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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 August 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-24659
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CYBERIAN OUTPOST, INC.
a/k/a OUTPOST.COM
(Exact name of registrant as specified in its charter)
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Delaware 06-1419111
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
23 North Main Street
PO Box 636, Kent, Connecticut 06757
(Address of principal executive (Zip Code)
offices)
(860) 927-2050
Registrant's telephone number, including area code
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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 October 2, 2000, the registrant had 31,646,887 shares of common stock,
par value $.01 per share, outstanding.
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OUTPOST.COM
FORM 10-Q
For the Quarter Ended August 31, 2000
INDEX
Page No.
--------
Part I--Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets, August 31, 2000 (Unaudited)
and February 29, 2000................................... 3
Consolidated Statements of Operations, for the Three and
Six Months Ended August 31, 2000 and 1999 (Unaudited)... 4
Consolidated Statements of Cash Flows, for the Six Months
Ended August 31, 2000 and 1999 (Unaudited).............. 5
Notes to Consolidated Financial Statements (Unaudited)... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9
Part II--Other Information:
Item 2. Changes in Securities and Use of Proceeds................ 15
Item 4. Submission of Matters to a Vote of Security Holders...... 15
Item 6. Exhibits and Reports on Form 8-K......................... 16
Signature............................................................ 17
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
OUTPOST.COM
Consolidated Balance Sheets
(In thousands)
August 31, February 29,
2000 2000
----------- ------------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents............................. $ 24,579 $ 13,293
Short term investments................................ 12,000 7,694
Accounts receivable, net.............................. 11,002 4,350
Inventories........................................... 15,515 12,168
Prepaid expenses and other current assets............. 1,225 1,133
-------- --------
Total current assets................................ 64,321 38,638
Property and equipment, net............................ 14,078 10,545
Investment in joint venture............................ -- 2,709
Other assets........................................... 861 951
-------- --------
Total assets........................................ $ 79,260 $ 52,843
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of capital lease obligations.......... $ 655 $ 666
Accounts payable...................................... 25,730 24,381
Accrued expenses...................................... 3,676 2,558
-------- --------
Total current liabilities........................... 30,061 27,605
Capital lease obligations, excluding current portion... 422 718
-------- --------
Total liabilities................................... 30,483 28,323
Minority interest...................................... 2,965 --
Stockholders' equity:
Common stock.......................................... 285 237
Additional paid-in capital............................ 129,197 93,921
Accumulated deficit................................... (83,670) (69,638)
-------- --------
Total stockholders' equity.......................... 45,812 24,520
-------- --------
Total liabilities and stockholders' equity.......... $ 79,260 $ 52,843
======== ========
See accompanying notes to consolidated financial statements.
3
OUTPOST.COM
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
-------------------- ------------------
2000 1999 2000 1999
------- ------- -------- --------
Net sales................................. $72,294 $36,689 $137,085 $ 69,369
Cost of sales............................. 62,081 32,469 118,376 61,736
------- ------- -------- --------
Gross profit............................. 10,213 4,220 18,709 7,633
Operating expenses:
Sales and marketing...................... 11,113 8,082 21,827 17,514
General and administrative............... 3,125 2,368 5,893 3,880
Technology and development............... 3,027 2,768 5,943 4,763
------- ------- -------- --------
Total operating expenses............... 17,265 13,218 33,663 26,157
------- ------- -------- --------
Operating loss........................... (7,052) (8,998) (14,954) (18,524)
Other income, net......................... 541 605 1,178 1,277
------- ------- -------- --------
Net loss before minority interest........ (6,511) (8,393) (13,776) (17,247)
Minority interest......................... (156) -- (256) --
------- ------- -------- --------
Net loss................................. $(6,667) $(8,393) $(14,032) $(17,247)
======= ======= ======== ========
Basic and diluted net loss per share...... $ (0.23) $ (0.36) $ (0.50) $ (0.75)
======= ======= ======== ========
Weighted average shares outstanding....... 28,482 23,252 28,248 23,138
======= ======= ======== ========
See accompanying notes to consolidated financial statements.
