Overstock.com 2002 Annual Report Download - page 23

Income taxes. We incurred net operating losses in 2001 and 2002, and consequently paid insignificant amounts of federal, state and foreign income
taxes. As of December 31, 2002, we had $51.3 million of net operating loss carryforwards, of which $14.4 million is subject to limitation. These net operating
loss carryforwards will begin to expire in 2019.
Comparison of Years Ended December 31, 2000 and 2001
Revenue
Total revenue grew from $25.5 million in 2000, to $40.0 million in 2001, representing growth of 57%. During this same period, direct revenue increased
from $21.8 million to $35.2 million or a 61% growth, and commission revenue grew from $867,000 to $4.0 million representing growth of 361%. Warehouse
revenue was $2.9 million in 2000 and $795,000 in 2001, resulting from a warehouse sale we held from November 2000 to January 2001. The decrease in
warehouse revenue from 2000 to 2001 was due to the fact that two months of the warehouse sale occurred in 2000 compared to only one month during 2001.
We initiated a second warehouse sale in February 2002, primarily to liquidate residual products from our acquisition of Gear.com. The increase in total
revenue was due primarily to an increase in the number of both direct and commission orders and in the average order size. Also, since we began making
commission sales in May 2000, there are four additional months of commission revenue in 2001 compared to 2000. The gross merchandise sales of goods
sold directly by us and on behalf of third parties were $36.1 million in 2000 and $69.3 million in 2001, an increase of 92%.
Cost of Goods Sold
Cost of goods sold increased in absolute dollars from $27.8 million, or 109% of total revenue in 2000, to $34.6 million, or 87% of total revenue in 2001.
The decrease in cost of goods sold as a percentage of total revenue in 2001 compared to 2000 was a result of economies of scale achieved through an
increased number of sales transactions and efficiencies in operations. These efficiencies include, but are not limited to, efficiencies in the actual costs paid to
suppliers for goods, freight and handling costs, the costs of customer service and returns. The decrease is also attributable to an increase in commission
revenue as a percentage of total revenue (from 3% in 2000 to 10% in 2001), as commission revenue has higher gross margins than direct revenue. In 2001,
cost of goods sold also includes $78,000 of stock-based compensation.
Operating Expenses
Sales and marketing. Sales and marketing expenses decreased from $11.4 million in 2000, to $5.8 million in 2001. The decrease in marketing costs in
both absolute dollars and as a percentage of total revenue as compared to 2000 was due to more effective and targeted marketing spending, reduced off-line
spending and a decrease in online advertising rates. Sales and marketing expenses were 45% and 15% of total revenue for 2000 and 2001, respectively.
General and administrative. General and administrative expenses increased from $7.6 million in 2000, to $9.4 million in 2001 representing 30% and
24% of total revenue, respectively. The increase in absolute dollars was due primarily to new business development and the staffing necessary to manage and
support our growth. General and administrative personnel increased from 46 employees at the end of 2000, to 65 employees at the end of 2001. The decrease
in general and administrative expense as a percentage of total revenue was a result of economies of scale achieved through increased sales volume and the
allocation of general and administrative expenses over a substantially larger revenue base.
Amortization of goodwill. Amortization of goodwill increased from $226,000, in 2000, to $3.1 million in 2001. This increase was due to a full year of
amortization in 2001, compared to just one month's amortization in 2000. From November 28, 2000, the date of the Gear.com acquisition, to December 2001,
$3.3 million of the total goodwill of $6.1 million was amortized. Effective January 2002, under Statement of Financial Accounting Standards (SFAS)
No. 142, the remaining goodwill will no longer be amortized but will be evaluated periodically for impairment.
Other Expenses
Income taxes. We incurred net operating losses in 2000 and 2001, and consequently paid insignificant amounts of federal, state and foreign income
taxes. As of December 31, 2001, we had $54.4 million of net operating loss carryforwards, of which $18.2 million is subject to limitation. These net operating
loss carryforwards will begin to expire in 2019.
Quarterly Results of Operations
The following tables set forth our unaudited quarterly results of operations data for the eight most recent quarters for the period ended December 31,
2002, as well as such data expressed as a percentage of our total revenue for the periods presented. The information in the table below should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K. We have prepared this information on
the same basis as the Consolidated Financial Statements and the information includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair statement of our financial position and operating results for the quarters presented. Our quarterly operating results have varied
substantially in the past and may vary substantially in the future. You should not draw any conclusions about our future results from the results of operations
for any particular quarter.
Three Months Ended
Mar. 31,
2001
June 30,
2001
Sept. 30,
2001
Dec. 31,
2001
Mar. 31,
2002
June 30,
2002
Sept. 30,
2002
Dec. 31,
2002
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Direct revenue $ 8,282 $ 6,709 $ 7,860 $12,392 $ 10,029 $ 11,853 $ 20,759 $35,302
Commission revenue 501 698 884 1,882 1,659 2,230 2,857 5,633
Warehouse revenue 795 — — — 379 297 192 594
Total revenue 9,578 7,407 8,744 14,274 12,067 14,380 23,808 41,529
Cost of goods sold(1) 8,549 6,658 7,744 11,689 9,990 11,831 19,238 32,382
Gross profit 1,029 749 1,000 2,585 2,077 2,549 4,570 9,147