SEC Form 10-Q, 10/14/97:
Here is an excerpt from sec.yahoo.com using my bold-facing.
Since inception, the Company has incurred significant losses, and as of September 30, 1997 had an accumulated deficit of $24.3 million. The Company believes that its success will depend in large part on its ability to (i) extend its brand position, (ii) provide its customers with outstanding value and a superior shopping experience, and (iii) achieve sufficient sales volume to realize economies of scale. Accordingly, the Company intends to continue to invest heavily in marketing and promotion, product development and technology and operating infrastructure development. The Company also offers attractive pricing programs, which have reduced its gross margins. Because the Company has relatively low product gross margins, achieving profitability given planned investment levels depends upon the Company's ability to generate and sustain substantially increased revenue levels. As a result, the Company believes that it will continue to incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred may increase significantly from current levels. Although the Company has experienced significant revenue growth in recent periods, such growth rates are not sustainable and will decrease in the future.
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 a percentage of net sales, are not necessarily meaningful and should not be relied upon as an indication of future performance. As a result of the Company's limited operating history and the emerging nature of the markets in which it competes, the Company is unable to accurately forecast its revenues.
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Further, as a strategic response to changes in the competitive
environment, the Company may from time to time make certain pricing, service, marketing or acquisition decisions that could have a material adverse effect on its business, prospects, financial condition and results of operations. For example, the Company has agreed in certain of its promotional arrangements with Internet aggregators to make significant fixed payments. There can be no assurance that these arrangements will generate adequate revenues to cover the associated expenditures, and any significant shortfall would have a material adverse effect on the Company's financial condition and results of operations. The Company expects to experience significant fluctuations in its future quarterly operating results due to a variety of factors, many of which are outside the Company's control. Factors that may adversely affect the Company's quarterly operating results include (i) the Company's ability to retain existing customers, attract new customers at a steady rate and maintain customer satisfaction, (ii) the Company's ability to manage buying, inventory and fulfillment operations and maintain gross margins, (iii)
the development, announcement or introduction of new sites, services and products by the Company and its competitors, (iv) price competition or higher wholesale prices in the industry, (v) the level of use of the Internet and online services and increasing consumer acceptance of the Internet and other online services for the purchase of consumer products such as those offered by the Company, (vi) the Company's ability to upgrade and develop its systems and infrastructure and attract new personnel in a timely and effective manner, (vii) the level of traffic on the Company's Web site, (viii) technical difficulties, system downtime or Internet brownouts, (ix) the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business, operations and infrastructure, (x) the number of popular books introduced during the
period, (xi) the level of merchandise returns experienced by the Company, (xii) governmental regulation, (xiii) disruptions in service by common carriers due to strikes or otherwise, and (xiv) general economic conditions and economic conditions specific to the Internet, online commerce and the book industry.
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Marketing and sales expenses increased primarily due to increases in the Company's promotional expenditures, including $3.4 million and $5.2 million for the quarter and nine months ended September 30, 1997, respectively, associated with the Internet aggregator promotional relationships, and increased personnel and related expenses required to implement the Company's marketing strategy and fulfill customer
demand. Such expenses decreased as a percentage of net sales due to the significant increase in net sales. The Company intends to continue to pursue its aggressive branding and marketing campaign and expects its costs of fulfillment to increase based on anticipated sales growth and costs associated with the Company's distribution center expansion (see "Liquidity and Capital Resources"). Therefore, the Company expects marketing and sales expenses to increase significantly in absolute dollars. [Bill's side note: I wonder what "significantly" means ... wish all those AOL, Yahoo, @Home, etc. deals had a published price tag with them so we can judge if they were getting a bargain or not to be the "premiere" bookseller.]
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The Company believes that current cash and cash equivalent balances and short-term investments will be sufficient to meet its anticipated cash needs for at least 12 months.
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<The Company's current or potential competitors include (i) various online booksellers and vendors of other information-based products such as CDs and videotapes, including entrants into narrow specialty niches, (ii) a number of indirect competitors that specialize in online commerce or derive a substantial portion of their revenues from online commerce, through which bookstores other than the Company may offer products, and (iii) publishers and retail vendors of books, music and videotapes, including large specialty booksellers, with significant brand awareness, sales volume and customer bases. [Bill's side note: This isn't the first time I've heard of publishers entering the online arena. Makes sense since they have offered books directly at conferences and mailings.]
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Substantially all of the Company's computer and communications hardware is located at a single leased facility in Seattle, Washington. The Company's systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events. The Company does not currently have redundant systems or a formal disaster recovery plan and does not carry sufficient business interruption insurance to compensate it for losses that may occur. [Bill's side note: The lack of backups/insurance is surprising. Why can't web servers have fault tolerance?]
-Bill |
