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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 November 30, 1998
[_]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.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-1419111
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
27 North Main Street-PO Box 636, Kent, Connecticut 06757
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 927-2050
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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 December 31, 1998, the registrant had 22,554,339 shares of common
stock, par value $.01 per share, outstanding.
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CYBERIAN OUTPOST, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
Part I--Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets, November 30, 1998 (Unaudited)
and February 28, 1998.................................... 3
Consolidated Statements of Operations, Three and Nine
Months Ended November 30, 1998 (Unaudited) and November
30, 1997 (Unaudited)..................................... 4
Consolidated Statements of Cash Flows, Nine Months Ended
November 30, 1998 (Unaudited) and November 30, 1997
(Unaudited).............................................. 5
Notes to Consolidated 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.......................... 12
Signatures............................................................ 13
Exhibit Index......................................................... 14
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
------------ ------------
(unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 67,886 $ 7,325
Accounts receivable, less allowance for doubtful
accounts of $175 as of November 30, 1998 and $47
as of February 28, 1998........................... 3,149 474
Inventories........................................ 4,869 1,411
Prepaid expenses and other current assets.......... 1,216 98
-------- --------
Total current assets............................. 77,120 9,308
Property and equipment, net.......................... 4,351 1,612
Other assets......................................... 269 20
-------- --------
Total assets..................................... $ 81,740 $ 10,940
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Notes payable...................................... $ -- $ 2,750
Current portion of capital lease obligations....... 203 108
Accounts payable................................... 10,232 3,420
Accrued expenses................................... 5,338 2,206
-------- --------
Total current liabilities........................ 15,772 8,484
Capital lease obligations, excluding current
portion........................................... 120 136
-------- --------
Total liabilities................................ 15,892 8,620
Redeemable Series C convertible preferred stock...... -- 5,991
Stockholders' equity (deficit):
Preferred stock.................................... -- 2,614
Common stock....................................... 225 67
Additional paid-in capital......................... 91,830 2,450
Accumulated deficit................................ (26,207) (8,802)
-------- --------
Total stockholders' equity (deficit)............. 65,848 (3,671)
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 81,740 $ 10,940
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CYBERIAN OUTPOST, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Three Months Ended Ended November
November 30, 30,
-------------------- -----------------
1998 1997 1998 1997
--------- --------- -------- -------
<S> <C> <C> <C> <C>
Net sales............................ $ 23,515 $ 6,093 $ 52,110 $14,604
Cost of sales........................ 21,145 5,420 47,020 13,107
--------- --------- -------- -------
Gross profit....................... 2,370 673 5,090 1,497
Operating expenses:
Sales and marketing................ 8,650 1,145 17,962 2,373
General and administrative......... 1,314 373 3,341 1,113
Technology and development......... 928 226 2,518 642
--------- --------- -------- -------
Total operating expenses......... 10,892 1,744 23,821 4,128
--------- --------- -------- -------
Operating loss..................... (8,522) (1,071) (18,731) (2,631)
Other income (expense), net.......... 933 (3) 1,429 (3)
--------- --------- -------- -------
Net loss before taxes.............. (7,589) (1,074) (17,302) (2,634)
Provision for taxes.................. 40 -- 104 --
--------- --------- -------- -------
Net loss........................... $ (7,629) $ (1,074) $(17,406) $(2,634)
Accretion of premium on preferred
stock............................... -- -- (210) --
Dividends applicable to preferred
stockholders........................ -- -- (613) --
--------- --------- -------- -------
Net loss applicable to common
stockholders...................... $ ( 7,629) $ (1,074) $(18,229) $(2,634)
Basic and diluted net loss per
share............................... $ (0.34) $ (0.16) $ (1.34) $ (0.40)
========= ========= ======== =======
Weighted average shares outstanding.. 22,298 6,680 13,640 6,618
========= ========= ======== =======
Pro forma basic and diluted net loss
per share........................... $ (0.34) $ (0.12) $ (0.89) $ (0.34)
========= ========= ======== =======
Pro forma weighted average shares
outstanding......................... 22,298 8,721 19,515 7,800
