon Section 4(2) of the Act and
Regulation D promulgated thereunder in each case as transactions by an issuer
not involving a public offering or in reliance upon Rule 701 promulgated under
Section 3(b) of the Act.
In all of such transactions, the recipients of securities represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the securities issued.
Item 2(d)
On November 10, 1999, the Company completed the sale of an aggregate of
28,750,000 shares of its common stock, par value $0.0001 per share, at a price
of $15.00 per share in a firm commitment underwritten public offering. The
offering was effected pursuant to a Registration Statement on Form S-1
(Registration No. 333-84703), which the United States Securities and Exchange
Commission declared effective on November 4, 1999. Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette, Merrill Lynch & Co., Bear, Stearns & Co. Inc.,
Deutsche Banc Alex. Brown, Robertson Stephens and Thomas Weisel Partners LLC
were the lead underwriters for the offering.
Of the $431.25 million in aggregate proceeds raised by the Company in
the offering, (i) $22.5 million was paid to underwriters in connection with the
underwriting discount, and (ii) approximately $2.0 million was paid by the
Company in connection with offering expenses, printing fees, filing fees, and
legal fees. The legal fees included approximately $750,000 paid to Wilson
Sonsini, Goodrich & Rosati, Professional Corporation ("WSGR"), counsel to the
Company. Jeffrey D. Saper, a member of WSGR, is Secretary of the Company. There
were no other direct or indirect payments to directors or officers of the
Company or any other person or entity. The
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<PAGE> 30
Company expects to use the proceeds of the offering principally to fund the
construction of and equipment for distribution centers at an estimated cost of
$25.0 million to $35.0 million per distribution center. The Company also expects
to use the proceeds for general corporate purposes, including working capital
and the funding of expected operating losses. A portion of the proceeds may also
be used to pursue possible acquisitions of complementary businesses,
technologies or products. Pending such uses, the Company is investing the
proceeds in short-term, interest-bearing, investment-grade securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended September 30, 1999, the following matters were
submitted to the shareholders of Webvan Group, Inc., a California corporation
("Webvan California"). Webvan California merged into the Company on September
30, 1999 for the purpose of changing its state of incorporation to Delaware:
1. On July 15, 1999, prior to the Company's initial public offering, the
shareholders of Webvan California acting by written consent, approved an
amendment to its Restated Articles of Incorporation, to (i) effect a two-for-one
split of the outstanding shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, (ii) increase the
authorized shares of Common Stock from 240,000,000 shares (post-split) to
300,000,000 shares (post-split), (iii) increase the authorized shares of
Preferred Stock from 126,033,856 shares (post-split) to 160,181,480 shares
(post-split), (iii) create two new series of Preferred Stock known as "Series
D-1 Preferred" and "Series D-2 Preferred" each consisting of 17,073,812 shares
(post-split) and provide for the rights, privileges and preferences thereof.
Stockholders holding 86% of the shares (on an as if converted into Common Stock
basis) outstanding at that time, consented to the foregoing.
2. On August 31, 1999, prior to the Company's initial public offering,
the shareholders of Webvan California acting by written consent, approved (a) an
amendment to its Restated Articles of Incorporation, to (i) effect a
three-for-two split of the outstanding shares of Common Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, (ii) increase the authorized shares of Common Stock from
300,000,000 shares (pre-split) to 800,000,000 shares (post-split), (iii)
increase the authorized shares of Preferred Stock from 160,181,480 shares
(pre-split) to 250,272,270 shares (post-split); (b) an amendment and restatement
of the Company's 1997 Stock Plan to among other things (i) increase the number
of shares reserved for issuance thereunder by 7,500,000 shares (post-split),
(ii) provide for an automatic increase in the number of shares of Common Stock
reserved for issuance thereunder in the amount of the lesser of 16,000,000
million shares (post-split), 4% of the Company's outstanding capital stock or
such lesser number of shares as the Company's Board of Directors may determine;
(iii) the Company's 1999 Employee Stock Purchase Plan and the reservation of
5,000,000 shares (post-split) of Common Stock thereunder, with an automatic
annual increase in number of shares of Common Stock reserved for issuance
thereunder; and (iv) the Company's 1999 Nonstatutory Stock Option Plan and the
reservation of 5,000,000 shares (post-split) of Common Stock thereunder.
Stockholders holding 58% of the shares (on an as if converted into Common Stock
basis) outstanding at that time, consented to the foregoing.
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<PAGE> 31
3. On September 21, 1999, prior to the Company's initial public
offering, the shareholders of Webvan California acting by written consent
approved the reincorporation merger of Webvan California with and into its
wholly-owned subsidiary Webvan Group, Inc., a Delaware corporation, with Webvan
Group, Inc., a Delaware corporation the surviving corporation. Stockholders
holding 67% of the shares (on an as if converted into Common Stock basis)
outstanding at that time, consented to the foregoing.
During the three months ended September 30, 1999, the Company submitted the
following matters to its stockholders by written consent in lieu of a
stockholders meeting:
1. On September 20, 1999, prior to the Company's initial public
offering, Webvan California, the Company's then sole stockholder, acting by
written consent, approved (i) the amendment and restatement of the Company's
Certificate of Incorporation and (ii) the reincorporation merger of Webvan
California with and into the Company with the Company as the surviving
corporation.
2. On September 30, 1999, prior to the Company's initial public
offering, Webvan California, the Company's then sole stockholder, acting by
written consent, approved, among other things, the amendment and restatement of
the Company's Restated Certificate of Incorporation.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended September 30, 1999.
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<PAGE> 32
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.
WEBVAN GROUP, INC.
(Registrant)
By: /s/ KEVIN R. CZINGER
------------------------------------
Kevin R. Czinger
Senior Vice President, Corporate Operations
and Finance (Principal Financial Officer)
Date: November 29, 1999
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<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 26,391
<SECURITIES> 260,468
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,313
<CURRENT-ASSETS> 290,073
<PP&E> 71,999
<DEPRECIATION> (4,749)
<TOTAL-ASSETS> 368,468
<CURRENT-LIABILITIES> 20,408
<BONDS> 0
0
393,618
<COMMON> 153,061
<OTHER-SE> (213,239)
<TOTAL-LIABILITY-AND-EQUITY> 368,468
<SALES> 4,236
<TOTAL-REVENUES> 4,236
<CGS> 3,910
<TOTAL-COSTS> 3,910
<OTHER-EXPENSES> 98,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,995
<INCOME-PRETAX> (95,571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,571)
<EPS-BASIC> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
