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 August 31, 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 October 6, 1999, the registrant had 23,547,467 shares of common stock,
par value $.01 per share, outstanding.
CYBERIAN OUTPOST, INC.
INDEX
Page No.
--------
Part I--Financial Information:
Item 1. Financial Statements:
Balance Sheets, August 31, 1999 (Unaudited) and February 28, 1999........... 3
Statements of Operations, Three and Six Months Ended August 31, 1999
and August 31, 1998 (Unaudited)........................................... 4
Statements of Cash Flows, Six Months Ended August 31, 1999
and August 31, 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 4. Submission of Matters to a Vote of Security Holders....................... 13
Item 6. Exhibits and Reports on Form 8-K............................................ 13
Signature 14
Exhibit Index 15
Exhibit 11. 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYBERIAN OUTPOST, INC.
Balance Sheets
(In thousands)
August 31, February 28,
---------- ------------
1999 1999
---- ----
(unaudited)
Assets
Current Assets:
Cash and cash equivalents............................. $ 15,666 $ 26,828
Short-term investments................................ 24,119 28,735
Accounts receivable, net.............................. 3,396 3,441
Inventories........................................... 7,006 5,750
Prepaid expenses and other current assets............. 850 365
-------- --------
Total current assets............................. 51,037 65,119
Property and equipment, net................................ 8,104 5,937
Other assets............................................... 351 408
-------- --------
Total assets..................................... $ 59,492 $ 71,464
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of capital lease obligations.......... $ 542 $ 501
Accounts payable...................................... 12,132 8,985
Accrued expenses...................................... 3,573 2,779
-------- --------
Total current liabilities........................ 16,247 12,265
Capital lease obligations, excluding current portion....... 1,018 778
-------- --------
Total liabilities................................ 17,265 13,043
Stockholders' equity:
Common stock.......................................... 235 230
Additional paid-in capital............................ 93,507 92,319
Accumulated other comprehensive loss.................. (246) (106)
Accumulated deficit................................... (51,269) (34,022)
-------- --------
Total stockholders' equity....................... 42,227 58,421
-------- --------
Total liabilities and stockholders' equity....... $ 59,492 $ 71,464
======== ========
See accompanying notes to financial statements.
3
CYBERIAN OUTPOST, INC.
Statements of Operations
(In thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
Net sales ............................................ $ 36,689 $ 17,033 $ 69,369 $ 28,594
Cost of sales.......................................... 32,469 15,355 61,736 25,874
-------- -------- -------- --------
Gross profit...................................... 4,220 1,678 7,633 2,720
Operating expenses:
Sales and marketing............................... 8,082 5,303 17,514 9,312
General and administrative........................ 3,157 1,365 5,216 2,091
Technology and development........................ 1,979 993 3,427 1,589
-------- -------- -------- --------
Total operating expenses..................... 13,218 7,661 26,157 12,992
-------- -------- -------- --------
Operating loss.................................... (8,998) (5,983) (18,524) (10,272)
Other income, net...................................... 605 363 1,277 496
-------- -------- -------- --------
Net loss.......................................... (8,393) (5,620) (17,247) (9,776)
Accretion of premium on preferred stock................ -- (90) -- (210)
Dividends applicable to preferred stockholders......... -- (257) -- (613)
-------- -------- -------- --------
Net loss applicable to common stockholders........ $ (8,393) $ (5,967) $(17,247) $(10,599)
Basic and diluted net loss per share................... $ (0.36) $ (0.50) $ (0.75) $ (1.13)
======== ======== ======== ========
Weighted average shares outstanding.................... 23,252 12,036 23,138 9,358
======== ======== ======== ========
Pro forma basic and diluted net loss per share......... $ (0.36) $ (0.29) $ (0.75) $ (0.54)
======== ======== ======== ========
Pro forma weighted average shares outstanding.......... 23,252 19,429 23,138 18,139
======== ======== ======== ========
See accompanying notes to financial statements.
