Overstock.com 2002 Annual Report Download - page 27

On June 7, 2002, we used approximately $3.0 million of the net proceeds of our initial public offering to repay, in full, all outstanding indebtedness
under a line of credit with High Meadows Finance L.C., which matured on June 1, 2002 and bore a per annum interest rate equal to 3.5%, plus the rate of
interest announced from time to time by Wells Fargo Bank & Company as its "Prime Rate." High Meadows Finance, L.C. is owned by High Plains
Investments, LLC, an entity controlled by Patrick M. Byrne, our president and Chief Executive Officer; John J. Byrne Jr., the father of Patrick M. Byrne; and
Cirque Properties, Inc., an entity owned by John J. Byrne, III, the brother of Patrick M. Byrne.
On February 18, 2003, we closed a follow-on public offering pursuant to which we sold approximately 1.5 million shares of our common stock at a price
of $15.00 per share. The offering resulted in proceeds to us of approximately $20.9 million in cash, net of $1.7 million of issuance costs. As part of the
offering, we granted the underwriter the right to purchase up to 225,000 additional shares within thirty days after the offering to cover over-allotments. On
February 18, 2003, the underwriter purchased the 225,000 additional shares for approximately $3.2 million.
The following tables summarize our contractual obligations and other commercial commitments as of December 31, 2002, and the effect such
obligations and commitments are expected to have on our liquidity and cash flows in future periods.
Payments Due by Period
(in thousands)
Contractual Obligations Total
Less than
1 year 1-3 years 4-5 years
After 5
years
Capital lease obligations $ 182 $ 124 $ 58 $ — $ —
Operating leases 4,440 1,452 2,944 44 —
Total contractual cash obligations $4,622 $ 1,576 $ 3,002 $ 44 $ —
Amount of Commitment Expiration Per Period
(in thousands)
Other Contractual Commitments
Total
Amounts
Committed
Less than
1 year 1-3 years 4-5 years
Over 5
years
Redeemable common stock $ 4,363 $ 1,572 $ 2,791 $ — $ —
The estimated amount of redeemable common stock is based solely on the statute of limitations of the various states in which stockholders may have
rescission rights and may not reflect the actual results. We do not have any unconditional purchase obligations, other long-term obligations, standby letters of
credit, guarantees, standby repurchase obligations or other commercial commitments.
In July 2001, Patrick M. Byrne, our President and Chief Executive Officer, who is also a significant beneficial owner of our stock, agreed to personally
guarantee our merchant account with a bank. The bank agreed to accept this personal guarantee in lieu of a demand deposit of $1,000,000 with the bank. If
Dr. Byrne were to revoke his guarantee, we may be required to post a demand deposit with the bank.
We believe that the cash currently on hand will be sufficient to continue operations through 2003. While we anticipate that, beyond the next
twelve months, our cash flows from operations will be sufficient to fund our operational requirements, we may require additional financing. However, there
can be no assurance that if additional financing is necessary it will be available, or, if available, that such financing can be obtained on satisfactory terms.
However, failure to generate sufficient revenues or raise additional capital could have a material adverse effect on our ability to continue as a going concern
and to achieve our intended business objectives.
A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, we may evaluate potential acquisitions of businesses, products or technologies. We have
no current plans, agreements or commitments, and are not currently engaged in any negotiations with respect to any such transaction.
In addition, on February 18, 2003, we closed a follow-on public offering pursuant to which we received approximately $24.1 million in cash, net of
underwriting discounts, commissions, and other related expenses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of
cash and cash equivalents, marketable securities, trade accounts and contracts receivable, accounts payable and long-term obligations. We consider
investments in highly-liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. Our exposure
to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would
not have a material impact on the fair value of these securities.
At December 31, 2002, we had $11.1 million in cash and cash equivalents and $21.6 million in marketable securities. A hypothetical 10% increase or
decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Form 10-K and are presented beginning on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE