SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-24659
CYBERIAN OUTPOST, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1419111
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
23 North Main Street-PO Box 636, Kent, Connecticut 06757
(Address of principal executive offices) (Zip Code)
(860) 927-2050
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of December 31, 1999, the registrant had 23,632,668 shares of common stock,
par value $.01 per share, outstanding.
CYBERIAN OUTPOST, INC
INDEX
Page No.
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Part I--Financial Information:
Item 1. Financial Statements:
Balance Sheets, November 30, 1999 (Unaudited) and February 28,
1999..................................................................................... 3
Statements of Operations, Three and Nine Months Ended November 30, 1999 (Unaudited)
and November 30, 1998 (Unaudited)........................................................ 4
Statements of Cash Flows, Nine Months Ended November 30, 1999 (Unaudited)
and November 30, 1998 (Unaudited)........................................................ 5
Notes to Financial Statements (Unaudited)................................................ 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 7
Part II--Other Information
Item 2. Changes in Securities and Use of Proceeds............................................... 12
Item 6. Exhibits and Reports on Form 8-K........................................................ 13
Signature............................................................................................. 14
Exhibit Index......................................................................................... 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYBERIAN OUTPOST, INC.
Balance Sheets
(In thousands)
November 30, February 28,
1999 1999
---- ----
(unaudited)
Assets
Current Assets:
Cash and cash equivalents.................................................... $ 12,122 $ 26,828
Short-term investments....................................................... 14,993 28,735
Accounts receivable, net 3,497 3,441
Inventories.................................................................. 14,031 5,750
Prepaid expenses and other current assets.................................... 2,005 365
-------- --------
Total current assets...................................................... 46,648 65,119
Property and equipment, net.................................................... 8,812 5,937
Investment in joint venture.................................................... 2,515 --
Other assets................................................................... 569 408
-------- --------
Total assets.............................................................. $ 58,544 $ 71,464
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of capital lease obligations................................. $ 688 $ 501
Accounts payable............................................................. 18,482 8,985
Accrued expenses............................................................. 4,416 2,779
-------- --------
Total current liabilities................................................. 23,586 12,265
Capital lease obligations, excluding current portion........................... 875 778
-------- --------
Total liabilities......................................................... 24,461 13,043
Stockholders' equity:
Common stock................................................................. 236 230
Additional paid-in capital................................................... 93,701 92,319
Accumulated other comprehensive loss......................................... (43) (106)
Accumulated deficit.......................................................... (59,811) (34,022)
-------- --------
Total stockholders' equity................................................ 34,083 58,421
-------- --------
Total liabilities and stockholders' equity................................ $ 58,544 $ 71,464
======== ========
See accompanying notes to financial statements.
3
Statements of Operations
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
----------- ------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales ................................................... $43,167 $23,515 $112,536 $ 52,110
Cost of sales................................................. 38,083 21,145 99,819 47,020
------- ------- -------- --------
Gross profit................................................ 5,084 2,370 12,717 5,090
Operating expenses:
Sales and marketing......................................... 9,556 8,650 27,071 17,962
General and administrative.................................. 2,738 1,354 7,955 3,445
Technology and development.................................. 1,609 928 5,036 2,518
------- ------- -------- --------
Total operating expenses................................. 13,903 10,932 40,062 23,925
------- ------- -------- --------
Operating loss.............................................. (8,819) (8,562) (27,345) (18,835)
Other income, net............................................. 276 933 1,556 1,429
------- ------- -------- --------
Net loss.................................................... (8,543) (7,629) (25,789) (17,406)
Accretion of premium on preferred stock....................... -- -- -- (210)
Dividends applicable to preferred stockholders................ -- -- -- (613)
------- ------- -------- --------
Net loss applicable to common stockholders.................. $(8,543) $(7,629) $(25,789) $(18,229)
Basic and diluted net loss per share.......................... $ (0.36) $ (0.34) $ (1.11) $ (1.34)
======= ======= ======== ========
Weighted average shares outstanding........................... 23,559 22,298 23,277 13,640
======= ======= ======== ========
Pro forma basic and diluted net loss per share................ $ (0.89)
========
Pro forma weighted average shares outstanding................. 19,515
========
See accompanying notes to financial statements.
