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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 13, 2000
PETS.COM, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 000-29387 95-4730753
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
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945 Bryant Street
San Francisco, California 94103
(Address of principal executive offices)
(415) 222-9999
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 13, 2000 Pets.com, Inc., a Delaware corporation (the "Company"),
acquired certain strategic assets and partnerships of Petstore.com, Inc., a
Delaware corporation ("Seller"), pursuant to an Asset Purchase Agreement dated
June 12, 2000 (the "Agreement") by and among Seller, the Company and P-Sub
Corporation, a Delaware corporation and a wholly owned subsidiary of the Company
(the "Acquisition"). As part of the all-stock transaction, the Company received
a $3 million cash investment and issued 5,815,623 shares of its common stock and
1,143,895 shares of redeemable, non-voting, non-convertible series A preferred
stock.
Under the terms of the Agreement, the Company acquired the content owned
by Seller that resides on Seller's Web site, Seller's existing customer base and
live fish business, Flying Fish Express, its strategic supplier agreements, and
ownership of all of Seller's URLs, trademarks and intellectual property related
to the Petstore.com brand.
In connection with the Acquisition, the Company entered into a Tenancy
and Promotion Agreement dated June 12, 2000 (the "Discovery Agreement") with
Discovery.com, Inc., a Delaware corporation ("Discovery"), which includes
offline media promotion of the Pets.com brand on the Discovery family of
television networks, which include Discovery Channel, TLC, Animal Planet, Travel
Channel and Discovery Health Channel. In addition, the Company will have a
one-year exclusive, integrated pets e-commerce tenancy on Discovery.com,
Discovery's Internet network, and the option to obtain up to three additional
one-year periods of exclusivity. As part of the Discovery Agreement, Discovery
will also provide links from relevant content to the Company's Web site for a
period of four years. The Discovery Agreement became effective upon the closing
of the Acquisition.
In connection with the Acquisition, the Company entered into an Amended
and Restated Marketing and Promotion Agreement dated June 8, 2000 (the "Safeway
Agreement") establishing a strategic marketing relationship with Safeway Inc., a
Delaware corporation ("Safeway"). The Safeway Agreement has a term of 24 months
during which Safeway will promote the Pets.com brand through various in-store
programs and other means, and the Company will carry Safeway's SELECT pet food
line on the Company's Web Site. The Safeway Agreement became effective upon the
closing of the Acquisition.
Effective upon the closing of the Acquisition, Michela English, the
President and Chief Operating Officer of Discovery, was appointed a member of
the Company's Board of Directors.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The financial statements of Petstore.com, Inc. as of December 31, 1999
to include its Consolidated Balance Sheet, Consolidated Statement of Operations,
Consolidated Statement of Stockholders' Equity, and Consolidated Statement of
Cash Flows are filed as Exhibit 99.1 to this Current Report on Form 8-K/A.
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information for Pets.com,
Inc. ("Pets") gives effect to the Petstore.com, Inc. ("Petstore") merger
applying the purchase method of accounting. The unaudited pro forma combined
financial statements have been prepared from the historical consolidated
financial statements of Pets. The Petstore column in the following unaudited pro
forma combined financial statements reflect the historical financial statements
of Petstore, which are consistent with the reporting periods of Pets.
The unaudited pro forma combined statement of operations combine the
historical operations of Pets and Petstore as if the merger had occurred at the
beginning of the earliest period presented. The unaudited pro forma combined
financial information assumes that the acquisition of Petstore occurred as of
January 1, 1999 for the unaudited pro forma combined statements of operations
and as of June 30, 2000, for the unaudited pro forma combined balance sheet.
The unaudited pro forma combined financial statements should be read in
conjunction with Pets' historical consolidated financial statements and related
notes to such statements in the December 31, 1999 financial statements on Form
S-1 and June 30, 2000 financial statements on Form 10-Q filed by the Company;
and the Petstore historical financial statements and notes thereto included
herein.
The unaudited pro forma combined financial statements have been adjusted
to reflect the acquisition of Petstore under the terms described in Item 2 of
Form 8-K dated July 28, 2000, previously filed and incorporated herein by
reference.
The pro forma financial information has been prepared by the management
of Pets and all calculations have been made based upon assumptions deemed
appropriate by the management of Pets. In the opinion of management, all
adjustments necessary to present fairly the unaudited pro forma combined
financial statements have been made.
The unaudited pro forma combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually been reported if the
merger had been consummated at the beginning of the periods presented, nor is it
necessarily indicative of the future operating results or financial position of
the combined companies.
