<PAGE>
UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 16, 2000
HEALTHCENTRAL.COM
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-27567 94-3250851
---------------- ------------------------ -------------------
(Jurisdiction of (Commission file number) (I.R.S. Employer
incorporation) Identification No.)
HealthCentral.com
6001 Shellmound Street, Suite 800
Emeryville, CA 94608
------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 250-2500
Not Applicable
------------------------------------------------------------------
(Former name or address, if changed since last report)
ITEM 2. Acquisition or Disposition of Assets
On June 19, 2000, Registrant filed a Current Report on Form 8-K to announce
the acquisition of Vitamins.com, Inc., a Delaware corporation. This amendment to
<PAGE>
Registrant's Current Report on Form 8-K is being filed to include the Financial
Statements and Pro Forma Financial Information required by Item 7 of Form 8-K.
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of the Business Acquired.
See Page F-1 of this Report
(b) Pro Forma Financial Information.
See Page F-23 of this Report
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 duly
authorized undersigned.
Date: August 30, 2000 HealthCentral.com
/s/ C. Fred Toney
------------------------------------
C. Fred Toney
Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Vitamins.com, Inc.:
We have audited the accompanying consolidated balance sheets of Vitamins.com,
Inc. (formerly Vitamin Superstore, LLC; the "Company," a Delaware
corporation), as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Vitamins.com, Inc., as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Management plans to
raise sufficient financing to meet its needs for the coming year (see Note 1).
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 17, 2000 (except with
respect to the matter discussed
in Note 9, as to which the
date is June 16, 2000)
F-1
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
1998 1999 2000
----------- ------------ ------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 3,010,496 $ 6,035,125 $ 541,218
Accounts receivable, net......................................................... 17,560 570,706 173,754
Purchase price receivable........................................................ -- 553,503 --
Inventory........................................................................ 1,310,256 5,464,633 4,070,545
Prepaid expenses................................................................. 58,506 907,617 1,178,288
----------- ------------ ------------
Total current assets............................................................ 4,396,818 13,531,584 5,963,805
----------- ------------ ------------
Property and equipment, at cost:
Store and warehouse equipment.................................................... 1,054,573 2,392,402 2,463,447
Office equipment................................................................. 226,992 314,833 340,309
Leasehold improvements........................................................... 851,787 1,466,793 1,489,200
----------- ------------ ------------
2,133,352 4,174,028 4,292,956
Less--Accumulated depreciation and amortization.................................. (243,111) (745,469) (932,976)
----------- ------------ ------------
Net property and equipment...................................................... 1,890,241 3,428,559 3,359,980
Web development costs, net........................................................ -- 1,039,715 1,759,411
Intangible assets, at cost:
Domain name...................................................................... -- 1,540,583 1,540,583
Customer list.................................................................... -- 1,566,279 1,566,279
Goodwill......................................................................... -- 9,525,923 9,525,923
----------- ------------ ------------
-- 12,632,785 12,632,785
Less--Accumulated amortization................................................... -- (323,260) (546,110)
----------- ------------ ------------
Net intangible assets........................................................... -- 12,309,525 12,086,675
Other assets...................................................................... 239,319 385,511 372,487
----------- ------------ ------------
Total assets.................................................................... $ 6,526,378 $ 30,694,894 $ 23,542,358
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................. $ 1,160,557 $ 6,854,873 $ 5,584,750
Accrued expenses................................................................. 145,134 1,268,698 2,540,069
Current portion of capital lease obligations..................................... 138,477 178,560 180,178
----------- ------------ ------------
Total current liabilities....................................................... 1,444,168 8,302,131 8,304,997
Capital lease obligations, net of current portion................................. 218,047 329,087 290,675
Deferred rent liability, net of current portion................................... 125,305 171,727 178,158
----------- ------------ ------------
Total liabilities............................................................... 1,787,520 8,802,945 8,773,830
----------- ------------ ------------
Commitments and contingencies (Note 7)
Series A Convertible Redeemable Preferred Stock, par value $.001; 11,627,573
shares authorized, issued and outstanding; aggregate liquidation
preference of $7,105,610 -- 7,105,610 7,105,610
Series B Convertible Redeemable Preferred Stock, par value $.001; 10,038,925
shares authorized, issued and outstanding; aggregate liquidation
preference of $6,134,787 -- 6,134,787 6,134,787
Series C Convertible Redeemable Preferred Stock, par value $.001; 28,000,000
shares authorized; 23,325,000 issued and outstanding; aggregate
liquidation preference of $23,325,000 -- 23,325,000 23,325,000
Stockholders' equity (deficit) (Notes 2 and 3):
Common stock, par value $.001; 66,650,000 shares authorized; 9,169,087
shares issued and outstanding in December 31, 1998, 12,974,414 issued
and outstanding at December 31, 1999 and March 31, 2000 (unaudited)............ 9,169 12,975 12,975
Due from stockholders............................................................ (4,535,780) (59,526) (59,526)
Additional paid-in capital....................................................... 11,966,611 17,241,408 17,241,408
Accumulated deficit.............................................................. (2,701,142) (31,868,305) (38,991,726)
----------- ------------ ------------
Total stockholders' equity (deficit)............................................ 4,738,858 (14,673,448) (21,796,869)
----------- ------------ ------------
Total liabilities and stockholders' equity (deficit)............................ $ 6,526,378 $ 30,694,894 $ 23,542,358
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
------------------------ ----------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $ 436,406 $ 4,340,297 $ 16,940,977 $1,887,959 $ 9,202,746
Cost of sales...................................... 288,751 2,646,179 11,797,099 1,162,852 6,491,855
----------- ----------- ------------ ---------- -----------
Gross profit....................................... 147,655 1,694,118 5,143,878 725,107 2,710,891
Selling and administrative expenses................ 1,254,149 2,688,008 13,438,817 1,023,038 6,916,618
Advertising and marketing expenses................. 154,109 324,051 7,749,174 214,679 2,559,820
Stock-based compensation expense................... -- -- 1,306,128 -- --
Website development expense........................ -- -- 857,712 32,710 --
Amortization....................................... -- -- 323,261 -- 385,834
----------- ----------- ------------ ---------- -----------
Operating loss..................................... (1,260,603) (1,317,941) (18,531,214) (545,320) (7,151,381)
Loss on sale of assets............................. -- -- (32,568) -- --
Interest income (expense), net..................... (2,997) (20,519) 284,161 16,103 27,960
----------- ----------- ------------ ---------- -----------
Net loss........................................... $(1,263,600) $(1,338,460) $(18,279,621) $ (529,217) $(7,123,421)
=========== =========== ============ ========== ===========
Basic and diluted net loss per common share........ $ (.23) $ (.22) $ (1.65) $ (.06) $ (.55)
=========== =========== ============ ========== ===========
Weighted average common shares outstanding......... 5,464,790 6,064,051 11,054,837 9,169,087 12,974,414
=========== =========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Convertible Redeemable Preferred Stock
--------------------------------------------------------------------------
Series A Series B Series C
----------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.