4
CYBERIAN OUTPOST, INC.
Statements of Cash Flows
(In thousands)
(unaudited)
Six months ended
August 31,
----------
1999 1998
---- ----
Cash flows from operating activities:
Net loss.................................................................... $(17,247) $ (9,776)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 1,595 318
Issuance of common stock options to employees.............................. 51 277
Loss on sales and maturities of short-term investments..................... 93 --
(Increase) decrease in operating assets:
Accounts receivable....................................................... 45 (1,470)
Inventories............................................................... (1,256) (934)
Prepaid expenses and other assets......................................... (428) (2,102)
Increase (decrease) in operating liabilities:
Accounts payable.......................................................... 3,147 (1,411)
Accrued expenses.......................................................... 794 1,249
-------- --------
Net cash used in operating activities.................................... (13,206) (13,849)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment......................................... (3,214) (1,321)
Purchases of short-term investments......................................... (7,673) --
Proceeds from sales and maturities of short-term investments................ 12,056 --
-------- --------
Net cash provided by (used in) investing activities...................... 1,169 (1,321)
-------- --------
Cash flows from financing activities:
Repayment of notes payable.................................................. -- (2,000)
Repayment of capital lease obligations...................................... (267) (82)
Proceeds from issuance of common stock warrants............................. -- 545
Proceeds from issuance of redeemable preferred stock........................ -- 13,658
Proceeds from issuance of common stock...................................... 1,142 65,822
-------- --------
Net cash provided by financing activities................................ 875 77,943
-------- --------
Net increase (decrease) in cash and cash equivalents......................... (11,162) 62,773
Cash and cash equivalents at the beginning of period......................... 26,828 7,325
-------- --------
Cash and cash equivalents at the end of period............................... $ 15,666 $ 70,098
======== ========
Supplemental disclosure of cash paid for interest and taxes:
Interest.................................................................... $ 61 $ 33
======== ========
Taxes....................................................................... $ 146 $ 4
======== ========
See accompanying notes to financial statements.
Supplemental disclosure of non-cash transactions:
During the six-month period ended August 31, 1999, we acquired office
equipment by incurring capital lease obligations of $390,000.
During the six-month period ended August 31, 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 by incurring capital lease obligations of $120,000 and (iii)
converted the $750,000 debenture into 163,043 shares of Series B Convertible
Preferred Stock.
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CYBERIAN OUTPOST, INC.
Notes to Financial Statements
(Unaudited)
August 31, 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 six month periods ended August 31, 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 Six months ended
------------------ ----------------
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998
--------------- --------------- --------------- ---------------
(In Thousands) (In Thousands)
The components of comprehensive loss, net of
tax, are as follows:
Net loss...................................... $ (8,393) $ (5,620) $ (17,247) $ (9,776)
Other comprehensive loss, net of tax:
Change in unrealized holding loss in
available for sale securities.......... (84) -- (140) --
----------- ---------- ---------- ---------
Other comprehensive loss............. (84) -- (140) --
----------- ---------- ---------- ---------
Comprehensive loss............................ $ (8,477) $ (5,620) $ (17,387) $ (9,776)
=========== ========== ========== =========
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CYBERIAN OUTPOST, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements, including the Notes thereto, of the Company included elsewhere in
this Form 10-Q.
Overview
Cyberian Outpost, Inc. ("Outpost.com") is a leading global Internet-only
retailer of computer hardware, software and accessories to the consumer and
small office/home office marketplace. With 390,000 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.
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 increasing losses and generate negative cash flows from operations for the
near term. Since computer retailers typically have low product gross margins,
our ability to achieve profitability is dependent upon our ability to
substantially increase net sales. 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 are not sustainable at historic
levels. 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 percentage of net
sales, are not necessarily meaningful and should not be relied upon as an
indication of future performance.
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) brand
development, (ii) online and offline marketing and promotional campaigns, (iii)
linking programs with targeted Web sites, (iv) personalized direct marketing
programs designed to generate repeat sales from existing customers and (v)
alliances with Internet content providers and portal sites.