4
OUTPOST.COM
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
August 31,
------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net loss.................................................. $(14,032) $(17,247)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 3,094 1,595
Amortization of deferred compensation.................... 33 51
Minority interest income................................. 256 --
Loss on sales and maturities of short term investments... (8) 93
(Increase) decrease in operating assets:
Accounts receivable.................................... (6,652) 45
Inventories............................................ (2,101) (1,256)
Prepaid expenses and other assets...................... (2) (428)
(Decrease) increase in operating liabilities:
Accounts payable....................................... (49) 3,147
Accrued expenses....................................... 982 794
-------- --------
Net cash used in operating activities.................. (18,479) (13,206)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (6,584) (3,214)
Purchases of short term investments....................... (19,897) (7,673)
Proceeds from sales and maturities of short term
investments.............................................. 15,600 12,056
Cash acquired from consolidating joint venture............ 5,706 --
-------- --------
Net cash (used in) provided by investing activities.... (5,175) 1,169
-------- --------
Cash flows from financing activities:
Repayment of capital lease obligations.................... (350) (267)
Proceeds from issuance of common stock.................... 35,290 1,142
-------- --------
Net cash provided by financing activities.............. 34,940 875
-------- --------
Net increase (decrease) in cash and cash equivalents... 11,286 (11,162)
-------- --------
Cash and cash equivalents at the beginning of period... 13,293 26,828
Cash and cash equivalents at the end of period......... $ 24,579 $ 15,666
======== ========
Supplemental disclosure of cash paid for interest:
Interest.................................................. $ 171 $ 61
======== ========
Supplemental disclosure of non-cash transactions:
During the six month periods ended August 31, 2000 and 1999, we acquired
office equipment by incurring capital lease obligations of approximately
$44,000 and $390,000, respectively.
See accompanying notes to consolidated financial statements.
5
OUTPOST.COM
Notes to Consolidated Financial Statements
(Unaudited)
August 31, 2000
Note 1--Basis of Presentation
The accompanying unaudited consolidated 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 six month
periods ended August 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending February 28, 2001.
Note 2--Description of the Business and Significant Accounting Policies
Description of Business
Cyberian Outpost, Inc. ("Outpost.com", or the "Company") was incorporated in
the state of Connecticut on March 6, 1995 and reincorporated in the state of
Delaware on July 8, 1998. Outpost.com is a leading global Internet retailer
featuring over 200,000 consumer technology and related products for the home
and office. As of August 31, 2000, the Company has one subsidiary,
Tweeter@Outpost.com, LLC, whose results are consolidated in the accompanying
financial statements for the three and six month periods ended August 31,
2000. Refer to Footnote 6--Subsequent Events which discusses the Company's
subsequent acquisition of CMP Express.com, Inc.
Revenue Recognition
Net sales are primarily comprised of product sales net of returns and
allowances. Net sales also include advertising revenue derived from vendors
that pay for promotional placements on the Company's Web site and site
management fees derived from hosting and managing our partners' Web sites.
Product sales are comprised of computers and accessories, software, consumer
electronics, cameras, and other high end consumer products. Product sales are
recognized as revenue when the products are shipped to customers. The Company
records a reserve for estimated sales returns at the time of shipment based on
historical return rates. The majority of net sales are merchandise to
customers using credit cards. The remainder is to customers that are invoiced
directly under credit terms, amounts received from vendors for advertising and
partners for site management fees.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year's presentation.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," (SFAS 133). SFAS 133
establishes accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. SFAS 133 requires all companies to recognize derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal quarters
of fiscal years
6
OUTPOST.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
August 31, 2000
beginning after July 1, 2000. The Company does not believe that the adoption
of this statement will have a material effect on its financial position or
results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). In June 2000, the SEC amended
this bulletin as SAB 101B which extends the time required to adopt this
bulletin. The Company is required to adopt SAB 101B no later than its quarter
ended February 28, 2001. The Company does not believe that the adoption of
this bulletin will have a material effect on its financial position or results
of operations.
In March 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-2, "Accounting
for Web Site Development Costs." This consensus provides guidance on what
types of costs incurred to develop Web sites should be capitalized or
expensed. The consensus is effective for Web site development costs incurred
for fiscal quarters beginning after June 30, 2000. The Company does not
believe that the adoption of this consensus will have a material impact on its
financial position or results of operations.