========= ========= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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CYBERIAN OUTPOST, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
November 30,
-----------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(17,406) $(2,634)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization......................... 607 86
Issuance of common stock options to employees......... 483 245
Issuance of common stock for services................. -- 14
Provision for doubtful accounts....................... 128 150
(Increase) decrease in operating assets:
Accounts receivable.................................. (2,803) (318)
Inventories.......................................... (3,459) (473)
Prepaid expenses and other assets.................... (1,367) (101)
Increase (decrease) in operating liabilities:
Accounts payable..................................... 6,811 300
Accrued expenses..................................... 3,132 633
-------- -------
Net cash used by operating activities............... (13,874) (2,098)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment................... (3,146) (122)
-------- -------
Net cash used by investing activities............... (3,146) (122)
-------- -------
Cash flows from financing activities:
Proceeds from borrowings of notes payable............. -- 1,250
Repayment of notes payable............................ (2,000) (200)
Repayment of capital lease obligations................ (121) (7)
Proceeds from issuance of common stock warrants....... 545 166
Proceeds from issuance of redeemable preferred
stock................................................ 13,658 2,114
Proceeds from issuance of common stock in initial
public offering...................................... 65,499 --
-------- -------
Net cash provided by financing activities........... 77,851 3,323
-------- -------
Net increase in cash and cash equivalents.............. 60,561 1,103
Cash and cash equivalents at the beginning of period... 7,325 41
-------- -------
Cash and cash equivalents at the end of period......... $ 67,886 $ 1,144
======== =======
Supplemental disclosure of cash paid for interest and
taxes:
Interest.............................................. $ 42 $ 21
======== =======
Taxes................................................. $ 4 $ --
======== =======
</TABLE>
Supplemental disclosure of non-cash transactions:
During the nine months ended November 30, 1998, the Company (i) increased
the Redeemable Series C Convertible Preferred Stock and decreased additional
paid-in capital by $823 to record accumulated dividends of $613 and accretion
of $210 on the Redeemable Series C Convertible Preferred Stock, (ii) acquired
office equipment by incurring capital lease obligations of $200, (iii)
converted the $750 debenture into 163 shares of Series B Convertible Preferred
Stock, and (iv) converted all redeemable and convertible preferred stock to
common stock, effective on the initial public offering date.
During the nine months ended November 30, 1997, the Company issued shares of
Series A Convertible Preferred Stock with an aggregate market value of $500 to
several investors as full repayment on notes payable with a balance of $500.
5
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CYBERIAN OUTPOST, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
November 30, 1998
1. 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 nine-month periods ended November 30,
1998 are not necessarily indicative of the results that may be expected for
the year ending February 28, 1999. For further information, refer to the
audited consolidated financial statements for the year ended February 28,
1998 included in the Company's prospectus dated July 31, 1998, comprising
part of the Company's Registration Statement on Form S-1 (File No. 333-
55819) filed with the Securities and Exchange Commission and declared
effective July 30, 1998.
2. The Company completed an initial public offering of its common stock on
July 31, 1998 (the "IPO"). A total of 4,000,000 shares of common stock
were sold by the Company 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 the Company's 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" (FAS 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 FAS 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. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(FAS 130). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after
December 15, 1997. The Company adopted FAS 130 as of March 1, 1998. There
was no impact to the Company as a result of the adoption of FAS 130, as
there is no difference between the Company's reported net loss and its
comprehensive net loss under FAS 130 for the periods presented.
6
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CYBERIAN OUTPOST, INC. AND SUBSIDIARY
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 Consolidated
Financial Statements, including the Notes thereto, of the Company included
elsewhere in this Form 10-Q.
Overview
Cyberian Outpost is a leading global Internet-only retailer of computer
hardware, software and peripheral products to the consumer and small
office/home office marketplace. With more than 140,000 SKUs, Cyberian Outpost
offers 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. The Company's online store features a fun, easy to navigate interface,
competitive pricing, extensive product information and powerful search
capabilities.