4
Statements of Cash Flows
(In thousands)
(unaudited)
Nine months ended
November 30,
--------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss.................................................................... $(25,789) $(17,406)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 2,730 607
Issuance of common stock options to employees.............................. 51 483
Equity in net income of joint venture (15) --
Loss on sales and maturities of short-term investments..................... 221 --
Increase in operating assets:
Accounts receivable....................................................... (56) (2,675)
Inventories............................................................... (8,281) (3,459)
Prepaid expenses and other assets......................................... (1,801) (1,367)
Increase in operating liabilities:
Accounts payable.......................................................... 9,497 6,811
Accrued expenses.......................................................... 1,637 3,132
-------- --------
Net cash used in operating activities.................................... (21,806) (13,874)
-------- --------
Cash flows from investing activities:
Investment in joint venture................................................. (2,500) --
Purchases of property and equipment......................................... (4,877) (3,146)
Purchases of short-term investments......................................... (10,781) --
Proceeds from sales and maturities of short-term investments................ 24,365 --
-------- --------
Net cash provided by (used in) investing activities...................... 6,207 (3,146)
-------- --------
Cash flows from financing activities:
Repayment of notes payable.................................................. -- (2,000)
Repayment of capital lease obligations...................................... (444) (121)
Proceeds from issuance of common stock warrants............................. -- 545
Proceeds from issuance of redeemable preferred stock........................ -- 13,658
Proceeds from issuance of common stock...................................... 1,337 65,499
-------- --------
Net cash provided by financing activities................................ 893 77,581
-------- --------
Net increase (decrease) in cash and cash equivalents......................... (14,706) 60,561
Cash and cash equivalents at the beginning of period......................... 26,828 7,325
-------- --------
Cash and cash equivalents at the end of period............................... $ 12,122 $ 67,886
======== ========
Supplemental disclosure of cash paid for interest and taxes:
Interest.................................................................... $ 98 $ 42
======== ========
Taxes....................................................................... $ 159 $ 4
======== ========
See accompanying notes to financial statements.
Supplemental disclosure of non-cash transactions:
During the nine month period ended November 30, 1999, we acquired office
equipment and incurred capital lease obligations of $729,000.
During the nine month period ended November 30, 1998, we (i) increased the
Redeemable Series C Convertible Preferred Stock and decreased additional paid-in
capital by $823,000 to record accumulated dividends of $613,000 and accretion of
$210,000 on the Redeemable Series C Convertible Preferred Stock, (ii) acquired
office equipment and incurred capital lease obligations of $200,000, (iii)
converted a $750,000 debenture into 163,043 shares of Series B Convertible
Preferred Stock, and (iv) converted all redeemable and convertible preferred
stock to common stock, effective on our initial public offering date.
5
Notes to Financial Statements
(Unaudited)
November 30, 1999
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. In the opinion of management, all adjustments
(consisting primarily of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine month periods ended November 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending February 29, 2000.
2. We completed an initial public offering of our common stock on August 5, 1998
(the "IPO"). A total of 4,000,000 shares of common stock were sold by us to
the public at a price of $18.00 per share. The underwriting discount was
$1.26 per share. The net proceeds after the underwriting discount and other
IPO expenses were $65,499,000. Concurrent with the IPO, all of the shares of
our Redeemable Series C Convertible Preferred Stock, and Series A and Series
B Convertible Preferred Stock (the "Convertible Stock"), were converted
into shares of common stock at a ratio of three shares of common stock for
each share of Convertible Stock. As such, the 3,778,949 shares of Convertible
Stock outstanding were converted into 11,336,847 shares of common stock.
3. Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128). In accordance with the
pronouncement, the net loss applicable to common stockholders includes the
accretion of and dividends on the Series C Redeemable Convertible Preferred
Stock through the date of conversion to common stock. Weighted average shares
outstanding includes the common stock resulting from the conversion of the
Convertible Stock from the date of conversion through the end of the period.
Pro forma net loss per share has been computed under SFAS 128, except that it
reflects the conversion of the Convertible Stock as of the beginning of the
earliest period presented or date of issuance, whichever is later. Therefore,
the pro forma net loss per share does not include the accretion of or
dividends on the Series C Redeemable Convertible Preferred Stock. The pro
forma weighted average shares outstanding includes the common stock resulting
from the conversion of the Convertible Stock as of the beginning of the
earliest period presented or the date of issuance, whichever is later.