In July 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on EITF Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." This consensus requires
that all amounts billed to a customer in a sale transaction related to
shipping and handling, if any, represent revenue and should be classified as
revenue. The Company is required to adopt EITF issue number00-10 no later than
its quarter ended February 28, 2001. As the Company does not charge a shipping
fee on the majority of its orders, it does not believe that the adoption of
this issue will have a material effect on its financial position or results of
operations.
Note 3--Stockholders' Equity
In March 2000, the Company completed a private equity placement and issued
4,702,900 shares of its common stock to accredited investors at a price of
$7.87 per share. The Company received approximately $35.3 million of proceeds,
net of the underwriting discount and offering expenses.
Note 4--Comprehensive Loss
Three Months Six Months
Ended August 31, Ended August 31,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands) (In thousands)
The components of comprehensive loss, net of
tax, are as follows:
Net loss.................................... $ (6,667) $ (8,393) $(14,032) $(17,247)
Other comprehensive loss, net of tax:
Change in unrealized holding loss in
available for sale securities.............. (1) (84) -- (140)
-------- -------- -------- --------
Comprehensive loss........................... $ (6,668) $ (8,477) $(14,032) $(17,387)
======== ======== ======== ========
7
OUTPOST.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
August 31, 2000
Note 5--Related Party Transactions
On October 1, 1999, the Company formed a joint venture, Tweeter@Outpost.com,
LLC with Tweeter Home Entertainment Group, Inc. ("Tweeter").
Tweeter@Outpost.com, LLC operates a fully authorized Internet consumer
electronics retail destination. The Company and Tweeter each contributed $2.5
million in cash. At February 29, 2000, both partners held 50% of the voting
stock of the joint venture and the Company had an ownership interest in the
joint venture of approximately 50%.
As of March 1, 2000, the joint venture agreement between the Company and
Tweeter was amended. The effect of this amendment was to change certain
provisions of the Company's interest in the joint venture. As a result,
effective March 1, 2000, the Company began consolidating the financial
statements of Tweeter@Outpost.com, LLC with those of Outpost.com as a
controlled subsidiary. All intercompany transactions have been eliminated.
Note 6--Subsequent Events
On September 8, 2000, the Company completed the acquisition of
CMPExpress.com, Inc. ("CMPExpress"), a private Internet retailer of technology
products to medium and large businesses. The Company intends to operate the
business of CMPExpress under the name "OutpostPro." As a result of the
acquisition, Outpost issued 3,090,000 shares of its common stock, valued at
approximately $11.8 million based on the average closing price of Outpost's
common stock over the 20 trading days prior to September 8, 2000. The Company
also issued 47,000 shares of its common stock to the finder who facilitated
this transaction. The acquisition will be accounted for under the purchase
method of accounting for business combinations.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of our business, results of operations, and
liquidity and capital resources should be read in conjunction with our
Financial Statements, including the Notes thereto, included elsewhere in this
Form 10-Q.
Overview
Outpost.com is a leading global Internet retailer featuring over 200,000
consumer technology and related products for the home and office. With over
850,000 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 customers consist of
consumers, small office and home office ("SOHO") customers, and medium to
large size businesses. Our superstore features computers and accessories,
software, consumer electronics, cameras, and other high end consumer products.
We also provide eBusiness Services for partners which include Web site design
and hosting, customer service and fulfillment.
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 our marketing channels and enhance our
Web site's features and functionality. To the extent that our marketing
efforts do not result in significantly higher net sales, we will be materially
adversely affected. 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 may not be
sustainable in the future. In view of the rapidly evolving nature of our
business and our limited operating history, we believe that period-to-period
comparisons of our operating results, including our gross profit and operating
expenses as a percentage of net sales, are not necessarily meaningful and
should not be relied upon as an indication of future performance.
We anticipate that international sales will continue to represent a portion
of our overall revenue. Our 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. In addition, international sales are subject to diverse market
factors such as the economic conditions of a given country or region.
