Webvan Gets Auditors Warning, Amazon.com Suit

SAN FRANCISCO — Webvan Group Inc.’s auditors have raised questions about the Internet grocer’s ability to continue as a viable business, the company disclosed in its annual report Monday.

The report also says the company has been sued by shareholder Amazon.com Inc. (AMZN) for allegedly breaching an advertising agreement between the companies, and that if Webvan doesn’t meet certain requirements before April 12, the firm’s stock will be delisted from the Nasdaq Stock Market.

In an auditor’s note in Webvan’s annual report, Deloitte & Touche LLP 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 part of a standard “going concern” clause that auditors attach to a corporate annual report when there is significant question about a company’s ability to stay in business through the end of the year.

Webvan has struggled to prove that its business can be profitable at a time when the markets are shunning consumer Internet companies. The company has said it plans to sharply cut the rate at which it is consuming its capital reserves. The delisting of its stock could make it even more difficult for the company to raise additional funds.

Robert Swan, Webvan’s chief operating officer, said that Webvan would need an additional $5 million to $15 million just to stay in business through the end of this year. “We continue to purse different sources of financing,” he added.

The Foster City, Calif.-company said Amazon (AMZN) filed the suit in Washington on Feb. 7. In the case, Amazon alleged HomeGrocer, a competing Internet grocer that Webvan acquired last year, breached an advertising agreement with Amazon. The e-commerce giant is seeking $6.25 million plus attorneys’ fees and expenses.

“Webvan has filed a notice of appearance and intends to vigorously pursue its case against Amazon,” Webvan said in its annual report, filed with the Securities and Exchange Commission.

Amazon spokeswoman Patty Smith said the lawsuit was related to a deal the companies had that involved Amazon promoting HomeGrocer to its customers through e-mail messages. She added Webvan informed Amazon in December it would no longer make the payments required under their deal.

“Amazon has at all times made clear its willingness to working in good faith with Webvan and HomeGrocer,” Ms. Smith said, reading a company statement. “However, Webvan’s unwillingness to live up to its end of the agreement leaves Amazon with no alternative but to seek redress through the courts.”

A Webvan spokesman couldn’t be reached for comment.

Amazon owned about 6% of Webvan’s stock after the company merged with HomeGrocer last year, according to Smith. Amazon acquired the stake in Webvan through an investment in HomeGrocer.

At 4 p.m. EST on the Nasdaq, shares of Webvan fell three cents, or 20%, to 13 cents. The stock hasn’t traded above $1 since the company received the preliminary delisting warning from Nasdaq in January. Webvan said one option for it to prevent the delisting was to institute a reverse split of its shares to increase their value.

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