4. Comprehensive Loss
Three months ended Nine months ended
------------------ -----------------
November 30, November 30, November 30, November 30,
------------ ------------ ------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands) (In thousands)
The components of comprehensive loss, net of tax,
are as follows:
Net loss............................................... $(8,543) $(7,629) $(25,789) $(17,406)
Other comprehensive loss, net of tax:
Change in unrealized holding loss in 203 -- 63 --
available for sale securities ------- ------- -------- --------
Other comprehensive loss........................... 203 -- 63 --
------- ------- -------- --------
Comprehensive loss..................................... $(8,340) $(7,629) $(25,726) $(17,406)
======= ======= ======== ========
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of our financial condition and results of operations
should be read in conjunction with our Financial Statements, including the Notes
thereto, included elsewhere in this Form 10-Q.
Overview
Cyberian Outpost, Inc. ("Outpost.com") is a leading global Internet-only
retailer featuring over 170,000 consumer technology and related products for
home and office, a full range of electronics in the Tweeter@Outpost.com store
and innovative gifts in the Brookstone@Outpost.com store. With 465,000 customers
world-wide, we offer an online "superstore" at www.Outpost.com that provides
one-stop shopping for domestic and international customers, 24 hours a day,
seven days a week. Our online store features an easy to navigate interface,
extensive product information, powerful search capabilities, and competitive
pricing. We have been recently ranked #1 in Computing by Forrester Research, #1
in Service by Bizrate and Best in Category by Fortune Magazine.
Although we have grown rapidly since our inception in 1995, we continue to
incur significant net losses. We believe that in order to continue our growth
and expansion, operating expenses will increase as a result of the financial
commitments required to further develop multiple marketing channels and enhance
our Web site's features and functionality. As such, we expect to continue to
incur losses and generate negative cash flows from operations for the near term.
Our ability to achieve profitability is dependent upon our ability to
substantially increase net sales and to continue to broaden our range of product
offerings that have higher margins. There can be no assurance that sufficient
revenues will be generated from the sale of our products to enable us to reach
or maintain profitability on a quarterly or annual basis. Although we have
experienced significant revenue growth since inception, such growth rates are
not necessarily sustainable at historic levels. In view of the rapidly evolving
nature of our business, we believe that period-to-period comparisons of our
operating results, including our gross profit and operating expenses as
percentage of net sales, are not necessarily meaningful and should not be relied
upon as an indication of future performance.
We believe that the key factor affecting our long-term financial success is
our ability to attract and retain customers in a cost effective manner.
Currently, we seek to expand our customer base and encourage repeat buying
through the addition of new product categories and the use of multiple sales and
marketing programs. Such programs include: (i) our True Price policy, which
includes free overnight shipping (ii) brand development, (iii) online and
offline marketing and promotional campaigns, (iv) linking programs with targeted
Web sites, (v) personalized direct marketing programs designed to generate
repeat sales from existing customers and (vi) alliances with Internet content
providers and portal sites.
Factors that may affect our operating results include the frequency of new
product releases, success of business alliances, mix of product sales and
seasonality of sales typically experienced by retailers. Sales in the technology
and consumer electronics industry are significantly affected by the release of
new products. Infrequent or delayed new product releases, when they occur,
negatively impact the overall growth in computer retail sales. Gross profit
margins for technology and consumer electronics vary widely, with computer
hardware generally having the lowest gross profit margins. While we have some
ability to affect our product mix through effective upselling and cross-selling
of high margin products, our sales mix will vary from period to period and our
gross margins will fluctuate accordingly.
International sales are denominated in U.S. dollars and, therefore, those
sales are not affected by foreign currency translation. However, foreign
currency fluctuations may affect demand for our products.
7
Recent Events
On October 1, 1999, we formed a 50/50 joint venture, Tweeter@Outpost.com, with
Tweeter Home Entertainment Group, Inc. ("Tweeter"), a leading specialty retailer
of upscale audio and video consumer electronics products. Tweeter@Outpost.com
markets and brands a fully authorized Internet consumer electronics retail
destination. We believe this joint venture leverages and integrates the core
strengths of both companies, applying our leading-edge Internet technology, Web
merchandising expertise and operational infrastructure and Tweeter's powerful
relationships with top manufacturers and its world-class training organization,
which is directed toward delivering a positive customer experience. The joint
venture is accounted for under the equity method of accounting.
We announced an alliance with Brookstone, Inc., a nationwide specialty
retailer of unique and innovative consumer products. We also entered a co-
marketing alliance and exclusive e-commerce partnership with Sandbox.com, a
leading provider of internet-based sports and financial games. Under the terms
of the agreement, we became Sandbox's exclusive e-commerce partner and will
operate the Sandbox Buyers Club, which includes co-branded stores featuring
computer hardware, software, gaming and electronics products, as well as
Sandbox.com licensed sports merchandise. In addition, an alliance with furniture
retailer Shop121.com adds top grade computer desks and hutches as well as
ergonomic gaming chairs to our store. The alliances noted above are part of our
e-Business Services strategy.