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 multiple sales and marketing programs. Such programs include: (i) on-
line and off-line marketing and promotional campaigns, (ii) linking programs
with targeted Web sites, (iii) personalized direct marketing programs designed
to generate repeat sales from existing customers, (iv) alliances with leading
brick and mortar retailers and (v) brand development.
We expect to experience significant fluctuations in our future operating
results due to a variety of factors, many of which are outside our control.
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 of technology,
electronic and high end consumer products are significantly affected by new
product releases. Infrequent or delayed new product releases, when they occur,
could negatively impact the overall growth in our sales. Gross profit margins
for technology, consumer electronic and high end consumer products 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.
9
Results of Operations: Three and Six Months Ended August 31, 2000 and 1999
The following table sets forth certain items from our statement of
operations data as a percentage of net sales for the periods indicated:
Three Months Six Months
Ended Ended
August 31, August 31,
--------------- -------------
2000 1999 2000 1999
------ ------ ----- -----
Net sales................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 85.9 88.5 86.4 89.0
------ ------ ----- -----
Gross profit............................................ 14.1 11.5 13.6 11.0
Operating expenses:
Sales and marketing..................................... 15.4 22.0 15.9 25.2
General and administrative.............................. 4.3 6.5 4.3 5.6
Technology and development.............................. 4.2 7.5 4.3 6.9
------ ------ ----- -----
Total operating expenses.............................. 23.9 36.0 24.5 37.7
------ ------ ----- -----
Operating loss.......................................... (9.8) (24.5) (10.9) (26.7)
Other income, net........................................ 0.8 1.6 0.9 1.8
------ ------ ----- -----
Net loss before minority interest....................... (9.0) (22.9) (10.0) (24.9)
Minority interest........................................ (0.2) -- (0.2) --
------ ------ ----- -----
Net loss................................................ (9.2)% (22.9)% (10.2)% (24.9)%
====== ====== ===== =====
Net Sales
Net sales are comprised of product sales net of returns and allowances. Net
sales also include advertising revenue derived from vendors that pay for
promotional placements on our Web site and site management fees for hosting
and managing our partners Web sites. Product sales are comprised of computers
and accessories, software, consumer electronics, cameras, and other high end
consumer products. Product sales are recognized as revenue when the products
are shipped to customers. We record a reserve for estimated sales returns at
the time of shipment based on historical return rates. The majority of our net
sales are merchandise to customers using credit cards. The remainder is to
customers that are invoiced directly under credit terms, amounts received from
vendors for advertising and partners for site management fees.
Net sales increased by $35.6 million to $72.3 million in the quarter ended
August 31, 2000 from $36.7 million in the quarter ended August 31, 1999. In
addition, net sales increased by $67.7 million to $137.1 million in the six
months ended August 31, 2000 from $69.4 in the six months ended August 31,
1999. In both of these periods, these increases were primarily a result of
increases in our new customer sales, repeat purchases from existing customers
and the introduction of new product lines. Revenues from advertising and other
sources in the three and six month periods ended August 31, 2000 and 1999 were
not considered significant. As of August 31, 2000 we had approximately 850,000
customer accounts. International sales represented approximately 4% of net
sales in the quarter ended August 31, 2000 compared to approximately 9% in the
quarter ended August 31, 1999. In addition, international sales represented
approximately 5% of net sales in the six months ended August 31, 2000 compared
to approximately 12% in the six months ended August 31, 1999. We believe the
decrease in international sales was primarily the result of focusing the
majority of our marketing and promotional emphasis on the domestic market.
Cost of Sales and Gross Profit
Cost of sales consists of the cost of the merchandise we sell. Cost of sales
increased $29.6 million to $62.1 million in the quarter ended August 31, 2000
from $32.5 million in the quarter ended August 31, 1999. This increase was
primarily the result of an increase in product sales volume. Our gross profit
increased by
10
$6.0 million to $10.2 million in the quarter ended August 31, 2000 from $4.2
million in the quarter ended August 31, 1999. This increase was a result of
our growth in revenues from product sales, advertising sales and eBusiness
Services and improved margins on those revenues. As a percentage of net sales,
cost of sales decreased to 85.9% from 88.5% and our gross profit increased to
14.1% from 11.5% in the quarters ended August 31, 2000 and August 31, 1999,
respectively. The decrease in the cost of sales percentage and the increase in
gross profit is attributable to the following; higher margins from existing
product lines, introduction of new and higher margin product lines and fees
from eBusiness Services.