-- $ -- -- $ -- -- $ --
Shares issued for notes
receivable............................ -- -- -- -- -- --
Shares issued.......................... -- -- -- -- -- --
Net loss............................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ------------
Balance at December 31, 1997........... -- -- -- -- -- --
Shares issued for notes
receivable............................ -- -- -- -- -- --
Shares issued, net of offering
costs of $200,000..................... -- -- -- -- -- --
Net loss............................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ------------
Balance at December 31, 1998........... -- -- -- -- -- --
Shares issued for domain name
purchase.............................. -- -- -- -- -- --
Exercise of Dilution Right
(Note 3).............................. -- -- -- -- -- --
Forgiveness of note receivable
from stockholder...................... -- -- -- -- -- --
Collection of notes receivable
from stockholders..................... -- -- -- -- -- --
Recapitalization (Note 2).............. 11,627,573 7,105,610 6,092,757 3,723,284 -- --
Shares issued for the purchase
of L&H................................ -- -- 3,946,168 2,411,503 -- --
Shares issued, net of offering
costs of $207,232..................... -- -- -- -- 23,325,000 23,325,000
Shares issued for note
receivable............................ -- -- -- -- -- --
Stock-based compensation............... -- -- -- -- -- --
Net loss............................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ------------
Balance at December 31, 1999........... 11,627,573 7,105,610 10,038,925 6,134,787 23,325,000 23,325,000
Net loss (unaudited)................... -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ------------
Balance at March 31, 2000
(unaudited)........................... 11,627,573 $ 7,105,610 10,038,925 $ 6,134,787 23,325,000 $ 23,325,000
========== =========== ========== =========== ========== ============
<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------------------------------------------
Additional
-----------
Due From Paid-In Accumulated
------------ ----------- ------------
Common Stock Stockholders Capital Deficit Total
--------------------- ------------ ----------- ------------ ------------
Shares Amount
----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.
5,224,669 $ 5,225 $ -- $ 64,775 $ (99,082) $ (29,082)
Shares issued for notes
receivable............................ 184,853 185 (1,175,780) 1,175,595 --
Shares issued.......................... 278,275 278 -- 1,769,722 -- 1,770,000
Net loss............................... -- -- -- -- (1,263,600) (1,263,600)
----------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1997........... 5,687,797 5,688 (1,175,780) 3,010,092 (1,362,682) 477,318
Shares issued for notes
receivable............................ 1,576,579 1,576 (3,360,000) 3,358,424 -- --
Shares issued, net of offering
costs of $200,000..................... 1,904,711 1,905 -- 5,598,095 -- 5,600,000
Net loss............................... -- -- -- -- (1,338,460) (1,338,460)
----------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1998........... 9,169,087 9,169 (4,535,780) 11,966,611 (2,701,142) 4,738,858
Shares issued for domain name
purchase.............................. 500,709 501 -- 1,249,499 -- 1,250,000
Exercise of Dilution Right
(Note 3).............................. 675,594 676 -- (676) -- --
Forgiveness of note receivable
from stockholder...................... -- -- 1,175,780 -- -- 1,175,780
Collection of notes receivable
from stockholders..................... -- -- 3,360,000 -- -- 3,360,000
Recapitalization (Note 2).............. -- -- -- -- (10,828,894) (10,828,894)
Shares issued for the purchase
of L&H................................ 2,303,832 2,304 -- 3,836,193 -- 3,838,497
Shares issued, net of offering
costs of $207,232..................... 232,280 232 -- -- (58,648) (58,416)
Shares issued for note
receivable............................ 92,912 93 (59,526) 59,433 -- --
Stock-based compensation............... -- -- -- 130,348 -- 130,348
Net loss............................... -- -- -- -- (18,279,621) (18,279,621)
----------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1999........... 12,974,414 12,975 (59,526) 17,241,408 (31,868,305) (14,673,448)
Net loss (unaudited)................... -- -- -- -- (7,123,421) (7,123,421)
----------- ------- ----------- ----------- ------------ ------------
Balance at March 31, 2000
(unaudited)........................... 12,974,414 $12,975 $ (59,526) $17,241,408 $(38,991,726) $(21,796,869)
=========== ======= =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
VITAMINS.COM,INC.
(formerly Vitamin Superstore, LLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended
------------------------ ------------------
March 31,
---------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -----------
(unaudited)
-----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,263,600) $(1,338,460) $(18,279,621) $ (529,217) $(7,123,421)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 24,612 218,403 898,989 96,803 573,340
Stock-based compensation expense......................... -- -- 1,306,128 -- --
Loss on sale of property and equipment................... -- -- 32,568 -- --
Increase in deferred rent liability...................... 15,708 109,597 46,422 3,639 6,431
Changes in operating assets and liabilities, net of
effect of acquisition:
Accounts receivable.................................... -- (17,560) (178,483) 7,020 396,952
Inventory.............................................. (370,014) (940,242) (2,858,812) (51,452) 1,394,088
Prepaid expenses....................................... (18,859) (39,647) (550,088) (36,934) (270,671)
Other long-term assets................................. (102,590) (136,729) (146,192) 33,144 13,024
Accounts payable....................................... 668,485 492,072 4,402,534 (323,844) (1,270,123)
Accrued expenses....................................... 49,084 59,208 244,797 84,764 1,271,371
----------- ----------- ------------ ----------- -----------
Net cash used in operating activities................ (997,174) (1,593,358) (15,081,758) (716,077) (5,009,009)
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment....................... (640,029) (990,300) (1,471,272) (603,719) (95,954)
Proceeds from the sale of property and equipment.......... -- -- 1,625 -- --
Cash paid for domain name and website development......... -- -- (1,390,069) -- (882,679)
Acquisition of L&H, net of cash acquired.................. -- -- (5,532,508) -- --
Collection of purchase price receivable................... -- -- -- -- 553,503
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities................ (640,029) (990,300) (8,392,224) (603,719) (425,130)
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Payments under capital lease obligations.................. (19,663) (124,005) (127,973) (28,881) (59,768)
Collection of notes receivable............................ -- -- 3,360,000 -- --
Proceeds from the issuance of stock, net of offering
costs.................................................... 1,770,000 5,600,000 23,266,584 -- --
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) financing activities.. 1,750,337 5,475,995 26,498,611 (28,881) (59,768)
----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents...... 113,134 2,892,337 3,024,629 (1,348,677) (5,493,907)
Cash and cash equivalents, beginning of period............ 5,025 118,159 3,010,496 3,010,496 6,035,125
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents, end of period.................. $ 118,159 $ 3,010,496 $ 6,035,125 $ 1,661,819 $ 541,218
=========== =========== ============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 5,918 $ 37,065 $ 42,583 $ 10,348 $ 14,675
=========== =========== ============ =========== ===========
Supplemental disclosures of noncash investing and
financing activities:
Equipment financed through capital leases................ 235,130 138,314 279,096 12,643 22,974
Contribution of note receivable to purchase shares....... -- 3,360,000 59,526 -- --
Contribution (forgiveness) of note from stockholder...... 1,175,780 -- (1,175,780) -- --
Common Stock issued in conjunction with the domain
name purchase.......................................... -- -- 1,250,000 -- --
Series B Convertible Redeemable Preferred and common
stock issued in conjunction with the purchase of L&H... -- -- 6,250,000 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000 and March 31, 2000
(Information as of March 31, 2000 and for Three Months Ended March 31, 1999 and
2000 are unaudited)
1. Organization and Summary of Significant Accounting Policies:
Vitamins.com, Inc. (formerly Vitamin Superstore, LLC; the "Company"), was
founded in 1995 as a Delaware limited liability company and converted to a C
corporation in August 1999.