Results of Operations: Three and Nine Months Ended November 30, 1999 and 1998
Net Sales: Net sales are comprised of product sales, net of returns and
allowances, from the sale of computer hardware, software and accessories,
specialty consumer products and advertising revenue derived from hardware
manufacturers and software publishers that pay for promotional placements on our
Web site. Net sales increased by $19.7 million from $23.5 million for the
quarter ended November 30, 1998 to $43.2 million for the quarter ended November
30, 1999. In addition, net sales increased by $60.4 million from $52.1 million
in the nine months ended November 30, 1998 to $112.5 million in the nine months
ended November 1999. In both of these periods, these increases were primarily a
result of increases in our customer base and repeat purchases from existing
customers. Revenues from advertising and other sources in the three and nine
month periods ended November 30, 1999 and 1998 were not material.
Cost of Sales: Cost of sales consists of the cost of the merchandise we sell.
Cost of sales increased by $17.0 million from $21.1 million in the quarter ended
November 30, 1998 to $38.1 million in the quarter ended November 30, 1999 as a
result of the growth in product sales. Our gross profit increased by $2.7
million from $2.4 million in the quarter ended November 30, 1998 to $5.1 million
in the quarter ended November 30, 1999, due to the increase in our revenues. As
a percentage of sales, our gross margin was 11.8% and 10.1% in the quarters
ended November 30, 1999 and 1998, respectively. The increase in gross margin
percentage was attributable to an improvement in our product mix, adhering more
closely to manufacturers' minimum advertised pricing policies, and improved
marketing and merchandising strategies.
Cost of sales increased by $52.8 million from $47.0 million in the nine month
period ended November 30, 1998 to $99.8 million in the nine month period ended
November 30, 1999 as a result of our product sales growth. Our gross profit
increased by $7.6 million from $5.1 million in the nine months ended November
30, 1998 to $12.7 million in the nine months ended November 30, 1999 as a result
of the growth in our revenue. As a percentage of sales, our gross margin was
11.3% and 9.8% in the nine months ended November 30, 1999 and 1998,
respectively.
Sales and Marketing: Sales and marketing expenses consist primarily of online
and offline advertising and promotion costs, distribution and shipping costs,
sales, marketing and customer service personnel and related expenditures, and
fees paid to strategic partners. Sales and marketing expenses increased by $0.9
million from $8.7 million for the quarter ended November 30, 1998 to $9.6
million for the quarter ended November 30, 1999. This increase was due to higher
shipping, warehouse and other direct selling expenses related to the increase in
sales volumes. As a percentage of net sales, sales and marketing expense
decreased from 36.8% for the quarter ended November 30, 1998 to 22.1% for the
quarter ended November 30, 1999. Sales and marketing expenses increased by $9.1
million from $18.0 million in the nine month period ended November 30, 1998, to
$27.1 million in the nine month period ended November 30, 1999. This increase
was due to higher shipping, warehouse and other direct selling expenses related
to the increase in sales volumes, higher
8
advertising and promotion expenses related to building brand recognition and
increasing sales, and the growth of the sales and marketing staff. As a
percentage of net sales, sales and marketing expenses decreased from 34.5% in
the nine months ended November 30, 1998 to 24.1% in the nine months ended
November 30, 1999. The percentage decreases in both periods resulted from our
ability to leverage sales and marketing expenses such that net sales increased
at a higher rate than those expenses.
General and Administrative: General and administrative expense includes
administrative, finance and purchasing personnel and related costs, general
office and depreciation expenses, as well as professional fees. General and
administrative expense increased by $1.3 million from $1.4 million for the
quarter ended November 30, 1998 to $2.7 million for the quarter ended November
30, 1999. As a percentage of net sales, general and administrative expenses
increased from 5.8% in the quarter ended November 30, 1998 to 6.3% in the
quarter ended November 30, 1999. General and administrative expense increased
by $4.6 million from $3.4 million in the nine month period ended November 30,
1998 to $8.0 million in the nine month period ended November 30, 1999. As a
percentage of net sales, general and administrative expenses increased from 6.6%
in the nine months ended November 30, 1998 to 7.1% in the nine months ended
November 30, 1999. The increases in general and administrative expense in both
periods were primarily the result of increases in depreciation, administrative
personnel, office expenses associated with such personnel, and professional
fees.