Cost of sales increased by $56.7 million to $118.4 million in the six month
period ended August 31, 2000 from $61.7 in the six month period ended August
31, 1999. This increase was primarily the result of an increase in product
sales volume. Our gross profit increased by $11.1 million to $18.7 million in
the six month period ended August 31, 2000 from $7.6 million in the six month
period ended August 31, 1999. This increase was a result of our growth in
revenues from product sales, advertising sales and eBusiness services and
improved margins on those revenues. As a percentage of net sales, cost of
sales decreased to 86.4% from 89.0% and our gross profit increased to 13.6%
from 11.0% in the six months ended August 31, 2000 and August 31, 1999,
respectively. The decrease in the cost of sales percentage and the increase in
gross profit is attributable to the following; higher margins in existing
product lines, introduction of higher margin product lines and fees from
eBusiness Services.
Operating Expenses
Operating expenses consist of sales and marketing expenses, general and
administrative expenses and technology and development expenses. These are
further described as follows:
Sales and Marketing. Sales and marketing expense consists primarily of three
components;
Direct Selling Expenses. These expenses consist primarily of shipping
expense net of shipping revenue under our TruePrice marketing program,
contract warehouse fulfillment expense and bank and credit card fees.
Advertising and Promotional Costs. This consists of both on-line and off-
line advertising. This also consists of expenses related to building our
brand, increasing customer awareness and driving traffic to our Web site. The
types of expenses incurred include fees paid to affiliates to refer customers
to our Web site, costs to design and send personalized direct marketing e-mail
campaigns as well as the maintenance of e-mail customer lists.
Sales, Marketing and Customer Service Personnel Costs. This includes the
salaries and benefits paid to personnel and the incidental expenses incurred
during the course of their business. We do not allocate any material amount of
common expenses to Sales and Marketing.
Sales and marketing expenses increased by $3.0 million to $11.1 million in
the quarter ended August 31, 2000 from $8.1 million in the quarter ended
August 31, 1999. As a percentage of net sales, sales and marketing expense
decreased to 15.4% in the quarter ended August 31, 2000 from 22.0% in the
quarter ended August 31, 1999. Sales and marketing expenses increased by $4.3
million to $21.8 million in the six month period ended August 31, 2000 from
$17.5 million in the six month period ended August 31, 1999. As a percentage
of net sales, sales and marketing expense decreased to 15.9% in the six months
ended August 31, 2000 from 25.2% in the six months ended August 31, 1999. The
increases in absolute dollars in both periods were primarily the result of an
increase in the variable direct selling expenses described above. As part of
our TruePrice marketing program we provide free overnight shipping on most
purchases. Therefore, this expense will increase with additional sales volume.
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, purchasing, and business development personnel and
related costs, depreciation of furniture, office equipment
11
and leasehold improvements, general office expenses, as well as professional
fees. General and administrative expense increased by $0.7 million to $3.1
million in the quarter ended August 31, 2000 from $2.4 million in the quarter
ended August 31, 1999. As a percentage of net sales, general and
administrative expense decreased to 4.3% in the quarter ended August 31, 2000
from 6.5% in the quarter ended August 31, 1999. General and administrative
expense increased by $2.0 million to $5.9 million in the six month period
ended August 31, 2000 from $3.9 million in the six month period ended August
31, 1999. As a percentage of net sales, general and administrative expense
decreased to 4.3% in the six months ended August 31, 2000 from 5.6% in the six
months ended August 31, 1999. The dollar increases in general and
administrative expense in both periods were due to the increases in both
executive and administrative personnel, office expenses associated with such
personnel, depreciation, and professional and consulting fees. The percentage
decreases in both periods were due to our ability to increase revenue without
a commensurate increase in corporate expenses.