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 in the computer
retail 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 hardware,
software and accessories 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.
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
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CYBERIAN OUTPOST, INC.
products. Tweeter@Outpost.com will market and brand a fully authorized Internet
consumer electronics retail destination. The joint venture will leverage and
integrate 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 will be accounted for under the equity method of
accounting.
Results of Operations: Three and Six Months Ended August 31, 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, 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 $17.0 million for the quarter ended August 31, 1998 to $36.7
million for the quarter ended August 31, 1999. In addition, net sales increased
by $40.8 million from $28.6 million in the six months ended August 31,1998 to
$69.4 million in the six months ended August 31, 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 six month periods ended August 31, 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 $17.1 million from $15.4 million in the quarter
ended August 31, 1998 to $32.5 million in the quarter ended August 31, 1999 as a
result of the growth in product sales. Our gross profit increased by $2.5
million from $1.7 million in the quarter ended August 31, 1998 to $4.2 million
in the quarter ended August 31, 1999, due to the increase in our revenues. As a
percentage of sales, our gross margin was 11.5% and 9.9% in the quarters ended
August 31, 1999 and 1998, respectively. The increase in gross margin percentage
was attributable to our improved marketing and merchandising strategies.
Cost of sales increased by $35.8 million from $25.9 million in the six
month period ended August 31, 1998 to $61.7 million in the six month period
ended August 31, 1999 as a result of our product sales growth. Our gross profit
increased by $4.9 million from $2.7 million in the six months ended August 31,
1998 to $7.6 million in the six months ended August 31, 1999 as a result of the
growth in our revenue. As a percentage of sales, our gross margin was 11.0% and
9.5% in the six months ended August 31, 1999 and 1998, respectively. The
increase in gross margin percentage was attributable to our improved marketing
and merchandising strategies.
Sales and Marketing: Sales and marketing expenses consist primarily of
online and offline advertising and promotion costs, fees paid to strategic
partners, sales, marketing and customer service personnel and related
expenditures, as well as direct selling expenses. Sales and marketing expenses
increased by $2.8 million from $5.3 million for the quarter ended August 31,
1998 to $8.1 million for the quarter ended August 31, 1999. As a percentage of
net sales, sales and marketing expense decreased from 31.1% for the quarter
ended August 31, 1998 to 22.0% for the quarter ended August 31, 1999. Sales and
marketing expenses increased by $8.2 million from $9.3 million in the six month
period ended August 31, 1998, to $17.5 million in the six month period ended
August 31, 1999. As a percentage of net sales, sales and marketing expenses
decreased from 32.6% in the six months ended August 31, 1998 to 25.3% in the six
months ended August 31, 1999. The dollar increases in both periods were due to
higher advertising and promotion costs related to building brand recognition and
increasing sales, higher shipping, warehouse, and related costs, and the growth
of sales and marketing staff, partially offset by lower fees paid to strategic
partners for online marketing relationships. 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. We intend to
pursue more branding and advertising campaigns and may enter into other
marketing alliances and, as a result, may experience increases in sales and
marketing expenses in future periods.
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 $1.8 million from $1.4 million for the
quarter ended August 31, 1998 to $3.2 million for the quarter ended August 31,
1999. As a percentage of net sales, general and administrative expenses
increased from 8.0% in the quarter ended August 31, 1998 to 8.6% in the quarter
ended August 31, 1999. General and administrative expense increased by $3.1
million from $2.1 million in the six month period ended August 31, 1998 to $5.2
million in the six month period ended August 31, 1999. As a percentage of net
sales,
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CYBERIAN OUTPOST, INC.
general and administrative expenses increased from 7.3% in the six months ended
August 31, 1998 to 7.5% in the six months ended August 31, 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, professional fees, and the costs of complying
with the reporting requirements of a public company.