The Company sells primarily vitamins and nutritional supplements through a
multi-channel approach that includes retail stores, an Internet website, and a
catalog division. As of December 31, 1997, 1998 and 1999, the Company operated
two, six and ten stores, respectively, in Virginia and Maryland. In May 1999,
the Company launched the website www.vitamins.com to facilitate sales to a
national audience.
The Company purchased L&H Vitamins, Inc., and its affiliate J&M Direct
Corporation (together "L&H") in August 1999 to obtain a nationally recognized
catalog operation and to expand its fulfillment and warehousing activities to
accommodate sales growth from the Internet website (see Note 4).
Unaudited Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 2000, and the
accompanying consolidated statements of operations and cash flows for the three
months ended March 31, 1999 and 2000, are unaudited. The unaudited consolidated
financial statements include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of such financial statements. The data disclosed in the notes to
the financial statements for these periods are unaudited. The results of
operations for the three months ended March 31, 2000, are not necessarily
indicative of the results expected for the entire fiscal year.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the Company
and its wholly owned subsidiary L&H. All significant intercompany accounts,
balances, and transactions have been eliminated in consolidation.
F-6
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risks and Liquidity
Since inception, the Company has generated a net loss from operations and
has required capital to open new stores, acquire L&H, and launch its website.
The Company has funded its operations through capital contributions and the
issuance of common and preferred stock. The Company will need additional
financing in the coming year to fund its continuing operations and capital
expenditures. There can be no assurance that such financing will be available.
If the Company is not able to raise additional financing, the Company may not
have adequate capital to fund its operations or meet its growth strategy.
The Company's operations are subject to a number of risks, including
competitors with greater access to capital, dependence on key management
personnel, and uncertainty of future profitability.
Credit Risk
The Company's assets that are exposed to credit risk consist primarily of
cash and cash equivalents. The Company generally does not extend credit to
customers, except through the use of third-party credit cards. Credit under
these accounts is extended by third parties, and accordingly, the Company bears
no financial risk under these agreements except in the case of fraud.
Significant accounts receivable balances reflect amounts due from the third-
party processors and are usually received within several days. The Company has
historically experienced only immaterial and infrequent bad debt write-offs and
has therefore recorded an allowance for doubtful accounts of approximately
$15,000 as of December 31, 1999.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts and notes receivable, and accounts payable, are carried at cost, which
approximates fair value because of the short-term maturity of these financial
instruments. The carrying value of the capital lease obligations approximates
fair value because the interest rates on these obligations are comparable to the
interest rates that could be obtained currently.
F-7
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with
original maturities of three months or less to be cash equivalents. As of
December 31, 1997, 1998 and 1999, cash and cash equivalents consisted primarily
of money market demand deposits. The Company maintains a bank account with a
federally insured financial institution. At times, balances may exceed insured
limits.
Inventory
The Company's inventory is priced at the lower of cost or market. The
Company uses the weighted-average method of inventory costing.
Property and Equipment
Property and equipment are stated at cost. The Company depreciates property
and equipment using the straight-line method over the estimated useful lives of
the assets, generally three to seven years. Amortization of leasehold
improvements is provided on a straight-line basis over the estimated useful
lives of the assets or the remaining lease term, whichever is shorter.
Maintenance and repairs are charged directly to expense as incurred.
Web Development Costs
The Company accounts for web development costs in accordance with the AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Web development costs consist of
external costs incurred to purchase and implement the web software and
enhancements used in the Company's business. These costs are amortized using the
straight-line method over a useful life of 30 months. Amortization expense for
the year ended December 31, 1999, includes approximately $59,800 related to web
development costs.
F-8
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Internal and external costs of developing web content are expensed as
incurred and are included in selling and administrative expenses in the
accompanying consolidated statements of operations.
The Emerging Issues Task Force is currently reviewing issues related to the
accounting for the costs of developing a website, but it has not yet reached a
final consensus. Management will follow the appropriate guidance when the final
consensus is reached.
Intangible Assets
Intangible assets include purchased customer lists, the Company's domain
name, and goodwill generated from the purchase of L&H and are amortized using
the straight-line method over their estimated useful lives of 6, 10, and 20
years, respectively.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," issued by the Financial Accounting Standards Board
("FASB"). SFAS No. 121 requires recognition of impairment of long-lived assets
in the event that the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
Revenue Recognition
The Company recognizes revenue for the sale of its vitamins and vitamin
supplements through its Internet and catalog delivery channels at the time the
product is shipped to the customer. Net revenue includes outbound shipping and
handling charges incurred by the customer and is shown net of the Company's
discounts presented to customers at the time of purchase, including one-time
discounts on initial e-commerce sales. Costs of outbound shipping from the
Company are included in selling and administrative expenses in the accompanying
consolidated statements of operations.
F-9
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising and Marketing Expense
Advertising and marketing expenses include advertising and promotional
expenditures related to building the Company's brand awareness. The Company uses
media such as television, radio, print, and Internet advertisements to promote
its brand. Advertising costs are expensed as incurred.
Website Development Expense
The Company launched its initial website in May 1999 in order to begin its
e-commerce business. In October 1999, the Company abandoned the initial website
and launched a more sophisticated e-commerce website that enables it to sell
vitamins and vitamin supplements throughout the United States. Accordingly, all
costs related to development of the initial website were expensed.