Although the Company has grown rapidly since its inception in 1995, it
continues to incur significant net losses. The Company believes that in order
to continue its growth and expansion, operating expenses will increase as a
result of the financial commitments required to further develop multiple
marketing channels and enhance its Web site features and functionality. As
such, the Company expects 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, the Company's ability to
achieve profitability is dependent upon its ability to substantially increase
net sales. To the extent that the Company's marketing efforts do not result in
significantly higher net sales, the Company will be materially adversely
affected. There can be no assurance that sufficient revenues will be generated
from the sale of the Company's products to enable the Company to reach or
maintain profitability on a quarterly or annual basis. Although the Company
has experienced significant revenue growth since inception, such growth rates
are not sustainable at historic levels. In view of the rapidly evolving nature
of the Company's business and its limited operating history, the Company
believes that period-to-period comparisons of its operating results, including
the Company's 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.
The Company anticipates that international sales will continue to represent
a significant portion of its overall revenue. The Company's 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 the Company's products. In addition,
international sales are subject to diverse market factors such as the economic
conditions of a given country or region.
Cyberian Outpost believes that the key factor affecting its long-term
financial success is its ability to attract and retain customers in a cost
effective manner. Currently, the Company seeks to expand its customer base and
encourage repeat buying through multiple domestic and international 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 and (iv) personalized direct marketing programs designed to
generate repeat sales from existing customers. Cyberian Outpost recently
accelerated its marketing campaign and entered into strategic alliances with
Internet content providers and portal sites. Accordingly, the Company has
marketing agreements with companies such as America Online, Lycos-Bertelsmann,
StarMedia, Scandinavia Online, Excite, WebCrawler, theglobe.com, MetaCrawler,
USA Today Online and Time Inc. New Media, operator of the Pathfinder Network.
The Company is also a founding member of ShopperConnection
(www.shopperconnection.com), a network connecting some of the Internet's
leading online specialty retailers and services.
The Company expects to experience significant fluctuations in its future
operating results due to a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's operating results
include the frequency of new product releases, success of strategic 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
7
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impact the overall growth in computer retail sales. Gross profit margins for
hardware, software and peripheral products vary widely, with computer hardware
generally having the lowest gross profit margins. While the Company has some
ability to affect its product mix through effective upselling of high margin
products, the Company's sales mix will vary from period to period and its
gross margins will fluctuate accordingly.
Results of Operations: Three and Nine Months Ended November 30, 1998 and 1997
Net Sales: Net sales are comprised of product sales, net of returns and
allowances, and advertising revenue derived from hardware manufacturers and
software publishers that pay for promotional placements on the Company's Web
site. Product sales are comprised of computer hardware, software and
peripherals. Net sales increased by $37.5 million from $14.6 million in the
nine months ended November 30, 1997 to $52.1 million in the nine months ended
November 30, 1998. In addition, net sales increased by $17.4 million from $6.1
million for the quarter ended November 30, 1997 to $23.5 million for the
quarter ended November 30, 1998. In both of these periods, these increases
were primarily a result of increases in the Company's customer base and repeat
purchases from existing customers. Revenues from advertising and other sources
in the three and nine-month periods ended November 30, 1998 and 1997 were not
material.
Cost of Sales: Cost of sales consists of the cost of the merchandise sold by
the Company. Cost of sales increased $33.9 million from $13.1 million in the
nine months ended November 30, 1997 to $47.0 million in the nine months ended
November 30, 1998. This increase was primarily the result of an increase in
product sales volume. The Company's gross profit increased by $3.6 million
from $1.5 million in the nine months ended November 30, 1997 to $5.1 million
in the nine months ended November 30, 1998 as a result of the Company's growth
in revenues. As a percentage of net sales, the Company's gross margin was
10.3% and 9.8% in the nine months ended November 30, 1997 and November 30,
1998, respectively.
Cost of sales increased $15.7 million from $5.4 million for the quarter
ended November 30, 1997 to $21.1 million for the quarter ended November 30,
1998 primarily due to the increase in sales volume. Gross margin was 11.0% and
10.1% for the quarters ended November 30, 1997 and November 30, 1998,
respectively.
