Streamline.com Facing Cash Shortage

Online grocer Streamline.com, Inc. (Nasdaq: SLNE) has warned that it will likely run out of money unless it receives new financing within "several weeks."

The company, which has been looking for a partner or investor since May, said that while it is "actively pursuing financing alternatives," there are no definitive agreements on funding.

'Limited Options'

"The company has limited options, beyond those currently being implemented, to reduce cash expenditures," Streamline said in a filing Tuesday with the U.S. Securities and Exchange Commission (SEC). "Therefore, if additional financing is not received in the next several weeks, the company will be unable to continue operations."

Streamline said it embarked on a plan to cut costs, including delaying the opening of some facilities and cutting back on marketing spending, late in the second quarter. However, "the timing of implementing these initiatives will not result in sufficient cash flow savings to fund operations through this fiscal year," the company said in the SEC filing.

High expenses and lower than expected sales during the first half of the year, along with an unexpected increase associated with equipment purchases, added to the cash crunch, Streamline said.

Industry Shakeout Seen

The online grocery industry is seeing its share of casualties, with companies running out of cash before they have time to complete their aggressive expansion plans.

Peapod, Inc. found a savior in Royal Ahold NV, a Netherlands-based supermarket that owns the Stop & Shop chain in the United States. Webvan Group, Inc., regarded as one of the industry's stronger players, is buying out rival HomeGrocer.com.

Notably, Webvan has expanded beyond groceries, and now offers items including home electronics and housewares.

Studies suggest that the online grocers that survive the current shakeout will have access to a growing market. Research firm International Data Corp. predicts that consumers will spend some $8.8 billion (US$) shopping for groceries on the Web in 2004, up from about $200 million in 1999.

The same report said that grocery e-tailers will need to spend more than $25 million for each new market they enter. That figure does not include customer acquisition costs, which are likely to be high.

Losses Grow Along with Revenue

Streamline saw its revenue grow to $22.5 million last year from $6.5 million in 1997. During the same period, however, the company's net loss widened to $26.5 million from $10.3 million. The company said it expects the losses to continue as it continues its plan of expanding into new markets, increasing sales and marketing and investing in technology.

Streamline, founded in 1993, went public last June at $10 per share. The company's shares traded above $14 late last year, and in November, drew a strong buy rating and a price target of $27 by Banc of America, which praised the company's "superior business model" and customer loyalty.

However, the stock has now fallen below the $1 level. On Wednesday, Streamline sank 1 19/32 to 21/32 as news of the problems disclosed in the SEC filing spread.