Income Taxes
Until August 15, 1999, the Company operated as a limited liability company
("LLC") as defined by the Internal Revenue Code, whereby the Company was not
subject to taxation for federal or state purposes. The limited liability
company's members reported their shares of the Company's taxable earnings or
losses on their respective tax returns.
As of August 15, 1999, the Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred
tax assets or liabilities are computed based on the difference between financial
statement and income tax bases of assets and liabilities using the enacted
marginal tax rate. Deferred income tax expenses or credits are based on the
changes in the asset or liability from period to period. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
F-10
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Loss per Share
SFAS No. 128, "Earnings Per Share," requires the presentation of basic
and diluted earnings per share. Basic net income (loss) per share is computed by
dividing income (loss) by the weighted average number of common shares
outstanding for the period. The diluted net income (loss) per share data is
computed using the weighted average number of common shares outstanding plus the
dilutive effect of common stock equivalents, unless the common stock equivalents
are antidilutive.
Options to acquire approximately 969,000 shares of common stock and
preferred shares that are convertible into approximately 44,991,000 shares of
common stock as of December 31, 1999 were excluded from the computation of
diluted loss per share because inclusion of these amounts would have an
antidilutive effect on loss per share.
Store Openings
All costs of a noncapital nature incurred in opening a new store are
charged to expense as incurred.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133.
SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Vitamins.com will adopt SFAS No. 133 during its
year ending December 31, 2001. To date, Vitamins.com has not engaged in
derivative or hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin No. (SAB) 101,
Revenue Recognition in Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. This bulletin outlines the basic criteria that must be met
to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. Vitamins.com's management believes that the impact of SAB
No. 101 will not have a material effect on the financial position or results of
operations of Vitamins.com.
Reclassifications
Certain prior-year balances have been reclassified to conform to the current-
year presentation.
2. Stockholders' Equity (Deficit):
The Company was initially formed as an LLC and capitalized in 1995 with a
contribution of $1,000 under an LLC agreement (the "LLC Agreement"). The LLC
Agreement was subsequently amended in March 1997, March 1998, and December 1998.
On August 1999, the LLC became a wholly owned subsidiary of the Company, which
was formed at that time as a C corporation (the "Recapitalization"). To effect
the Recapitalization, all member interests and rights to acquire member
interests in the LLC were exchanged for common stock, options to acquire common
stock, and convertible preferred stock of the Company. Each stockholder received
approximately 1.71 shares of preferred stock together with every share of common
stock issued by the Company. Though the preferred stock was issued as an
F-12
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
integrated part of the transfer of the interests in the LLC to the Company, for
financial reporting purposes the issuance of the preferred stock was accounted
for as a noncash dividend. All share and per share amounts have been restated to
reflect these events.
The Company has authorized the issuance of Series A Preferred, Series B
Preferred, and Series C Preferred Stock (together, the "Preferred Stock").
Each share of the Preferred Stock is convertible, at any time, at the option of
the holder into one share of the Company's common stock. Additionally, in the
event of a public offering of the Company's equity securities in which the price
per share is at least $5.00 and which results in gross proceeds to the Company
of $20,000,000 or more, each outstanding share of Preferred Stock will
automatically convert into one share of common stock.
Each share of Preferred Stock entitles the holder to voting rights
substantially equal to the voting rights of the common stock into which it is
convertible. In accordance with the restated certificate of incorporation,
certain amendments to existing agreements require the consent of the majority of
the holders of Series A Preferred, Series B Preferred, and Series C Preferred
Stock voting each as a separate series.
The holders of Series A Preferred, Series B Preferred, and Series C Preferred
Stock are entitled to receive, when and if declared by the Board of Directors,
annual dividends of approximately $.06, $.06, and $.10 per share, respectively.
The preferred dividends are not cumulative. The Company did not declare any
dividends for the year ended December 31, 1999.
In the event of liquidation, dissolution, or winding-up of the Company, the
holders of Series A Preferred, Series B Preferred, and Series C Preferred Stock
are entitled to receive in preference to the holders of the common stock, any
distribution of the Company's assets, in an amount per share equal to
approximately $.61, $.61, and $1.00, respectively, plus any declared but unpaid
dividends.
F-13
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At any time after August 16, 2003, holders of the Preferred Stock may require
the Company to redeem the Series A Preferred, Series B Preferred, and Series C
Preferred Stock for cash of approximately $.61, $.61, and $1.00 per share,
respectively. The redemption must be approved by a majority of the Series C
Preferred and a majority of the Series A Preferred or a majority of the Series B
Preferred stockholders.
In 1997, the Company entered into a subscription agreement (the "First
Subscription Agreement") to issue 184,853 units of LLC member interests in
return for the assignment to the Company of a note valued at $1,175,780
including interest. The assignor of the note was an existing member of the
Company. The First Subscription Agreement contained a redemption right whereby,
at any time from March 7, 1999, to March 7, 2005, the Company could repurchase
the units issued under the Subscription Agreement for $1,153,800 plus 8 percent
per annum. In 1999, the Company distributed the note to its maker as a
distribution with respect to his capital account in the Company. For financial
reporting purposes, the transfer of the note was reflected as a period expense
in the amount of $1,175,780. The First Subscription Agreement was effectively
terminated in August 1999 as a result of the acquisition by the Company of all
the interests in the LLC.
In March 1998, the Company entered into a second subscription agreement (the
"Second Subscription Agreement") to issue 268,961 units of LLC member
interests in the Company for $2,000,000. The Second Subscription Agreement
contained a redemption right whereby, at any time from March 7, 1999, to March
7, 2005, the Company could repurchase the units issued under the Second
Subscription Agreement for $2,000,000 plus 8 percent per annum. The Second
Subscription Agreement was effectively terminated in August 1999 as a result of
the acquisition by the Company of all the interests in the LLC.
In December 1998, the Company entered into a third subscription agreement
(the "Third Subscription Agreement") to issue 3,056,331 units of LLC member
interests in the Company for the $3 million currently paid plus a $3 million
deferred contribution obligation. The Third Subscription Agreement contained
redemption rights whereby, at any time from June 10, 2003, to June 10, 2004, the
Company could repurchase or the LLC member could sell the interests issued under
the Third Subscription Agreement at fair market value.
F-14
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Third Subscription Agreement, the original LLC members agreed to a
deferred contribution obligation of an additional $360,000. The issuance costs
associated with this transaction totaled $200,000 and are reflected as a
reduction of the related contribution in the accompanying consolidated financial
statements. The deferred contribution obligations of $3,360,000 were satisfied
in 1999 by transfers of the specified amounts in cash to the Company. The Third
Subscription Agreement was effectively terminated in August 1999 as a result of
the acquisition by the Company of all the interests in the LLC.