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PETS.COM, INC. AND PETSTORE.COM, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(In thousands)
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Pets.com Petstore.com Pro Forma Ref. Pro Forma
Inc. Inc. Adjustments (Note 2) Combined
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ASSETS
Current assets:
Cash and cash equivalents $ 37,227 $ 1,160 $ (1,160) D $ 37,227
Inventory 9,356 48 52 A 9,456
Prepaid advertising expenses 10,499 -- 10,169 B 20,668
Other prepaid expenses and
current assets 2,645 8 (8) D 2,645
------------------------------------------ ---------
Total current assets 59,727 1,216 9,053 69,996
Certificate of deposit 914 -- -- 914
Fixed assets, net 19,875 290 (290) D 19,875
Intangible assets and other assets 6,609 51,845 (51,845) D 6,609
------------------------------------------ ---------
Total assets $ 87,125 $ 53,351 $ (43,082) $ 97,394
========================================== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued $ 9,124 $ 10,980 $ (10,280) C,D $ 9,824
expenses
Payable to related 631 -- -- 631
parties
Short-term debt -- 17,192 (17,192) D --
Capital lease obligations 176 -- -- 176
------------------------------------------ ---------
Total current liabilities 9,931 28,172 (27,472) 10,631
Related party notes -- 20,600 (20,600) D --
Capital lease obligations 761 -- -- 761
Stockholders' equity:
Preferred stock -- 2 (2) E --
Common stock 37 -- 7 E,F 44
Additional paid-in capital 213,278 128,022 (118,460) E,F 222,840
Accumulated deficit (124,925) (80,563) 80,563 E (124,925)
Deferred stock-based
compensation (11,957) (42,882) 42,882 E (11,957)
------------------------------------------ ---------
Total stockholders' equity 76,433 4,579 4,990 86,002
------------------------------------------ ---------
Total liabilities and stockholders'
equity $ 87,125 $ 53,351 $ (43,082) $ 97,394
========================================== =========
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See accompanying notes to the unaudited pro forma combined financial statements.
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PETS.COM, INC. AND PETSTORE.COM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands)
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Pets.com Petstore.com Pro Forma Ref. Pro Forma
Inc. Inc. Adjustments (Note 2) Combined
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Net sales $ 5,787 $ 2,100 $ -- $ 7,887
Cost of goods sold 13,412 5,161 (2,959) G 15,614
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Gross margin (7,625) (3,061) 2,959 (7,727)
Operating expenses:
Marketing and sales 42,491 22,630 2,959 G 68,080
Product development 6,481 5,442 -- 11,923
General and administrative 4,254 8,366 -- 12,620
Amortization of stock-based
compensation 2,118 628 -- 2,746
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Total operating expenses 55,344 37,066 2,959 95,369
Operating loss (62,969) (40,127) -- (103,096)
Interest income, net 1,191 (4,876) -- (3,685)
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Net loss $ (61,778) $ (45,003) $ -- $(106,781)
=========================================================================
Basic and diluted net loss per
share $ (42.42) $ (15.94)
========= =========
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share 1,456 6,700
========= =========
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See accompanying notes to the unaudited pro forma combined financial statements.
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PETS.COM, INC. AND PETSTORE.COM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATION
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(In thousands)
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Pets.com Petstore.com Pro Forma Ref. Pro Forma
Inc. Inc. Adjustments (Note 2) Combined
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Net sales $ 16,415 $ 4,385 $ -- $ 20,800
Cost of goods sold 23,028 10,163 (3,974) G 29,217
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Gross margin (6,613) (5,778) 3,974 (8,417)
Operating expenses:
Marketing and sales 45,946 16,150 3,974 G 66,070
Product development 4,943 3,465 -- 8,408
General and administrative 5,012 4,956 -- 9,968
Amortization of stock-based
compensation 2,097 (22) -- 2,075
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Total operating expenses 57,998 24,549 3,974 86,521
Operating loss (64,611) (30,327) -- (94,938)
Interest income, net 1,464 (3,320) -- (1,856)
Other expense -- 1,912 -- 1,912
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Net loss $(63,147) $(35,559) $ -- $(98,706)
=====================================================================
Basic and diluted net loss per
share $ (2.96) $ (3.71)
======== ========
Weighted average shares
outstanding used to compute
basic and diluted
net loss per share 21,335 26,579
======== ========
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See accompanying notes to the unaudited pro forma combined financial statements.
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PETS.COM, INC. AND PETSTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(In thousands, except share data)
NOTE 1
The unaudited pro forma combined financial statements reflect the
issuance of 5,243,752 shares of Pets common stock for all of the outstanding
shares of Petstore. Certain warrants to purchase 285,066 shares of Petstore
common stock will be assumed by Pets pursuant to the merger. The total costs of
the proposed merger are estimated as follows (in thousands):
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Fair value of Pets shares $ 9,504
Value of Petstore warrants assumed 65
Pets transaction costs, primarily financial advisory, legal and accounting fees 700
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$10,269
=======
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Based upon a preliminary purchase price allocation of tangible and
intangible assets acquired, Pets has allocated the total cost of the merger to
the net assets of Petstore at June 30, 2000 as follows (in thousands):
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Advertising agreements with Discovery Communications $10,169
Tangible assets acquired 100
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$10,269
=======
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NOTE 2
The unaudited pro forma combined balance sheet includes the adjustments
necessary to give effect to the merger as if it had occurred on June 30, 2000,
and to reflect the allocation of the proposed acquisition cost to the fair value
of tangible and intangible assets acquired as noted above.