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 $1.0 million from $1.0 million for the quarter
ended August 31, 1998 to $2.0 million in the quarter ended August 31, 1999. As a
percentage of net sales, technology and development expense decreased from 5.8%
for the quarter ended August 31, 1998 to 5.4% for the quarter ended August 31,
1999. Technology and development expenses increased by $1.8 million from $1.6
million in the six month period ended August 31,1998 to $3.4 million in the six
month period ended August 31, 1999. As a percentage of sales, technology and
development expenses decreased from 5.6 % in the six months ended August 31,
1998 to 4.9% in the six months ended August 31, 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 offset by interest expense attributable to lease financing
agreements. Other income, net increased by $243,000 from $362,000 for the
quarter ended August 31, 1998 to $605,000 for the quarter ended August 31,1999.
Other income, net increased by $782,000 from $495,000 in the six month period
ended August 31, 1998 to $1.3 million in the six month period ended August 31,
1999. This change was primarily a 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
$8.4 million and $17.2 million in the three and six month periods ended August
31, 1999, respectively.
Liquidity and Capital Resources
We used $13.2 million in cash to fund operations during the six months
ended August 31, 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, offset by increases in accounts payable and accrued
expenses. In addition, we generated $1.2 million from investment activities
during the six months ended August 31, 1999, consisting of proceeds from the
sale and maturities of short-term investments of $12.1 million, offset by
purchases of short-term investments of $7.7 million and of property and
equipment of $3.2 million. We also generated $875,000 from financing activities
during the six months ended August 31, 1999 from the proceeds from issuing
common stock, primarily to Tweeter, offset by the repayment of capital lease
obligations.
As of August 31, 1999, we had $15.7 million in cash and cash equivalents
and $24.1 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 August 31, 1999, our material capital commitments consisted of
$1.6 million in obligations outstanding under capital leases.
We have a $7.0 million "flooring" credit agreement with Deutsche Financial
Services Corporation ("DFS") pursuant to which DFS may, at its option, extend
credit to the 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. All of our assets and the pledge of
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CYBERIAN OUTPOST, INC.
$2.5 million in cash instruments secure this facility. As of August 31, 1999, we
had an outstanding balance of $3.8 million under this facility.
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 the foreseeable future. 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 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. Our failure to identify and correct Year 2000 processing issues could have
material adverse operational or financial consequences.
Outpost.com's State of Readiness: 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
have established a Year 2000 Project Team that, together with external
consultants, has developed a process for addressing the Year 2000 Issue. This
process includes 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.
Many of the steps to address the Year 2000 Issue are performed
concurrently. A description of each phase of the process is as follows:
Inventory - this phase includes the identification of all mission-critical
internal and external information systems, and equipment, as well as mission-
critical third-party relationships.
Assessment - this phase includes the evaluation of Year 2000 compliance
status of all mission-critical internal and external information systems. This
phase also includes formal communications with mission critical third parties
regarding their own Year 2000 preparedness and with manufacturers as to whether
mission-critical equipment are Year 2000 compliant.
Remediation - this phase includes all measures necessary to correct Year
2000 non-compliance in mission-critical internal and external information
systems. Such measures primarily include the re-programming of internal code or
replacement of non-compliant mission-critical information systems and equipment
Testing - this phase includes the testing and evaluation of previously non-
compliant mission-critical information systems, date-forward testing of mission-
critical equipment and electronic data interchange testing with mission-critical
third parties.
The Inventory, Assessment and Remediation phases are currently greater than
60% complete and will continue into the fourth quarter, with completion expected
early in the fourth quarter. A significant amount of Testing, which has been
performed concurrently with Inventory, Assessment and Remediation, has already
occurred and is
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CYBERIAN OUTPOST, INC.
expected to continue into the fourth quarter of 1999. Based on our review to
date, we believe that our principal information systems correctly define the
Year 2000
Costs Associated with the Year 2000 Issue: 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 and we
expect that the additional costs incurred to complete this review will also be
immaterial. However, the costs we incurred to address the Year 2000 Issue could
increase materially if in completing the review of our internal information
systems, we identify non-compliant systems which must be replaced or modified or
if we identify any other problem related to the Year 2000 Issue which must be
addressed.