Pursuant to an agreement in March 1999, the Company issued 325,192 units of
LLC member interests in August 1999 to members of the Board of Directors and an
executive of the Company for a total of $208,342 or approximately $.64 per
share. Payment of $148,816 was received in cash, and a note was issued to the
Company for $59,526. The difference between the purchase price of the units and
their fair market value in August 1999 has been recorded as a current period
expense of $90,908 in the accompanying consolidated statements of operations.
3. Options and Rights to Acquire Interests in the Company:
In connection with the sale of LLC member interests to a new investor in
December 1998 under the Third Subscription Agreement, the Company granted to
Robert M. Haft (acting as nominee for the LLC's founders), a right (the
``Dilution Right''), exercisable at any time before December 16, 2008, to
purchase up to an additional 1,998,998 units of LLC member interests in the
Company, at approximately $1.96 per unit. Because the number of units issued to
the new investor under the Third Subscription Agreement was based on an assumed
enterprise value of $1.96 per unit, the effect of the Dilution Right, if
exercised, was to reduce the percentage interest in the Company acquired by the
new investor if and when the Company achieved an enterprise value that was
higher than the enterprise value of the Company that had been used to determine
the initial purchase price paid by the new investor under the Third Subscription
Agreement. In June 1999, the Company issued 675,594 units of LLC member
interests in consideration for the cancellation of this right.
F-15
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 15, 1999, the Company adopted the Vitamins.com, Inc. 1999 Stock
Incentive Plan (the "Plan"), which authorizes the Company to grant options and
awards to purchase up to an aggregate of 4,009,088 shares of common stock. Under
the Plan, incentive and nonqualified stock options and other awards may be
granted to employees, officers, directors, advisors, and consultants. Options
are granted by a Board-- appointed committee (the "Committee"). Each
outstanding option granted under the Plan expires at various dates, not to
exceed ten years from the date of the grant, and becomes exercisable in varying
installments as determined by the Committee at the date of the grant.
The status of the options granted under the Plan as of December 31, 1999, and
changes during the year then ended is presented below:
<TABLE>
<CAPTION>
Weighted
--------
Average
-------
Shares Exercise Price
Options -------- --------------
-----------------------------------------------
<S> <C> <C>
Outstanding, beginning of year ...................... -- $ --
Granted............................................... 969,016 1.05
Exercised............................................. -- --
Forfeited............................................. -- --
--------
Outstanding, end of year.............................. 969,016 1.05
========
Options exercisable at year-end....................... 69,684
========
Weighted-average fair value of options granted during the year $ 1.24
========
</TABLE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 defines a "fair value based method" of accounting
for stock-based compensation. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. Prior to the issuance of SFAS No. 123,
stock-based compensation was accounted for under the "intrinsic value method"
as defined by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Under the intrinsic value method, compensation
is the excess, if any, of the market price of the stock, at grant date or other
measurement date, over the amount an employee must pay to acquire the stock.
F-16
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 123 allows the entity to continue to use the intrinsic value method.
However, entities electing to apply APB Opinion No. 25 must make pro forma
disclosures as if the fair value based method of accounting had been applied.
The Company applies APB Opinion No. 25 and the related interpretations in
accounting for its stock-based compensation. Under APB Opinion No. 25,
compensation expense of $39,440 has been recorded in the accompanying
consolidated financial statements related to 1999 stock option grants.
If the Company had applied SFAS No. 123, the net loss for the years ended
December 31, 1998 and 1999, would have increased as follows:
1998 1999
-------------- ----------------
Net loss:
As reported.... $(1,338,460) $(18,279,621)
Pro forma...... $(2,725,989) $(18,662,989)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model based on the following assumptions: no
dividend yield, expected volatility of zero, risk-free interest rate of 5.5
percent, and an expected term of ten years.
4. Acquisitions:
Purchase of the Domain Name
Pursuant to an agreement in March 1999, the Company purchased the domain
name, www.vitamins.com (the "Domain Name"), the Vitamins.com website, and
copyrighted content available on that website in April 1999. The Company paid
$290,583 in cash, which includes direct costs of the purchase of $40,583, and
issued 500,709 shares of common stock that were valued at approximately $2.50
per share.
F-17
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase of L&H Vitamins, Inc.
On August 16, 1999, the Company acquired L&H Vitamins, Inc., and its
affiliate for a total purchase price of $5,563,822 in cash, which includes
acquisition costs of $230,323, and 2,303,832 and 3,946,168 shares of the
Company's common and Series B Preferred stock, respectively, valued at $1.00 per
share. The purchase price was subsequently reduced based on L&H's adjusted net
worth, and the Company has recorded the reduction of $553,503 as a purchase
price receivable. In addition, the former owners of L&H have been granted
employment agreements with the Company for a period of four years.
The acquisition has been accounted for as a stock purchase. The purchase
price has been allocated as follows:
Cash.................................. $ 31,314
Account receivable.................... 374,663
Inventory............................. 1,295,565
Property and other assets............. 637,123
Customer list......................... 1,566,279
Goodwill.............................. 9,525,923
Liabilities assumed................... (2,170,548)
Stock consideration................... (6,250,000)
Purchase price receivable............. 553,503
-----------
Payment for acquisition............... 5,563,822
Less--Cash acquired................... (31,314)
-----------
Payment for acquisition, net of cash acquired. $ 5,532,508
===========
The unaudited pro forma summary information for the years ended December 31,
1998 and 1999 assumes that the acquisition of L&H had been consummated on
January 1, 1998.
1998 1999
---------- ----------
(unaudited)
Net sales..................................... $26,070,392 $ 30,576,210
Net loss attributable to common stockholders.. (2,412,050) (19,862,496)
Basic and diluted net loss per share.......... $ (.40) $ (1.80)
F-18
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Accrued Expenses:
Accrued expenses consisted of the following:
December 31,
------------
1998 1999
-------- ----------
Accrued payroll and related expenses $ 56,946 $ 395,994
Accrued taxes 14,453 104,287
Accrued professional fees 18,000 275,000
Frequent buyer program liability -- 320,994
Other accrued liabilities 55,735 172,423
-------- ----------
Total $145,134 $1,268,698
======== ==========
6. Income Taxes:
The Company did not provide an income tax benefit for the period presented
because, based on a number of factors, there is sufficient uncertainty regarding
the realizability of carryforwards that a full valuation allowance has been
recorded against the net deferred tax asset. The significant components of the
net deferred tax asset at December 31, 1999, were as follows:
Deferred tax assets:
Coupon liability $ 112,332
Accrued payroll 65,100
Amortization 29,913
Inventory 28,000
Customer deposits 27,300
Professional fees 36,750
Other 8,590
-----------
Gross deferred tax assets 307,985
Deferred tax liability:
Depreciation and amortization (7,999)
Net operating loss carryforward 4,887,364
-----------
Net tax asset 5,187,350
Valuation allowance (5,187,350)
-----------
$ --
===========
F-19
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Internal Revenue Code stipulates that the loss may be carried forward for
a period of 20 years and may be used to offset future taxable income. Despite
the net operating loss ("NOL") carryforward, the Company may have an income
tax liability in future years due to the application of the alternative minimum
tax rules. The NOL may also be limited in its ability to offset future income in
the event that there is a change in the stock ownership as defined by federal
tax regulations.