Technology and Development: Technology and development expense includes
systems personnel and related costs, software support, technology development
costs, Web site hosting and communications expenditures. Technology and
development expense increased by $0.7 million from $0.9 million for the quarter
ended November 30, 1998 to $1.6 million in the quarter ended November 30, 1999.
As a percentage of net sales, technology and development expense decreased from
3.9% for the quarter ended November 30, 1998 to 3.7% for the quarter ended
November 30, 1999. Technology and development expenses increased by $2.5 million
from $2.5 million in the nine month period ended November 30, 1998 to $5.0
million in the nine month period ended November 30, 1999. As a percentage of
sales, technology and development expenses decreased from 4.8% in the nine
months ended November 30, 1998 to 4.5% in the nine months ended November 30,
1999. The dollar increases in technology and development expense in both periods
were primarily a result of systems and software upgrades and enhancements
required to support the growth in visitors to our Web site, as well as increases
in systems personnel to maintain and improve our Web site and technology
infrastructure. The percentage decreases in both periods resulted from our
ability to leverage technology and development expenses such that net sales
increased at a higher rate than those expenses.
Other Income, Net: Other income, net consists of interest income we earned on
short-term investments and overnight investments of our cash balances in money
market accounts and equity in the net income of Tweeter@Outpost.com, offset by
interest expense attributable to lease financing agreements. Other income, net
decreased by $657,000 from $933,000 for the quarter ended November 30, 1998 to
$276,000 for the quarter ended November 30, 1999 primarily as a result of lower
interest income because of lower short-term investment balances in the current
quarter. Other income, net increased by $127,000 from $1,429,000 in the nine
month period ended November 30, 1998 to $1,556,000 in the nine month period
ended November 30, 1999. This change was primarily the result of interest
income from short-term investment of our cash balances resulting from our sale
of common stock through our initial public offering completed on August 5, 1998.
Net Loss: As a result of the foregoing factors, we incurred a net loss of $8.5
million and $25.8 million in the three and nine month periods ended November 30,
1999, respectively.
Liquidity and Capital Resources
We used $21.8 million in cash to fund operations during the nine months ended
November 30, 1999. During this period, our principal operating cash requirements
were to fund our net loss and for increases in inventories, prepaid expenses and
other assets, partially offset by increases in accounts payable and accrued
expenses. In addition, we generated $6.2 million from investment activities
during the nine months ended November 30, 1999, consisting of proceeds from the
sale and maturities of short-term investments of $24.4 million, offset by
purchases
9
of short-term investments of $10.8 million and of property and equipment of $4.9
million and by an investment in a joint venture of $2.5 million. We also
generated $0.9 million from financing activities during the nine months ended
November 30, 1999 from the proceeds from issuing common stock, primarily to
Tweeter, partially offset by the repayment of capital lease obligations.
As of November 30, 1999, we had $12.1 million in cash and cash equivalents and
$15.0 million in short-term investments compared to $26.8 million in cash and
cash equivalents and $28.7 million in short-term investments as of February 28,
1999. As of November 30, 1999, our material capital commitments consisted of
$1.6 million in obligations outstanding under capital leases.
In November 1999, our "flooring" credit agreement with Deutsche Financial
Services Corporation ("DFS") was increased from $7.0 million to $12.0 million.
Pursuant to this agreement, DFS may, at its option, extend credit to us from
time to time to purchase inventory from DFS approved vendors or for other
purposes. Under this agreement, we can purchase inventory from certain vendors
and elect to have these vendors invoice DFS instead of us. DFS pays this invoice
and in turn bills us on a periodic basis throughout the month. If we pay this
note within 30 days, we pay no interest. If the note remains outstanding after
30 days, we must pay a .25% fee and interest accrues at a variable rate based on
the prime rate plus 2.5%. If the note remains outstanding after 181 days,
interest begins to accrue at the prime rate plus 6.5%. To date, we have paid all
notes within 30 days and have incurred no interest expense under this facility.
As a result of increasing our line to $12.0 million, the amount of cash
instruments pledged was increased from $2.5 million to $4.5 million. This
pledge, in addition to all of our assets, secures this facility. As of November
30, 1999, we had an outstanding balance of $8.3 million under this facility.
