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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2020
 
Or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to                        
Commission file number: 000-49799

OVERSTOCK.COM, INC.
(Exact name of registrant as specified in its charter) 
Delaware
 
87-0634302
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
799 West Coliseum Way
 
 
Midvale
 
 
Utah
 
84047
(Address of principal executive offices)
 
(Zip Code)
 
(801) 947-3100
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.0001 par value
 
OSTK
 
NASDAQ Global Market
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  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

42,765,117 shares of the Registrant's common stock, par value $0.0001, outstanding on October 30, 2020.








OVERSTOCK.COM, INC.
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended September 30, 2020
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 

2





Special Cautionary Note Regarding Forward-Looking Statements
This Report on Form 10-Q and the documents incorporated herein by reference, as well as other public documents and statements our officers and representatives may make from time to time, contain forward-looking statements within the meaning of the federal securities laws. These statements are therefore entitled to the protection of the safe harbor provisions of these laws. You can find many of these statements by looking for words such as "may," "would," "could," "should," "will," "expect," "anticipate," "predict," "project," "potential," "continue," "contemplate," "seek," "assume," "believe," "intend," "plan," "forecast," "goal," "estimate," or other similar expressions which identify these forward-looking statements.

These forward-looking statements involve risks and uncertainties and relate to future events or our future financial or operating performance. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and business, and on management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to assumptions, risks and uncertainties that are difficult to predict, and that actual results may be materially different from the results expressed or implied by any of our forward-looking statements.

Actual events or results may differ materially from those contemplated by our forward-looking statements for a variety of reasons, including among others:

the impact that the novel coronavirus, or COVID-19, pandemic may have on our business and the industries in which we and our subsidiaries operate;
the impact that any litigation, claims, or regulatory matters could have on our business, financial condition, results of operations, and cash flows;
any increases in the price of importing into the U.S. the types of merchandise we sell in our retail business or other supply chain challenges that limit our access to merchandise we sell in our retail business;
any difficulties we may encounter as a result of our reliance on third-parties that we do not control for the performance of critical functions material to our business;
any inability to convert new customers into repeat customers or maintain increased sales volumes;
any downturn in the U.S. housing industry or other changes in U.S. and global economic conditions or U.S. consumer spending, as a result of the COVID-19 pandemic or otherwise;
our exposure to cyber security risks, risks of data loss and other security breaches;
any strategic transactions, restructurings or other changes we may make to our business;
any challenges that result in the unavailability of our Website or reduced performance of our transaction systems;
the possibility that we are unable to protect our proprietary technology and to obtain trademark protection for our marks;
current claims of intellectual property infringement to which we are subject and additional infringement claims to which we may become subject in the future;
the commercial, competitive, technical, operational, financial, regulatory, legal, reputational, marketing and other obstacles we face in trying to create a profitable business from our blockchain initiatives, including tZERO;
the extensive regulatory regimes applicable to tZERO and the possibility that various tZERO subsidiaries or ventures do not receive the regulatory approval required to operate their anticipated businesses;
any losses or issues we may encounter as a consequence of accepting or holding bitcoin or other cryptocurrencies;
our inability to attract and retain key personnel;
the possibility that the cost of our current insurance policies may increase significantly or fail to adequately protect us as expected; and
the other risks described in this report or in our other public filings.

In evaluating all forward-looking statements, you should specifically consider the risks outlined above and in this Report, especially under the headings "Special Cautionary Note Regarding Forward-Looking Statements," "Risk Factors," "Legal Proceedings," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These factors may cause our actual results to differ materially from those contemplated by any forward-looking statement. Although we believe that our expectations reflected in the forward-looking statements are reasonable, we cannot guarantee or offer any assurance of future results, levels of activity, performance or achievements or other future events. Our forward-looking statements contained in this report speak only as of the date of this report and, except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report or

3





any changes in our expectations or any change in any events, conditions or circumstances on which any of our forward-looking statements are based.

4





PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
 
September 30,
2020
 
December 31,
2019
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
529,710

 
$
112,266

Restricted cash
2,570

 
2,632

Marketable securities at fair value
1,355

 
10,308

Accounts receivable, net of allowance for credit losses of $2,053 and $2,474 at September 30, 2020 and December 31, 2019, respectively
35,403

 
24,728

Inventories
6,867

 
5,840

Prepaids and other current assets
19,704

 
21,589

Total current assets
595,609

 
177,363

Property and equipment, net
125,142

 
130,028

Intangible assets, net
9,009

 
11,756

Goodwill
27,120

 
27,120

Equity securities
48,983

 
42,043

Operating lease right-of-use assets
25,402

 
25,384

Other long-term assets, net
11,717

 
4,033

Total assets
$
842,982

 
$
417,727

Liabilities and Stockholders' Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
119,663

 
$
75,416

Accrued liabilities
145,668

 
88,197

Unearned revenue
78,757

 
41,821

Operating lease liabilities, current
5,959

 
6,603

Other current liabilities
3,803

 
3,962

Total current liabilities
353,850

 
215,999

Long-term debt, net
42,148

 

Operating lease liabilities, non-current
21,640

 
21,554

Other long-term liabilities
6,038

 
2,319

Total liabilities
423,676

 
239,872

Commitments and contingencies (Note 10)
 
 
 
 
Continued on the following page


5





Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
 
September 30,
2020
 
December 31,
2019
Stockholders' equity:
 

 
 

Preferred stock, $0.0001 par value, authorized shares - 5,000
 

 
 

Series A-1, issued and outstanding - 4,204 and 4,210

 

Series B, issued and outstanding - 357 and 357

 

Common stock, $0.0001 par value, authorized shares - 100,000
 

 
 

Issued shares - 46,317 and 42,790
 

 
 

Outstanding shares - 42,758 and 39,464
4

 
4

Additional paid-in capital
966,299

 
764,845

Accumulated deficit
(537,089
)
 
(580,390
)
Accumulated other comprehensive loss
(556
)
 
(568
)
Treasury stock at cost - 3,559 and 3,326
(71,124
)
 
(68,807
)
Equity attributable to stockholders of Overstock.com, Inc.
357,534

 
115,084

Equity attributable to noncontrolling interests
61,772

 
62,771

Total stockholders' equity
419,306

 
177,855

Total liabilities and stockholders' equity
$
842,982

 
$
417,727


See accompanying notes to unaudited consolidated financial statements.