7. Commitments and Contingencies:
Lease Commitments
The Company leases its office and retail store facilities under noncancelable
lease agreements ranging from three to ten years. Renewal options are available
on the majority of the leases for one or more periods of five years each. The
leases provide for minimum rent, with certain retail store leases providing for
a pro rata share of common operating expenses and additional contingent rent
based upon a percentage of sales. Certain of these lease agreements contain rent
abatements and escalation clauses that are accrued to rent expense on a
straight-line basis. Total rent expense was approximately $94,017, $529,000
and $1,058,000 for the years ended December 31, 1997, 1998 and 1999,
respectively, of which approximately $74,000, $405,000 and $902,000 were for the
minimum lease obligations. Rent expense is included in selling and
administrative expenses. As of December 31, 1997, 1998 and 1999, the Company has
property and equipment of approximately $214,438, $257,000 and $429,000,
respectively, net of $14,756, $88,000 and $194,000, respectively, in accumulated
amortization under capital lease obligations.
The following is a schedule of future minimum payments under capital lease
obligations and noncancelable operating leases as of December 31, 1999:
F-20
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital Operating
Fiscal Year Lease Leases
----------- ----- ------
2000............................................. $ 229,840 $1,197,145
2001............................................. 167,853 1,202,421
2002............................................. 124,326 1,218,145
2003............................................. 66,547 841,438
2004............................................. 30,559 289,785
Thereafter....................................... -- 697,817
--------- ----------
Total............................................ 619,125 $5,446,751
==========
Less--Imputed interest........................... (111,478)
---------
Present value of net minimum lease payments...... 507,647
Less--Current maturities......................... (178,560)
---------
Long-term capital lease obligations.............. $ 329,087
=========
Included in future minimum lease payments are commitments of approximately
$1,287,000 through 2003 due to a related entity for an operating lease for the
Company's fulfillment and warehouse space. Rent expense under the Company's
related-party lease was approximately $111,000 for the year ended December 31,
1999.
Contingencies
The Company, like other retailers of products that are ingested, faces an
inherent risk of exposure to product liability claims in the event that, among
other things, the use of its products results in injury. With respect to product
liability coverage, the Company currently has a general liability policy,
followed by additional umbrella liability insurance coverage. There can be no
assurance that such insurance will continue to be available at a reasonable
cost, or if available, that it will be adequate to cover liabilities.
8. Segment Information:
The Company operates in a single industry segment, retail sales of vitamins
and nutritional supplements. In 1999, the Company began to provide multiple
methods, or channels, for product sales. The channels consist of, an Internet
website, a catalog, and retail stores. Prior to 1999, the Company only operated
in retail stores. The Company's management team monitors the Company's
performance according to this multi-channel approach. For the year ended
December 31, 1999, the net sales, cost of sales, and gross profit for each of
the channels were as follows:
F-21
<PAGE>
VITAMINS.COM, INC.
(formerly Vitamin Superstore, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Website Catalog Stores Total
----------- ---------- ---------- -----------
Net sales... . $ 1,570,531 $7,434,094 $7,936,352 $16,940,977
Cost of sales. 2,930,078 3,993,549 4,873,472 11,797,099
----------- ---------- ---------- -----------
Gross profit. $(1,359,547) $3,440,545 $3,062,880 $ 5,143,878
=========== ========== ========== ===========
There are a number of shared expenses and assets related to managing the
different channels. Management does not allocate such amounts for internal use.
9. Subsequent Event:
On March 15, 2000, the Company entered into an Agreement and Plan of
Reorganization and Merger with HealthCentral.com. The merger was approved by
HealthCentral.com's stockholders on June 16, 2000. HealthCentral acquired all of
the shares of the capital stock of the Company for approximately 22.4 million
shares of HealthCentral.com's common stock worth approximately $88,300,000. The
Company will operate as a wholly owned subsidiary of HealthCentral.com.
F-22
<PAGE>
HEALTHCENTRAL.COM
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the merger with Vitamins.com using the
pooling-of-interests method of accounting. These financial statements reflect
certain assumptions deemed probable by HealthCentral's management regarding the
merger. No adjustments to the unaudited pro forma combined condensed financial
statements have been made to account for different possible results in
connection with the foregoing, as HealthCentral's management believes that the
impact of such information about varying outcomes, individually or in the
aggregate, would not be material.
The unaudited pro forma combined condensed balance sheet as of March 31,
2000, gives effect to the merger as if it had occurred on March 31, 2000, and
combines the historical consolidated balance sheet of HealthCentral and the
historical consolidated balance sheet of Vitamins.com as of such date.
The unaudited pro forma combined condensed statements of operations combine
the historical consolidated statements of operations of HealthCentral and
Vitamins.com as if the merger had occurred at the beginning of the earliest
period presented. The unaudited pro forma combined condensed statements of
operations for the three months ended March 31, 2000, and for each of the years
in the three year period ended December 31, 1999, combine the historical
consolidated statements of operations of HealthCentral with the historical
consolidated statements of operations of Vitamins.com for each of the respective
periods.
HealthCentral and Vitamins.com estimate that they will incur direct
transaction and integration costs of approximately $2.5 million associated with
the merger, which will be charged to operations upon consummation of the merger.
In addition, it is expected that following the merger, the combined company will
incur additional costs, which cannot currently be estimated, associated with
integrating the operations of the two companies.
Unaudited pro forma combined condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
merger occurred at the beginning of the periods presented, nor is it necessarily
indicative of future financial position or results of operations. These
unaudited pro forma combined condensed financial statements are based upon the
respective historical consolidated financial statements of HealthCentral and
Vitamins.com and notes thereto. These unaudited pro forma combined condensed
financial statements do not incorporate, nor do they assume, any benefits from
cost savings or synergies of operations of the combined company.