We plan to continue to aggressively expand our marketing efforts and customer
acquisition initiatives. We will fund these initiatives and our ongoing
operations through current cash, cash equivalents and short term investments,
and we anticipate selling additional equity or debt securities within the next
six to nine months. The sale of additional equity or convertible debt securities
could result in additional dilution to our stockholders. There can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all.
As of February 28, 1999, we had a net operating loss ("NOL") carryforward of
approximately $32.8 million, which begins to expire in February 2011. The
utilization of the NOL carryforward will be limited pursuant to the Tax Reform
Act of 1986, due to cumulative changes in ownership in excess of 50%.
Year 2000 Compliance
The "Year 2000 Issue" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs may
recognize a year that ends in "00" as the Year 1900 rather than the Year 2000.
We use a significant number of computer software programs and operating
systems in our internal operations, including applications used in order
processing, inventory management, distribution, financial business systems and
various administrative functions. To determine the effect, if any, of the Year
2000 Issue on our operations, we began a comprehensive audit of our internal
information systems in June 1998 to determine if they are able to correctly
interpret the upcoming Year 2000. We established a Year 2000 Project Team that,
together with external consultants, developed a process for addressing the Year
2000 Issue. This process included performing an inventory, completing an
assessment, and performing remediation and testing procedures of all mission-
critical information systems and equipment that contain embedded technology, as
well as obtaining assurances from all mission-critical third-parties that
substantially affect our ability to take, process and fulfill orders, gather and
process financial information, or otherwise significantly impact the customer
experience. These procedures were successfully completed in December 1999.
During our review and testing, we encountered no significant unresolved
problems, nor did we identify any non-compliant systems that needed to be
replaced or significantly modified. Additionally, we have not experienced any
significant problems subsequent to December 31, 1999. We therefore believe that
our principal information systems correctly define the Year 2000. To date, the
costs incurred to conduct the review of our internal information systems and to
identify the impact of the Year 2000 Issue on third parties have been
immaterial.
10
Forward-Looking Statements
This report may contain forward-looking statements. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results or outcomes to differ materially
from those described in such forward-looking statements. These statements
address or may address the following subjects: customer growth and retention;
sales growth; our expansion of marketing efforts and customer acquisition
initiatives; our anticipated sale of equity or debt securities; the potential
positive impact on our operations of the joint venture and strategic alliances;
and the impact of the Year 2000 Issue. We caution investors that there can be no
assurance that actual results, outcomes or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, among others, our limited operating
history, unpredictability of future revenues and operating results, the
continued growth of online commerce, risks associated with international sales,
system failure and capacity constraints and competitive pressures. For further
information, refer to the more specific factors and uncertainties discussed
throughout this report.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities and Use of Proceeds
In connection with our initial public offering, we sold 4,000,000 shares of
Common Stock, par value $.01 per share, and received net offering proceeds of
approximately $65.5 million. On July 30, 1998, the Securities and Exchange
Commission declared our Registration Statement on Form S-1 (File No. 333-55819)
effective. The following table sets forth our cumulative use of the net offering
proceeds as of November 30, 1999:
Building, leasehold improvements and facilities........................... $ 1,700,000
Computers, software and office equipment.................................. 6,600,000
Investment in joint venture............................................... 2,500,000
Repayment of indebtedness................................................. 500,000
Working capital........................................................... 26,300,000
Temporary investments..................................................... 15,000,000
Cash and cash equivalents................................................. 12,100,000
All other purposes, net................................................... 800,000
The foregoing use of net proceeds does not represent a material change in the
use of net proceeds described in the Registration Statement.
12
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits
Exhibit No. 3.1............ Restated Bylaws of Cyberian Outpost, Inc.
Exhibit No. 10.1........... Employment Agreement dated September 29, 1999
between Robert Bowman and Cyberian Outpost, Inc.
Exhibit No. 11............. Computation of Loss per Share
Exhibit No. 27............. Financial Data Schedule
(B) Reports on Form 8-K. Not Applicable
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2000
CYBERIAN OUTPOST, INC.
By: /s/ Katherine N. Vick
-------------------------------------------------
Katherine N. Vick
Executive Vice President for Business Development &
Chief Financial Officer
(Principal Accounting and Financial Officer)
14
CYBERIAN OUTPOST, INC.
EXHIBIT INDEX
Exhibit
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3.1 Restated Bylaws of Cyberian Outpost, Inc.
10.1 Employment Agreement dated September 29, 1999 between Robert
Bowman and Cyberian Outpost, Inc.
11 Computation of Loss Per Share
27 Financial Data Schedule