Sales and Marketing: Sales and marketing expenses consist primarily of fees
paid to strategic partners, advertising and promotion costs, sales, marketing
and customer service personnel and related expenditures, as well as direct
selling expenses. Sales and marketing expenses increased by $15.6 million from
$2.4 million in the nine months ended November 30, 1997 to $18.0 million in
the nine months ended November 30, 1998. As a percentage of net sales, sales
and marketing expense increased from 16.2% in the nine months ended November
30, 1997 to 34.5% in the nine months ended November 30, 1998. For the quarter
ended November 30, 1998, sales and marketing expenses increased by $7.5
million from $1.1 million for the quarter ended November 30, 1997 to $8.7
million. As a percentage of net sales, sales and marketing expense increased
from 18.8% for the quarter ended November 30, 1997 to 36.8% for the quarter
ended November 30, 1998. These increases during both periods were primarily a
result of costs associated with fixed monthly advertising and placement fees
paid to strategic partners, increased warehouse, shipping and related costs,
increased advertising and promotion costs related to building brand
recognition and increasing sales, and the growth in sales and marketing staff.
The Company intends to pursue more branding and advertising campaigns and may
enter into other marketing alliances and, as a result, may experience
increases in its 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 $2.2 million from $1.1 million in the nine
months ended November 30, 1997 to $3.3 million in the nine months ended
November 30, 1998. For the quarter ended November 30, 1998, general and
administrative expense increased by $941,000 from $373,000 for the quarter
ended November 30, 1997 to $1.3 million. The dollar increase in general and
administrative expense during each of these periods was due to increases in
both executive and administrative personnel, office expenses associated with
such personnel, depreciation, and professional and consulting fees. As a
percentage of net sales, general and administrative expense decreased from
7.6% in the nine months ended November 30, 1997 to 6.4% in the
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nine months ended November 30, 1998. For the quarter ended November 30, 1998,
general and administrative expense decreased as a percentage of net sales from
6.1% for the quarter ended November 30, 1997 to 5.6%. These percentage
decreases were due to the Company's ability to increase revenue without a
commensurate increase in corporate expenses. The Company anticipates that
general and administrative expense will continue to increase in absolute
dollars, due to growth in management personnel and administrative
infrastructure, as well as other costs associated with being a publicly-held
company.
Technology and Development: Technology and development expense includes
systems personnel and related costs, software support, technology development
costs and Web site hosting and communications expenditures. Technology and
development expense increased by $1.9 million from $642,000 in the nine months
ended November 30, 1997 to $2.5 million in the nine months ended November 30,
1998. For the quarter ended November 30, 1998, technology and development
expense increased by $702,000 from $226,000 for the quarter ended November 30,
1997 to $928,000. As a percentage of net sales, technology and development
expense increased from 4.4% in the nine months ended November 30, 1997 to 4.8%
in the nine months ended November 30, 1998. For the quarter ended November 30,
1998, technology and development expense as a percentage of net sales
increased from 3.7% for the quarter ended November 30, 1997 to 3.9%. These
increases in technology and development expense were primarily a result of
increases in systems personnel to maintain the Company's Web site and
technology infrastructure, as well as systems and software upgrades and
enhancements required to support the growth in visitors to the Company's Web
site. The Company anticipates that technology and development expense will
increase in fiscal 1999 in absolute dollars due to growth in staffing and
systems support.
Other Income, Net: Other income, net consists of interest income earned by
the Company on short-term investments and overnight investments of its cash
balances in money market accounts offset by interest expense attributable to
lease financing agreements. Other income, net increased by $1.4 million from
an expense of $3,000 in the nine months ended November 30, 1997 to $1.4
million in the nine months ended November 30, 1998. For the quarter ended
November 30, 1998, other income, net increased by $936,000 from an expense of
$3,000 for the quarter ended November 30, 1997 to $933,000. These changes were
primarily a result of interest income from short-term investment of the
Company's cash balances resulting from the Company's sale of its Redeemable
Series C Convertible Preferred Stock and common shares through the initial
public offering on July 31, 1998. All Preferred Stock shares were converted to
common stock when the Company completed its initial public offering.