Technology and Development. Technology and development expense includes
depreciation of hardware and software, systems personnel and related costs,
software support, communications expenditures, technology development costs
and web site hosting. Technology and development expense increased by $0.2
million to $3.0 million in the quarter ended August 31, 2000 from $2.8 million
in the quarter ended August 31, 1999. As a percentage of net sales, technology
and development expense decreased to 4.2% in the quarter ended August 31, 2000
from 7.5% in the quarter ended August 31, 1999. Technology and development
expense increased by $1.1 million to $5.9 million in the six month period
ended August 31, 2000 from $4.8 million in the six month period ended August
31, 1999. As a percentage of net sales, technology and development expense
decreased to 4.3% in the six months ended August 31, 2000 from 6.9% in the six
months ended August 31, 1999. We continue to add additional hardware, systems
and software as we expand our business. As such, the dollar increases in
technology and development expense is attributable to increased depreciation,
maintenance costs and systems costs on our hardware and software. 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, offset by interest expense primarily attributable to lease financing
agreements. Other income, net decreased by $64,000 to $541,000 in the quarter
ended August 31, 2000 from $605,000 in the quarter ended August 31, 1999.
Other income, net decreased by $99,000 to $1.2 million in the six month period
ended August 31, 2000 from $1.3 million in the six month period ended August
31, 1999. These changes were primarily a result of lower interest income on
lower short-term investment balances during the three and six month periods,
respectively.
Minority Interest
Minority interest consists of our partner's share (Tweeter Home
Entertainment Group, Inc.) of the net income of Tweeter@Outpost.com, LLC. We
began consolidating these results as of March 1, 2000. The minority interest
equaled $156,000 and $256,000 in the three and six month periods ended August
31, 2000, respectively, which is a result of profitable operations by the
joint venture.
Net Loss
As a result of the foregoing factors, we incurred a net loss of $6.7 million
and $14.0 million in the three and six month periods ended August 31, 2000,
respectively, compared to a net loss of $8.4 million and $17.2 million in the
three and six month periods ended August 31, 1999, respectively.
12
Liquidity and Capital Resources
At August 31, 2000, our total cash and short term investment balance was
$36.6 million compared to $21.0 million at February 29, 2000. The August 31,
2000 balance was comprised of $24.6 million in cash and cash equivalents and
$12.0 million of short term investments.
Cash Inflows and Outflows
During the six months ended August 31, 2000, the net increase in cash and
cash equivalents was $11.3 million. Details of the cash inflows and outflows
are as follows:
Operating Activities: We used $18.5 million in cash to fund operations
during the six months ended August 31, 2000. During this period, our principal
operating cash requirements were to fund our net loss of $14.0 million,
increases in accounts receivable of $6.7 million, increases in inventories of
$2.1 million offset primarily by a net increase in accounts payable and
accrued expenses of $1.0. The increase in accounts receivable represents an
increase in credit card sales outstanding as these funds are not immediately
received from the credit card processors, an increase in our on-account credit
sales to small business, college and university customers, as well as the
increase in receivables from our Web site advertisers and business partners.
Investing Activities: We used $5.2 million in cash from investing activities
during the six months ended August 31, 2000. This consists of proceeds from
the sales and maturities of short term investments of $15.6 million and
proceeds of the consolidation of the Tweeter joint venture of $5.7 million,
offset by purchases of short term securities of $19.9 million and purchases of
property and equipment of $6.6 million.
Financing Activities: We generated $34.9 million in cash from financing
activities during the six months ended August 31, 2000. Financing activities
included proceeds from issuance of common stock of $35.3 million, offset in
part by repayment of capital lease obligations in the amount of $350,000.
Cash, Cash Equivalents and Commitments
As of August 31, 2000, we had $24.6 million in cash and cash equivalents
compared to $13.3 million at February 29, 2000. Our cash is currently invested
in A1/P1 or better grade commercial paper.
As of August 31, 2000, our material capital commitments consisted of $1.1
million in obligations outstanding under capital leases.
In March 2000, we completed a private equity placement and issued 4,702,900
shares of its common stock to institutional investors at a price of $7.87 per
share. Proceeds received were approximately $35.3 million, net of the
underwriting discount and offering expenses.