F-23
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------------------------------------------------------------
HealthCentral.com Vitamins.com Adjustments Pro Forma
------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,502,304 $ 541,218 $ - $ 58,043,522
Accounts receivable, net 590,373 173,754 - 764,127
Other receivables 202,126 - - 202,126
Prepaid expenses and other
current assets 3,385,730 1,178,288 - 4,564,018
Inventory - 4,070,545 - 4,070,545
------------------- ------------------ ------------------ ----------------
Total current assets 61,680,533 5,963,805 - 67,644,338
Property and equipment, net 2,568,138 3,359,980 - 5,928,118
Other assets 980,900 372,487 - 1,353,387
Website development costs, net - 1,759,411 - 1,759,411
Intangible assets, net 30,442,493 12,086,675 - 42,529,168
------------------- ------------------ ------------------ ----------------
Total assets $ 95,672,064 $ 23,542,358 $ - $ 119,214,422
=================== ================== ================== ================
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,773,187 $ 5,584,750 $ - $ 8,357,937
Accrued expenses 2,849,514 2,540,069 2,462,000(A) 7,851,583
Deferred revenue 86,257 - - 86,257
Current portion of obligations
under capital leases 154,180 180,178 - 334,358
------------------- ------------------ ------------------ ----------------
Total current liabilities 5,863,138 8,304,997 2,462,000 16,630,135
Deferred rent, net of current portion - 178,158 - 178,158
Obligations under capital leases,
net of current portion 250,575 290,675 - 541,250
------------------- ------------------ ------------------ ----------------
Total liabilities 6,113,713 8,773,830 2,462,000 17,349,543
Preferred stock - 36,565,397 (36,565,397)(D) -
Stockholders' equity (deficit):
Common stock 22,469 12,975 9,458(B)(D) 44,902
Additional paid-in capital 151,828,624 17,241,408 36,555,939(B)(D) 205,625,971
Note receivable from stockholder (405,931) (59,526) - (465,457)
Deferred stock compensation (3,804,316) - - (3,804,316)
Accumulated deficit (58,082,495) (38,991,726) (2,462,000)(A) (99,536,221)
------------------- ------------------ ------------------ ----------------
Total stockholders'
equity (deficit) 89,558,351 (21,796,869) 34,103,397 101,864,879
------------------- ------------------ ------------------ ----------------
Total liabilities and stockholders'
equity (deficit) $ 95,672,064 $ 23,542,358 $ - $ 119,214,422
=================== ================== ================== ================
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
F-24
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
----------------------------------------------------------------------------
HealthCentral.com Vitamins.com Adjustments Pro Forma
------------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
eCommerce $ 702,214 $ - $ (702,214)(E) $ -
Advertising 336,725 - (336,725)(E) -
Content, subscription and license 262,716 - (262,716)(E) -
Product sales 9,202,746 (9,202,746)(E) -
eCommerce and other product sales - 9,937,431 (E) 9,937,431
Advertising, content and other - - 599,441 (E) 599,441
------------------- --------------- ------------- -----------------
Total revenues 1,301,655 9,202,746 32,471 10,536,872
------------------- --------------- ------------- -----------------
Operating and other expenses:
Cost of eCommerce revenues 1,593,088 - (1,593,088)(E) -
Cost of product sales - 6,491,855 (6,491,855)(E) -
Cost of eCommerce and product sales - - 9,330,404 (C)(E) 9,330,404
Content and product development 2,812,661 - - 2,812,661
Sales and marketing 15,143,525 2,559,820 4,962,990 (C)(E) 22,666,335
General and administrative 2,060,773 6,916,618 (6,012,997)(C)(E) 2,964,394
Amortization of intangible assets 3,320,951 385,834 (162,983)(C) 3,543,802
Stock compensation 587,440 - - 587,440
------------------- --------------- ------------- -----------------
Total operating and other expenses 25,518,438 16,354,127 32,471 41,905,036
------------------- --------------- ------------- -----------------
Loss from operations (24,216,783) (7,151,381) - (31,368,164)
Interest income, net 969,143 27,960 - 997,103
------------------- --------------- ------------- -----------------
Net loss $ (23,247,640) $ (7,123,421) $ - $ (30,371,061)
=================== =============== ============= =================
Basic and diluted net loss per share $ (1.03) $ (.67)
=================== =================
Shares used in computing basic and diluted
net loss per share 22,597,059 45,029,867
=================== =================
</TABLE>
The accompanying notes are an integral part of these unaudited combined
condensed financial statements.
F-25
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------------------------------------
HealthCentral.com Vitamins.com Adjustments Pro Forma
------------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ - $ 16,940,977 $ (16,940,977)(E) $ -
Advertising and eCommerce 901,331 - (901,331)(E) -
Content, subscription and license 287,422 - (287,422)(E) -
eCommerce and other product sales - - 17,041,760 (E) 17,041,760
Advertising, content and other - - 1,188,753 (E) 1,188,753
------------------- -------------- ---------------- ----------------
Total revenues 1,188,753 16,940,977 100,783 18,230,513
------------------- -------------- ---------------- ----------------
Operating and other expenses:
Cost of product sales - 11,797,099 (11,797,099)(E) -
Cost of eCommerce and other product sales 13,377,352 (C)(E) 13,377,352
Product, content and product development 4,398,580 - (4,398,580)(E) -
Content and product development - - 4,398,580 (E) 4,398,580
Sales and marketing 9,159,290 7,749,174 10,179,431 (C)(E) 27,087,895
General and administrative 2,045,795 13,438,817 (10,801,189)(C)(E) 4,683,423
Website development expense - 857,712 (857,712) (C) -
Amortization of intangible assets 3,333,961 323,261 - 3,657,222
Stock compensation 4,939,694 1,306,128 - 6,245,822
Acquired in-process research and development 804,525 - - 804,525
------------------- -------------- ---------------- ----------------
Total operating and other expenses 24,681,845 35,472,191 100,783 60,254,819
------------------- -------------- ---------------- ----------------
Loss from operations (23,493,092) (18,531,214) - (42,024,306)
Other expenses - (32,568) - (32,568)
Interest income, net 493,706 284,161 - 777,867
------------------- -------------- ---------------- ----------------
Net loss (22,999,386) (18,279,621) - (41,279,007)
Preferred stock dividend 11,388,000 - - 11,388,000
------------------- -------------- ---------------- ----------------
Net loss attributable to common stockholders $ (34,387,386) $ (18,279,621) $ - $ (52,667,007)
=================== ============== ================ ================
Basic and diluted net loss per share attributable
to common stockholders $ (4.96) $ (2.96)
=================== ================
Shares used in computing basic and
diluted net loss per share attributable
to common stockholders 6,926,485 17,787,764
=================== ================
</TABLE>
The accompanying notes are an integral part of these unaudited combined
condensed financial statements.
