Value America Seeks Financial Backing

WASHINGTON (04/03/2000) - Value America, a struggling e-commerce retailer that engaged in a massive bloodletting last year in an effort to stay afloat, has announced its participation in "advanced discussions" with potential investors.

The company needs more funding in order to stay in business through year's end. Value America said today that it hopes to accomplish a private placement of equity securities within the next few months.

Its annual report contains a March 29 statement from its auditor, PricewaterhouseCoopers, stating that Value America "has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern." In an effort to stanch massive financial losses, the company laid off half of its 800 employees in December and hacked its list of vendor partners from 450 to just 50. The Value America Web site, which once hawked everything from underwear to barbecued spareribs to cheesecake, now concentrates on five product categories: computers, software, electronics, office supplies and entertainment.

The company is reinventing itself under Glenda Dorchak, who took the reins after a messy internal battle led to the ouster of founder Craig Winn last November. A special board committee is exploring "strategic opportunities" with the help of Deutsche Banc Alex. Brown. Company officials have not dismissed an outright acquisition. Winn founded Value America in 1996 and spent the next several years building it into a virtual e-commerce empire. Winn's concept of an inventory-less business model, in which Value America touched none of the merchandise it sold, attracted millions of dollars in investments from Federal Express chief Fred Smith and Paul Allen's Vulcan Ventures, among others. But Winn's entrepreneurial style failed to translate into effective day-to-day company management. By late last year, Value America found itself dangerously overextended. In addition to disgorging much of its staff, the company had to abandon plans to build a new campus headquarters on 34 acres near Charlottesville, Va.

The released employees were largely support staff who worked on fulfilling orders for "the less efficient vendors" that weren't completely computerized, according to Value America CFO Michael Waide. "We'd expanded with a lot of vendors that are not really complementary to our business model," says Waide, who joined the company six weeks ago. In an annual report filed yesterday with the Securities and Exchange Commission, Value America revealed that in November, the Federal Trade Commission launched a preliminary inquiry into its business practices.

The inquiry centered on the company's advertising of free or reduced-cost computer systems, which the FTC worried was deceptively linked to an Internet service provider subscription requirement, according to the report. Waide says the company complied with the FTC's initial request for information and hasn't heard from the commission since then. An FTC representative declined to comment.

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