As of August 31, 2000, our "flooring" credit agreement with Deutsche
Financial Services Corporation ("DFS") was $10.0 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%. The amount of cash instruments
pledged under this agreement was $5.5 million. This pledge, in addition to all
of our assets, except those obtained through the purchase of Apple products as
mentioned below, secures this facility. For the periods ended August 31, 2000
and February 29, 2000 we had an outstanding balance of $9.6 million and $8.5
million, respectively, under this facility. These amounts are included in
accounts payable.
13
On August 9, 2000, we entered in to a Collateral Subordination Agreement
with Apple Computer, Inc. ("Apple") and DFS. This was done for the purpose of
securing a direct credit facility with Apple. Under the terms of the
Collateral Subordination Agreement, Apple was given a security interest in
certain assets. In conjunction with this Collateral Subordination Agreement,
the Company also signed a Security Agreement and a UCC-1 financing statement
which was filed on August 29, 2000.
We believe that our current cash and cash equivalents and short term
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. If available
cash and cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities or obtain a credit facility. The sale of additional equity or
convertible debt securities could result in 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.
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: our belief
that operating expenses will increase; our expectation of continued losses and
negative cash flows from operations for the near term; our expectation of
significant fluctuations in future operating results and gross margins; and
the sufficiency of our cash and cash equivalents. 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.
14
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 August 31, 2000:
Building, leasehold improvements and facilities................. $ 2,234,000
Computers, software and office equipment........................ 11,623,000
Investment in joint venture..................................... 2,965,000
Repayment of indebtedness....................................... 1,007,000
Working capital................................................. 47,471,000
Temporary investments........................................... 0
Cash and cash equivalents....................................... 0
All other purposes, net......................................... 200,000
The foregoing use of net proceeds does not represent a material change in
the use of net proceeds described in the Registration Statement.
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Outpost.com held its Annual Meeting of stockholders on July 26, 2000, and
the following matters were voted on at that meeting:
1. The election of Leo J. Hindery, Jr., Donald Riegle, Jr., and Katherine
N. Vick, as Directors, each to serve on our Board of Directors until the
2003 Annual Meeting of Stockholders and until their respective
successors have been elected and qualified. The following chart shows
the number of votes cast for or against each director, as well as the
number of abstentions and broker nonvotes:
Broker
Director For Against Abstain Nonvotes
-------- --- ------- ------- --------
Mr. Hindery.......................... 19,321,645 5,485 265,965 N/A
Mr. Riegle........................... 19,279,030 48,100 308,580 N/A
Ms. Vick............................. 19,050,029 277,101 537,581 N/A
Darryl Peck and Michael Murray continue to serve as Directors for terms
that expire in 2001 and Robert A. Bowman, William H. Lane III and James
E. Preston continue to serve as Directors for terms that expire in 2002.
2. The proposal to increase by 900,000 shares the aggregate number of
shares for which stock options and stock awards may be granted under the
Company's 1998 Employee, Director and Consultant Stock Plan. The
following chart shows the number of votes cast for or against the
proposal, as well as the number of abstentions and broker nonvotes:
Broker
For Against Abstain Nonvotes
--- ------- ------- --------
18,143,323 1,383,213 61,074 N/A
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3. The proposal to ratify the Board of Director's selection of KPMG LLP,
certified public accountants, as independent auditors for the fiscal
year ending February 28, 2001. The following chart shows the number of
votes cast for or against the proposal, as well as the number of
abstentions and broker nonvotes:
Broker
For Against Abstain Nonvotes
--- ------- ------- --------
19,430,038 133,646 23,926 N/A
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits
Exhibit No. 11................................. Computation of Loss per Share
Exhibit No. 27................................. Financial Data Schedule
(B) Reports on Form 8-K. None
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SIGNATURE
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: October 13, 2000 Cyberian Outpost, Inc.
/s/ Katherine N. Vick
By: _________________________________
Katherine N. Vick
Executive Vice President for
Business Development &
Chief Financial Officer
(Principal Accounting and
Financial Officer)
17
EXHIBIT INDEX
Exhibit
-------
11 Computation of Loss Per Share
27 Financial Data Schedule
18