Adjustments included in the unaudited pro forma balance sheet are summarized as
follows (in thousands):
A) Valuation of Flying Fish assets of approximately $100.
B) Valuation of Discovery Communications advertising agreement of
approximately $10,169.
C) Accrual of transaction related costs of approximately $700 primarily for
financial advisory, legal and accounting services.
D) Elimination of Petstore assets not acquired and liabilities not assumed.
E) Elimination of Petstore equity accounts.
F) Issuance of Pets common stock, $0.00125 par value, and assumption of
warrants to purchase common stock, as discussed in Note 1. The value of
Pets' common stock is equal to the product of 5,243,752 shares
multiplied by $1.8125, the closing price of Pets' common stock on the
closing date of the merger on July 12, 2000. The fair value of the
285,066 in assumed warrants based on the Black-Scholes model is $65.
G) Reclassification of Petstore's fulfillment costs from cost of goods sold
to conform with the classification in the financial statements of Pets.
NOTE 3
Pro forma basic and diluted net loss per share amounts for the year
ended December 31, 1999 and the six-month period ended June 30, 2000 are based
upon the historical weighted-average number of Pets common shares outstanding
adjusted to reflect the issuance of 5,243,752 shares of Pets common stock, as if
the shares had been outstanding for the period. The effect of warrants assumed
in the merger were excluded from the calculation as their exercise price
exceeded the market value of Pets common stock.
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(c) Exhibits.
2.1* Asset Purchase Agreement dated June 12, 2000, among the Company,
P-Sub Corporation and Seller.
4.1* Certificate of Designation of Rights, Preferences and Privileges
of Series A Preferred Stock of Pets.com, Inc. dated June 8, 2000.
4.2* Amendment No. 1 to Amended and Restated Rights Agreement dated
July 13, 2000, among the Company and certain stockholders of the
Company.
4.3* Registration Rights Agreement dated July 13, 2000, among the
Company and Seller.
9.1* Voting Agreement dated July 13, 2000, among the Company, Seller,
Discovery and certain stockholders of the Company.
10.39* Amended and Restated Marketing and Promotion Agreement dated June
8, 2000, among the Company and Safeway.
10.40* Securities Purchase Agreement dated June 12, 2000, among the
Company and Discovery.
10.41* Tenancy and Promotion Agreement dated June 12, 2000, among the
Company and Discovery.
20.1* Press release dated June 13, 2000 announcing the execution of the
Agreement, the Discovery Agreement and the Safeway Agreement.
20.2* Press release dated July 13, 2000 announcing the closing of the
Acquisition.
23.1 Consent of KPMG LLP, Independent Auditors of Petstore.com, Inc.
99.1 Financial Statements of Petstore.com, Inc. as of December 31,
1999.
* Incorporated by reference from Current Report on Form 8-K previously filed by
the Registrant on July 28, 2000 with the Securities and Exchange Commission via
Edgar, and dated July 13, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PETS.COM, INC.
(Registrant)
Date: September 26, 2000 By: /s/ Julia L. Wainwright
-------------------------------------
Julia L. Wainwright
Chief Executive Officer
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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2.1* Asset Purchase Agreement dated June 12, 2000, among the Company,
P-Sub Corporation and Seller.
4.1* Certificate of Designation of Rights, Preferences and Privileges
of Series A Preferred Stock of Pets.com, Inc. dated June 8, 2000.
4.2* Amendment No. 1 to Amended and Restated Rights Agreement dated
July 13, 2000, among the Company and certain stockholders of the
Company.
4.3* Registration Rights Agreement dated July 13, 2000, among the
Company and Seller.
9.1* Voting Agreement dated July 13, 2000, among the Company, Seller,
Discovery and certain stockholders of the Company.
10.39* Amended and Restated Marketing and Promotion Agreement dated June
8, 2000, among the Company and Safeway.
10.40* Securities Purchase Agreement dated June 12, 2000, among the
Company and Discovery.
10.41* Tenancy and Promotion Agreement dated June 12, 2000, among the
Company and Discovery.
20.1* Press release dated June 13, 2000 announcing the execution of the
Agreement, the Discovery Agreement and the Safeway Agreement.
20.2* Press release dated July 13, 2000 announcing the closing of the
Acquisition.
23.1 Consent of KPMG LLP, Independent Auditors of Petstore.com, Inc.
99.1 Financial Statements of Petstore.com, Inc. as of December 31,
1999.
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* Incorporated by reference from Current Report on Form 8-K previously filed by
the Registrant on July 28, 2000 with the Securities and Exchange Commission via
Edgar, and dated July 13, 2000.
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