Income Taxes: Income taxes of $104,000 and $40,000 were provided for in the
nine months and three months ending November 30, 1998, respectively. There was
no provision for income taxes recorded in fiscal 1997. The income tax
provision in fiscal 1998 represents the anticipated payment for State of
Connecticut Corporation Tax on Capital. The change results from the increase
in net worth generated by the Company's sale of common stock in its initial
public offering.
Net Loss: As a result of the foregoing factors, the Company incurred a net
loss of $17.4 million and $7.6 million for the nine months and three months
ended November 30, 1998, respectively.
Liquidity and Capital Resources
The Company used $13.9 million in cash to fund operations during the nine
months ended November 30, 1998. During this period, the Company's principal
operating cash requirements were to fund its net loss and for increases in
inventories, prepaid expenses and other assets, and accounts receivable,
offset in part by increases in accounts payable and accrued expenses. In
addition, the Company used $3.1 million in cash for investing activities
during the nine months ended November 30, 1998 to purchase property and
equipment.
The Company generated $77.6 million in cash from financing activities during
the nine months ended November 30, 1998. Financing activities included $65.5
million of net proceeds from the issuance of common stock in an initial public
offering, $13.7 million from the sale of shares of Redeemable Series C
Convertible Preferred Stock and $545,000 from the issuance of common stock
warrants. These amounts were offset by repayment of notes payable of $2.0
million.
9
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As of November 30, 1998, the Company had $67.9 million in cash and cash
equivalents compared to $7.3 million as of February 28, 1998. As of November
30, 1998, the Company's material capital commitments consisted of $323,000 in
obligations outstanding under capital leases. The Company has spent $1.0
million in fiscal 1999 in conjunction with the expansion of its headquarters
and plans to spend an additional $0.9 million in conjunction with this
expansion by the end of fiscal 1999.
On July 7, 1998, the Company entered into a $2.0 million "flooring" credit
agreement with Deutsche Financial Services Corporation ("DFS") pursuant to
which DFS may, at its option, extend credit to the Company from time to time
to purchase inventory from DFS approved vendors or for other purposes. Under
this agreement the Company can purchase inventory from certain vendors and
elect to have these vendors invoice DFS instead of the Company. DFS pays this
invoice and in turn bills the Company on a periodic basis throughout the
month. If the Company pays this note within 30 days, it pays no interest. If
the note remains outstanding after 30 days, the Company 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%. Subsequently, this facility was increased to $7.0
million and is secured by all of the Company's assets and the pledge of $2.5
million in cash instruments. As of November 30, 1998, the Company had an
outstanding balance of $3.9 million under this facility.
The Company believes that the net proceeds from the initial public offering
will be sufficient to meet its 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 the Company's
liquidity requirements, the Company 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 the
Company's stockholders. There can be no assurance that financing will be
available in amounts or on terms acceptable to the Company, if at all.
As of February 28, 1998, the Company had a net operating loss ("NOL")
carryforward of approximately $7.3 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 Problem" 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. This could result in a significant disruption of operations and
an inability to process certain transactions.
The Company's State of Readiness: The Company uses a significant number of
computer software programs and operating systems in its 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 Problem on its operations,
the Company began a comprehensive audit of its internal information systems in
June, 1998 to determine if they are able to correctly interpret the upcoming
Year 2000. The Company expects to complete this review by the second calendar
quarter of 1999. Although the Company has not completed its review and is
still gathering information, based on its review to date, the Company believes
that its principal information systems correctly define the Year 2000 and
thus, the impact of the Year 2000 Problem will have no material effect on its
systems. The Company is also in the process of contacting third parties in an
effort to determine the extent to which the failure of these parties to timely
identify and correct their own problems associated with the Year 2000 Problem
may affect the Company. The third parties include suppliers, strategic
partners and key service providers (including the Company's contract warehouse
and Web hosting service provider).