Risks Associated with the Year 2000 Issue: To the extent that our
assessment fails to identify any non-compliant systems operated by us or by
third parties, the Year 2000 Issue could have a material adverse effect on our
operations. Such failure could result in systems interruptions or failures,
including our inability to process and ship orders, to collect credit card
payments and to provide effective customer service, which could cause the loss
of business and customers and could subject us to claims for damages. The
severity of these possible problems would depend on the nature of the problem
and how quickly they could be corrected or an alternate implemented, which is
unknown at this time.
Contingency Plan: We believe that our efforts towards Year 2000 compliance
are on schedule. We will continue to monitor the need for a contingency plan
based on the results of our Year 2000 compliance review.
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 Year 2000
readiness, customer growth and retention, and sales growth. 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.
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CYBERIAN OUTPOST, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities and Use of Proceeds
On July 30, 1999, the Company raised gross proceeds of $1 million by
completing a private placement of an aggregate 93,023 shares of its Common Stock
to Tweeter Home Entertainment Group, Inc. at a price of $10.75 per share. No
underwriter was involved in the foregoing offer and sale of securities. Such
offer and sale was made in reliance upon an exemption from the registration
provisions of the Securities Act of 1933, as amended (the "Securities Act"), set
forth in Section 4(2) thereof relative to sales by an issuer not involving any
public offering or the rules and regulations thereunder. All of the foregoing
securities are deemed restricted securities for purposes of the Securities Act.
In connection with the our initial public offering, we sold 4,000,000
shares of Common Stock, 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, 1999:
Construction of plant, building and facilities......... $ 1,700,000
Purchase and installation of machinery and equipment... 4,800,000
Purchase of real estate................................ 0
Acquisition of other business.......................... 0
Repayment of indebtedness.............................. 300,000
Working capital........................................ 16,800,000
Temporary investments:................................. 24,100,000
Cash and cash equivalents.............................. 15,700,000
All other purposes..................................... 2,100,000
The foregoing use of net proceeds does not represent a material change in
the use of net proceeds described in the Registration Statement.
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CYBERIAN OUTPOST, INC.
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of shareholders on July 27, 1999, and
the following matters were voted on at that meeting:
1. The election of William H. Lane III and James E. Preston as Class I
Directors, each to serve for a three year term of office or until their
successors are elected. The following chart shows the number of votes cast for
or against each director, as well as the number of abstentions and broker
nonvotes:
Director For Against Abstain Broker Nonvotes
- -------- --- ------- ------- ---------------
Mr. Lane 18,058,531 110,444 N/A N/A
Mr. Preston 18,058,531 110,444 N/A N/A
2. The proposal to increase by 2,000,000 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:
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
8,878,859 791,835 57,858 8,440,423
3. The proposal to ratify the selection of KPMG LLP as independent
auditors for our fiscal year ending February 29, 2000. The following chart shows
the number of votes cast for or against the proposal, as well as the number of
abstentions and broker nonvotes:
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
18,081,946 66,087 20,942 N/A
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. 10-1..... Employment Agreement dated June 16, 1999 between
Katherine N. Vick and the Company
Exhibit No. 11....... Computation of Loss per Share
Exhibit No. 27....... Financial Data Schedule
(B) Reports on Form 8-K
Form 8-K dated August 2, 1999 and filed August 4, 1999 regarding the joint
venture between the Company and Tweeter Home Entertainment Group, Inc.
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CYBERIAN OUTPOST, INC.
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: October 14, 1999
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)
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CYBERIAN OUTPOST, INC.
EXHIBIT INDEX
Exhibit
- -------
10 Employment Agreement dated June 16, 1999 between Katherine N.Vick and the Company
11 Computation of Loss Per Share
27 Financial Data Schedule
15