Summary
SUMMARYThis summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. For a more complete understanding of the information that you may consider important in making your investment decision, we encourage you to read this entire prospectus. Before making an investment decision, you should carefully read and consider this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All references to “we,” “us,” “our,” “Vitacost” or “our company” in this prospectus refer to Vitacost.com, Inc. and its subsidiary, Nutraceutical Sciences Institute, Inc.
We are a leading online retailer of a broad selection of nutritional supplements and health and wellness products. We sell vitamins, minerals, herbs, anti-oxidants, organic body care, personal care, sports nutrition and health foods direct to consumers through our website, www.vitacost.com, and our catalogues. Our distribution channels also serve as an educational resource for individuals seeking information on healthy living including medical trends, health issues and nutritional supplement attributes. We offer our customers a selection of over 7,000 Stock Keeping Units (SKUs) from approximately 400 third-party brands and our own brands, including our scientifically formulated Nutraceutical Sciences Institute®-or NSI®-branded products. Sales of our NSI- and other proprietary-branded products accounted for approximately 37% of our net sales in 2006 and we generated approximately 87% of our net sales from online orders.
We offer a unique proposition for our customers due to our broad selection of third-party products and our own scientifically-formulated proprietary products offered in an informative and easy-to-use format at outstanding values with exceptional customer service. In addition to our proprietary products, we sell leading nationally recognized third-party brands. Our proprietary NSI-branded products combine nutrients in dosages designed to address specific health concerns and include unique proprietary formulations designed by analyzing scientific research. We currently have 11 patents and 51 trademarks for our products. One of our patented formulations, OcuPower®, was the subject of a human clinical trial conducted at the U.S. Veterans’ Administration and published in the American Optometric Association Medical Journal, Optometry. The study indicated Ocupower® improves vision function in patients with age-related macular degeneration (“AMD”), a disease for which there is no known cure. Our user-friendly and content rich website is designed to allow customers to easily browse and purchase products through keyword search while also providing informative and educational resources for our customers. We support our operations through one call center and two state-of-the-art distribution facilities which allow us to maintain industry leading fulfillment and customer satisfaction statistics. In a survey conducted by us in 2006, over 94% of our customers who responded said they were likely or highly likely to purchase from us again.
We began operations in 1994 as a catalogue retailer of third-party nutritional supplements under the name Nature’s Wealth Company. In 1999 we launched Vitacost.com, our eCommerce website, and introduced our own scientifically formulated nutritional supplements under our NSI brand. We officially changed our name to Vitacost.com, Inc. in 2000. In 2006 we were inducted into Inc. magazine’s “Inc. 500 Lifetime Hall of Fame,” as one of the U.S.’s 500 fastest growing privately-held businesses for five consecutive years (2001–2005). From March 31, 2006 through March 31, 2007, our active customer database, which is defined as customers who have purchased from us in the last 12 months, increased from 305,000 to 452,000. In the fiscal year ended December 31, 2006, we recorded net sales of $66.4 million, representing a compounded annual growth rate of 59% from 2001 to 2006 and net income of $173,000. For the three months ended March 31, 2007, we recorded net sales of $22.8 million and net income of $1.4 million as compared to net sales and net income of $14.7 million and $28,000, respectively, for the three months ended March 31, 2006.
According to Natural Marketing Institute, over 74% of the adult U.S. population reports taking some form of vitamin or nutritional supplement. In 2005, U.S. sales of nutritional supplements totaled approximately $21.3 billion according to Nutrition Business Journal’s Supplement Business Report and were projected to grow at an annual rate of 4% per year for at least the next five years. The industry is highly fragmented with products sold through multiple channels including retailers such as mass merchants, grocery stores, drug stores and specialty retailers, as well as through direct mail, catalogues and the Internet.
We expect several trends to drive the continued growth of our industry. These trends include:
According to Forrester Research, U.S. online retail sales grew from approximately $141 billion in 2005 to $159 billion in 2006 and are projected to grow to $250 billion by 2011. We believe the Internet provides a number of distinct advantages to online retailers over “brick and mortar” competitors, including the lower cost of managing and maintaining a website as opposed to physical storefronts, the ability to efficiently reach and serve a large and geographically dispersed group of customers from a central location and the potential for personalized, low-cost customer interaction. Online retailers can quickly react to changing consumer tastes and preferences by efficiently adjusting their featured selections, editorial content, shopping interfaces, pricing and visual presentations. In addition, online retailers can more easily compile demographic and behavioral data about their customers, increasing opportunities for direct marketing and personalized services.
We offer a unique value proposition to our customers due to our:
Our objective is to become the leading online retailer of nutritional supplements by focusing on five key areas: 1) educating the consumer about the benefits of supplements; 2) providing timely and accurate delivery; 3) ensuring quality and efficacy of product; 4) offering the broadest product selection; and 5) maintaining competitive pricing. In order to strengthen one or more of these focus areas, we plan to implement the following strategies:
Our principal executive officers are located at 2055 High Ridge Road, Boynton Beach, Florida 33426 and our telephone number is (561) 752-8888. Our primary website is www.vitacost.com. The information contained in, or that can be accessed through, our website is not part of this transaction.
The number of shares of common stock to be outstanding after this offering is based on 29,056,915 shares outstanding as of March 31, 2007, and:
Unless as otherwise indicated, all information contained in this prospectus assumes:
The following tables provide our summary consolidated financial information for the periods indicated. The summary statement of operations data for each of the three years in the period ended December 31, 2006 have been derived from our audited consolidated financial statements and accompanying footnotes included in this prospectus. You should read this information together with our financial statements and related notes and the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.
The following selected balance sheet data as of March 31, 2007, is presented on an as adjusted basis to give effect to the sale by us of shares of our common stock at an assumed initial offering price of $ per share, the midpoint of the range on the front cover of this prospectus, less the underwriting discounts, commissions and estimated offering expenses.