Costs Associated with the Year 2000 Problem: To date the costs incurred by
the Company to conduct the review of its internal information systems and to
identify the impact of the Year 2000 Problem on third parties have been
immaterial and the Company expects that the additional costs incurred to
complete this review will also be immaterial. However, the costs incurred by
the Company to address the Year 2000 Problem could
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increase materially if in completing the review of its internal information
systems, the Company identifies non-compliant systems which must be replaced
or modified or if the Company identifies any other problem related to the Year
2000 Problem which must be addressed.
Risks Associated with the Year 2000 Problem: To the extent that the
Company's assessment fails to identify any non-compliant systems operated by
the Company or by third parties, the Year 2000 Problem could have a material
adverse effect on the operations of the Company. Such failure could result in
systems interruptions or failures including the inability to process and ship
orders, to collect credit card payments and to provide effective customer
service, which could cause the Company to lose business and customers and
could subject the Company to claims for damages. The severity of these
possible problems would depend on the nature of the problem and how quickly it
could be corrected or an alternate implemented, which is unknown at this time.
Contingency Plan: The Company believes that its efforts towards Year 2000
compliance will be completed on schedule by the second calendar quarter of
1999. The Company will continue to monitor the need for a contingency plan
based on the results of its Year 2000 compliance efforts.
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: Year 2000
readiness, results of operations, customer growth and retention; expansion of
systems capacity and development of technology; losses or earnings; operating
expenses, including, without limitation, marketing expense and technology and
development expense; revenue growth; and international sales. The Company
cautions 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, the Company's 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
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities and Use of Proceeds
In connection with the Company's initial public offering, the Company 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 the Company's Registration
Statement on Form S-1 (File No. 333-55819) effective. The following table sets
forth the Company's cumulative use of the net offering proceeds as of November
30, 1998:
<TABLE>
<S> <C>
Construction of plant, building and facilities..................... $ --
Purchase and installation of machinery and equipment............... --
Purchase of real estate............................................ --
Acquisition of other business...................................... --
Repayment of indebtedness.......................................... --
Working capital.................................................... --
Temporary investments:............................................. --
Cash and cash equivalents......................................... 65.5
All other purposes................................................. --
</TABLE>
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. Not Applicable
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
<TABLE>
<C> <S>
Exhibit No. 11 Computation of Loss per Share
Exhibit No. 27 Financial Data Schedule
</TABLE>
(B) Reports on Form 8-K. Not Applicable.
12
<PAGE>
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, 1999
CYBERIAN OUTPOST, INC.
/s/ Katherine N. Vick
By: _________________________________
Katherine N. Vick
Executive Vice President and Chief
Financial Officer
(Principal Accounting and Financial
Officer)
13
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
11 Computation of Loss Per Share
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
Computation of Loss per Share
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic and Diluted
Net loss applicable to
common stockholders...... $(7,629) $ (1,074) $(18,229) $(2,634)
======= ======== ======== =======
Basic and diluted weighted
average shares
outstanding.............. 22,298 6,680 13,640 6,618
======= ======== ======== =======
Basic and diluted loss per
share.................... $ (0.34) $ (0.16) $ (1.34) $ (0.40)
======= ======== ======== =======
Pro forma Basic and Diluted
Pro forma net loss
applicable to common
stockholders ............ $(7,629) $ (1,074) $(17,406) $(2,634)
======= ======== ======== =======
Basic and diluted weighted
average shares
outstanding.............. 22,298 8,721 19,515 7,800
======= ======== ======== =======
Basic and diluted pro
forma loss per share .... $ (0.34) $ (0.12) $ (0.89) $ (0.34)
======= ======== ======== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 67,886
<SECURITIES> 0
<RECEIVABLES> 3,324
<ALLOWANCES> 175
<INVENTORY> 4,869
<CURRENT-ASSETS> 77,120
<PP&E> 5,151
<DEPRECIATION> 607
<TOTAL-ASSETS> 81,740
<CURRENT-LIABILITIES> 15,772
<BONDS> 120
0
0
<COMMON> 225
<OTHER-SE> 65,623
<TOTAL-LIABILITY-AND-EQUITY> 81,740
<SALES> 54,908
<TOTAL-REVENUES> 52,110
<CGS> 47,020
<TOTAL-COSTS> 23,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17,302)
<INCOME-TAX> 104
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,406)
<EPS-PRIMARY> $(1.34)
<EPS-DILUTED> $(1.34)
</TABLE>
