Overstock.com 2005 Annual Report Download - page 56

Our direct revenue and fulfillment partner revenue have increased in every quarter on a year-over-year basis. The general
increase in total revenue is due to the expansion of our customer base as we attracted more visitors to our Websites, as well as repeat
purchases from these customers. We have experienced significant seasonality in our business, reflecting a combination of seasonal
fluctuations in Internet usage and traditional retail seasonality patterns. Internet usage and the rate of Internet sales growth may be
expected to decline during the spring and summer months. Further, sales in the traditional retail industry are significantly higher in the
fourth calendar quarter of each year than in the preceding three quarters. Fulfillment partner revenue increased significantly beginning
in the third quarter of 2003 due to the change in our business practices.
Cost of goods sold as a percentage of total revenue has fluctuated in the quarterly periods reflected above ranging from 89.7% in
Q1 2004 to 85.4% in Q4 2005. Gross margins during the periods Q4 2004 through Q4 2005 were: 15.3%, 15.0%, 15.1%, 15.7% and
14.6%, respectively. In comparing the fourth quarters of 2004 and 2005, revenue increased 44% (from $221.3 million to
$317.9 million) while gross profit dollars increased 37% (from $33.9 million to $46.5 million). Any margin improvements stem from
our efforts in tightening our logistics costs and negotiating better costs on merchandise purchased to sell on our Websites.
Total operating expenses as a percentage of total revenue increased during 2005 primarily as a result of increases in marketing
costs and our investment in an improved technology infrastructure
Due to the foregoing factors, in one or more future quarters our operating results may fall below the expectations of securities
analysts and investors. In such an event, the trading price of our common stock would likely be materially adversely affected.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the
Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that would be material to investors.
Liquidity and Capital Resources
Prior to the second quarter of 2002, we financed our activities primarily through a series of private sales of equity securities,
warrants to purchase our common stock and promissory notes. During the second quarter of 2002, we completed our initial public
offering pursuant to which we received approximately $26.1 million in cash, net of underwriting discounts, commissions, and other
related expenses. Additionally, we completed follow-on offerings in February 2003, May 2004 and November 2004, pursuant to
which we received approximately $24.0 million, $37.9 million and $75.2 million, respectively, in cash, net of underwriting discounts,
commissions, and other related expenses. In November 2004, we also received $116.2 million in proceeds from the issuance of our
convertible senior notes in a transaction event exempt from registration under the Securities Act. At December 31, 2005, our cash and
cash equivalents balance was $56.2 million and our marketable securities totaled $55.8 million.
Our operating activities resulted in net cash inflows of $25.0 million for the year ended December 31, 2004 and net cash outflows
of $6.1 million for the year ended December 31, 2005. The primary use of cash and cash equivalents during 2005 was to fund our
operations, including net losses of $24.9 million, and changes in inventories ($46.7 million), prepaid expenses ($4.9 million),
receivables ($5.1 million) and other long-term assets ($2.2 million). This was offset by the change in prepaid inventory ($2.7 million),
accounts payable ($36.5 million) and accrued liabilities ($23.6 million).
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