April 3, 2001 7:55 AM PDT

Auditor sees Webvan nearing end of road

The auditor of sputtering Webvan has expressed substantial doubt about the company's ability to survive, according to a recent filing with the Securities and Exchange Commission.

Separately, the online grocer noted that Amazon.com has filed a lawsuit against it, claiming that HomeGrocer.com--which Webvan acquired last summer--breached its advertising agreement with the e-tailing giant.

Webvan's annual report, filed Monday, shows that auditor Deloitte & Touche has raised questions about the company's ability to operate as a viable business largely because the Net grocer has "suffered recurring losses and negative cash flows from operations."

The company, based in Foster City, Calif., has been engaged in a fight for its survival, aiming to reach profitability. The cash-strapped dot-com, which recently postponed the commercial launch of its service in a number of East Coast cities, recently bagged its operations in Dallas and laid off its entire staff there to conserve capital and focus on the profitability of its nine other markets.

Pete Swan, a financial analyst with Pacific Growth Equities, said Webvan?s future continues to hinge on its ability to quickly nab additional capital during the next two quarters to survive the tumultuous markets.

The problem is not that Webvan's customers don't like the service, but that the company spent a lot of money too fast, said Swan, who also said he thought most of the details in the annual report were not surprising.

"The best hope for them is to find a strategic partner?but that may not be possible in this market," he said.

The once high-flying dot-com also faces delisting from the Nasdaq because of its slumping stock price. In Webvan's filing, a notice from the Nasdaq states that if at any time before April 12 the closing share price of the company's common stock fails to stay at $1 or more for at least 10 straight trading days, the shares could be delisted from the exchange.

Before any actual delisting, Webvan said it would have an opportunity to request a hearing at which it could present a plan demonstrating that it can come into compliance with the continued listing requirements, according to the annual report.

Although a recent deluge of dot-coms have fallen by the wayside, Webvan has persevered. Last month it launched a new marketing strategy that includes three different television commercials broadcast in the cities in which it operates. The company also has bought radio, Internet and direct mail ads.

In addition, the online supermarket recently issued coupons for the first time.

According to the SEC filing, Amazon lodged a suit against HomeGrocer on Feb. 7, in the Superior Court of the State of Washington for King County. Seattle-based Amazon is seeking a judgment against HomeGrocer for $6.25 million plus attorneys' fees and expenses. Webvan said in its SEC filing that it has filed a notice of appearance and intends to "vigorously" pursue its case against Amazon.

Webvan also is defending itself against the United Food and Commercial Workers, which alleges that the Net grocer maintains illegal rules that restrict employees' right to organize, support and join a union. Webvan executives have denied the allegations, saying that previous attempts to organize Webvan drivers and warehouse workers have failed, and that the accusations are an attempt to turn workers against the company.

 

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