Can Webvan Make It?

Early last fall Internet grocery sales and delivery company Webvan Group Inc.
announced a $1
billion stock-base acquisition of HomeGrocer.com. Now, the stock price is
down to 12 cents a share and its own auditors are reportedly questioning
whether the company can remain in business.

In Webvan’s annual report, auditors Deloitte & Touche are said to have
included a sentence saying that Webvan “has suffered recurring losses and
negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern.”

The language is relatively standard when auditors have such concerns. In
fact, Webvan spokesman Bud Grebey told internetnews.com that auditors are
“required to say this sort of thing based on the company’s conservative cash
flow projections.”

“We know what we have to do to prove our business model and that’s what we’re
focused on,” he said.

Plus, the Foster City, Calif.-based company is being sued by shareholder
Amazon.com for alleged breach of an advertising agreement between the
companies, according to a Wall Street Journal report. The company’s former
chairman and founder quit his director post in February.

In January the company announced plans to achieve standalone profitability by shelving expansion plans
and targeting its 10 existing markets, as well as implementing a cash
conservation program to reduce annualized corporate and operating expenses.

The Journal quoted Robert Swan, Webvan’s chief operating officer, as saying
that Webvan would need an additional $5 million to $15 million just to stay
in business through the year’s end.

Grebey echoed that, saying that “we believe we will need additional capital
in the fourth quarter or the first quarter of 2002.”

The troubled company also faces the imminent delisting of its stock from the
Nasdaq exchange, since it has traded under $1 for months.

Webvan was quoted as saying in its annual report that the Amazon.com suit
claims that
HomeGrocer, acquired by Webvan in that $1 billion stock deal, breached an
advertising agreement. Amazon, which owns about 6 percent of Webvan, is
seeking a judgment against HomeGrocer of $6.25 million. Webvan said it would
defend vigorously.

Grebeys said “We plan to aggressively defend ourselves,” but he would not
elaborate.

Clearly Webvan is putting up a fight despite deteriorating economic
conditions; in early March it launched a new TV ad campaign and last week it
signed a deal with online photo services company PhotoWorks Inc. so that
Webvan shoppers in the Atlanta, Chicago, Sacramento, San Francisco Bay Area
and San Diego markets will be able to purchase PhotoWorks film processing
kits at webvan.com.

Webvan, which has never made any money as a public company, lost $1.18 per
share in fiscal 2000. Its 52-week high is $14. The stock price was unchanged
in early trading at 12.5 cents.