F-26
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------
HealthCentral.com Vitamins.com Adjustments Pro Forma
-------------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ - $ 4,340,297 $ (4,340,297)(E) $ -
eCommerce and other product sales - - 4,340,297 (E) 4,340,297
Advertising and eCommerce 15,259 - (15,259)(E) -
Advertising, content and other - - 15,259 (E) 15,259
-------------------- --------------- -------------- --------------
Total revenues 15,259 4,340,297 - 4,355,556
-------------------- --------------- -------------- --------------
Operating and other expenses:
Cost of product sales - 2,646,179 (2,646,179)(E) -
Cost of eCommerce and other product sales - - 2,646,179 (E) 2,646,179
Product, content and product development 136,788 - (136,788)(E) -
Content and product development - - 136,788 (E) 136,788
Sales and marketing 141,516 324,051 1,852,555 (E) 2,318,122
General and administrative 78,549 2,688,008 (1,852,555)(E) 914,002
Stock compensation 104,641 - - 104,641
-------------------- --------------- -------------- --------------
Total operating and other expenses 461,494 5,658,238 - 6,119,732
-------------------- --------------- -------------- --------------
Loss from operations (446,235) (1,317,941) - (1,764,176)
Interest (expense), net - (20,519) - (20,519)
-------------------- --------------- -------------- --------------
Net loss $ (446,235) $ (1,338,460) $ - $ (1,784,695)
==================== =============== ============== ==============
Basic and diluted net loss per share $ (.10) $ (.25)
==================== ==============
Shares used in computing basic and diluted
net loss per share 4,669,628 7,016,416
==================== ==============
</TABLE>
The accompanying notes are an integral part of these unaudited combined
condensed financial statements.
F-27
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------------------------------------
HealthCentral.com Vitamins.com Adjustments Pro Forma
----------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ - $ 436,406 $ (436,406)(E) $ -
eCommerce and other product sales - - 436,406 (E) 436,406
----------------- ---------------- -------------- -------------
Total revenues - 436,406 - 436,406
----------------- ---------------- -------------- -------------
Operating and other expenses:
Cost of product sales - 288,751 (288,751)(E) -
Cost of eCommerce and other product sales - - 288,751 (E) 288,751
Sales and marketing 848 154,109 663,261 (E) 818,218
General and administrative 300 1,254,149 (663,261)(E) 591,188
----------------- ---------------- -------------- -------------
Total operating and other expenses 1,148 1,697,009 - 1,698,157
----------------- ---------------- -------------- -------------
Loss from operations (1,148) (1,260,603) - (1,261,751)
Interest (expense), net - (2,997) - (2,997)
----------------- ---------------- -------------- -------------
Net loss $ (1,148) $ (1,263,600) $ - $ (1,264,748)
================= ================ ============== =============
Basic and diluted net loss per share $ - $ (.19)
================= =============
Shares used in computing basic and diluted
net loss per share 4,610,000 6,724,874
================= =============
</TABLE>
The accompanying notes are an integral part of these unaudited combined
condensed financial statements.
F-28
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
On June 16, 2000, HealthCentral completed the merger with Vitamins.com, a
retailer that provides dietary supplements, related health and wellness products
and information to consumers, for consideration consisting of 22,432,801 shares
of the Company's common stock and acquisition and related costs of approximately
$2.5 million. Each share of Vitamins.com stock was exchanged for .387 shares of
HealthCentral common stock. Vitamins.com will remain a wholly owned subsidiary
of HealthCentral. This transaction was recorded using the pooling-of-interests
method of accounting and was a tax-free reorganization under Section 369 of the
Internal Revenue Code of 1986, as amended.
HealthCentral's consolidated financial statements will reflect the
transaction as if Vitamins.com had been a wholly owned subsidiary of
HealthCentral since inception.
NOTE 2--PRO FORMA ADJUSTMENTS:
The following pro forma adjustments were applied to the historical
consolidated financial statements of HealthCentral and Vitamins.com to arrive at
the unaudited pro forma combined condensed financial information.
(A) Adjustment to record the accrual of the estimated costs resulting from
the merger of HealthCentral and Vitamins.com. Estimated transaction, merger and
integration costs include the following:
. Financial advisory fees................................. $1,424,000
. Legal and accounting professional fees.................. 683,000
. Financial printer fees.................................. 160,000
. Filing fees............................................. 111,000
. Integration costs....................................... 84,000
----------
$2,462,000
==========
These estimated costs are not reflected in the pro forma combined condensed
statements of operations because they are non-recurring in nature.
F-29
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(B) Adjustment relates to the carrying value of the common stock based on
a par value of $0.001 and the issuance of 22.4 million shares assuming a .387
exchange ratio.
(C) Adjustments to conform Vitamins.com's accounting policies to
HealthCentral's policies in the areas of shipping costs and website development
costs.
(D) Adjustment for the automatic conversion of Vitamins.com's preferred
stock to common stock upon the consummation of the transaction.
(E) Reclassification of certain revenue and expense amounts consistent
with the financial reporting policies which are expected to be adopted after the
merger.
NOTE 3--PRO FORMA NET LOSS PER SHARE:
Basic and diluted weighted average shares outstanding were calculated based
upon the historical basic and diluted shares weighted average outstanding of
HealthCentral for each period, increased by the historical basic and diluted
shares weighted average outstanding of Vitamins.com for each period, as
adjusted for an exchange ratio of .387. Because the companies are in a net loss
position on a pro forma combined condensed basis for each period, inclusion of
potential common stock in the computation of pro forma net loss per share is
anti-dilutive; therefore, potential common stock is excluded from the share
amounts.
The following table reconciles the number of shares used in the pro forma
loss per share computations to the numbers set forth in the HealthCentral and
Vitamins.com historical consolidated statements of operations:
F-30
<PAGE>
HEALTHCENTRAL.COM
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months
-------------------------------------- ------------
Ended
-----
1997 1998 1999 March 31, 2000
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Shares used in basic and diluted per
share computation:
Historical--Vitamins.com common stock 5,464,790 6,064,051 11,054,837 12,974,414
Historical--Vitamins.com preferred stock -- -- 17,010,484 44,991,498
--------- --------- ---------- ----------
Total stock 5,464,790 6,064,051 28,065,321 57,965,912
Exchange ratio 0.387 0.387 0.387 0.387
----- ----- ----- -----
2,114,874 2,346,788 10,861,279 22,432,808
Historical--HealthCentral.com 4,610,000 4,669,628 6,926,485 22,597,059
--------- --------- ---------- ----------
Pro forma combined condensed 6,724,874 7,016,416 17,787,764 45,029,867
========= ========= ========== ==========
</TABLE>
The exchange ratio was calculated by dividing 22,704,075, the number of
shares of HealthCentral common stock outstanding immediately prior to the
merger, less one share, by 58,664,288, the total number of shares and options to
purchase shares of capital stock of Vitamins.com outstanding immediately prior
to the merger.
F-31