6





Overstock.com, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Revenue, net
 

 
 

 
 

 
 

Retail
$
717,695

 
$
340,798

 
$
1,824,249

 
$
1,070,898

Other
13,956

 
6,301

 
41,519

 
17,639

Total net revenue
731,651

 
347,099

 
1,865,768

 
1,088,537

Cost of goods sold


 


 
 

 
 

Retail
548,982

 
272,545

 
1,403,418

 
858,169

Other
11,901

 
5,006

 
35,860

 
13,797

Total cost of goods sold
560,883

 
277,551

 
1,439,278

 
871,966

Gross profit
170,768

 
69,548

 
426,490

 
216,571

Operating expenses
 

 
 

 
 

 
 

Sales and marketing
72,010

 
34,215

 
188,562

 
102,252

Technology
34,984

 
32,782

 
101,458

 
101,368

General and administrative
34,225

 
32,681

 
94,022

 
104,877

Total operating expenses
141,219

 
99,678

 
384,042

 
308,497

Operating income (loss)
29,549

 
(30,130
)
 
42,448

 
(91,926
)
Interest income
402

 
449

 
1,288

 
1,482

Interest expense
(579
)
 
(57
)
 
(1,367
)
 
(289
)
Other expense, net
(7,526
)
 
(4,781
)
 
(5,014
)
 
(14,048
)
Income (loss) before income taxes
21,846

 
(34,519
)
 
37,355

 
(104,781
)
Provision for income taxes
620

 
23

 
1,313

 
279

Net income (loss)
21,226

 
(34,542
)
 
36,042

 
(105,060
)
Less: Net loss attributable to noncontrolling interests
(2,165
)
 
(3,604
)
 
(7,372
)
 
(10,197
)
Net income (loss) attributable to stockholders of Overstock.com, Inc.
$
23,391

 
$
(30,938
)
 
$
43,414

 
$
(94,863
)
Net income (loss) per share of common stock:
 

 
 

 
 

 
 

Net income (loss) attributable to common shares—basic
$
0.50

 
$
(0.89
)
 
$
1.00

 
$
(2.74
)
Net income (loss) attributable to common shares—diluted
$
0.50

 
$
(0.89
)
 
$
0.99

 
$
(2.74
)
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
41,595

 
35,241

 
40,697

 
34,289

Diluted
42,202

 
35,241

 
41,030

 
34,289



See accompanying notes to unaudited consolidated financial statements.

7





Overstock.com, Inc.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Net income (loss)
$
21,226

 
$
(34,542
)
 
$
36,042

 
$
(105,060
)
Other comprehensive income
 
 
 
 
 
 
 
Unrealized gain on cash flow hedges, net of expense for taxes of $0, $0, $0, and $0
4

 
4

 
12

 
12

Other comprehensive income
4

 
4

 
12

 
12

Comprehensive income (loss)
21,230

 
(34,538
)
 
36,054

 
(105,048
)
Less: Comprehensive loss attributable to noncontrolling interests
(2,165
)
 
(3,604
)
 
(7,372
)
 
(10,197
)
Comprehensive income (loss) attributable to stockholders of Overstock.com, Inc.
$
23,395

 
$
(30,934
)
 
$
43,426

 
$
(94,851
)

See accompanying notes to unaudited consolidated financial statements.


8





Overstock.com, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands)
 
Three months ended
September 30,
 
Nine months ended
September 30,

2020
 
2019
 
2020
 
2019
Equity attributable to stockholders of Overstock.com, Inc.
 
 
 
 
 

 
 
Shares of common stock issued
 
 
 
 
 
 
 
Balance at beginning of period
43,885

 
38,561

 
42,790

 
35,346

Common stock issued upon vesting of restricted stock
17

 
4

 
696

 
259

Common stock sold through offerings
2,415

 

 
2,831

 
2,960

Balance at end of period
46,317

 
38,565

 
46,317

 
38,565

Shares of treasury stock
 
 
 
 
 
 
 
Balance at beginning of period
3,553

 
3,322

 
3,326

 
3,200

Common stock repurchased through business combination

 

 

 
47

Tax withholding upon vesting of restricted stock
6

 
1

 
233

 
76

Balance at end of period
3,559

 
3,323

 
3,559

 
3,323

Total shares of common stock outstanding
42,758

 
35,242

 
42,758

 
35,242

Common stock
$
4

 
$
3

 
$
4

 
$
3

Shares of Series A preferred stock issued and outstanding
 
 
 
 
 
 
 
Balance at beginning of period

 
3

 

 
127

Exchange of shares to Series A-1 preferred stock

 
(2
)
 

 
(125
)
Conversion of shares to Series B preferred stock

 
(1
)
 

 
(2
)
Balance at end of period

 

 

 

Shares of Series A-1 preferred stock issued and outstanding
 
 
 
 
 
 
 
Balance at beginning of period
4,204

 
123

 
4,210

 

Exchange of shares from Series A preferred stock

 
2

 

 
125

Dividend declared, not yet distributed

 
3,577

 

 
3,577

Shares declared, not distributed (Note 12)

 

 
(6
)
 

Balance at end of period
4,204

 
3,702

 
4,204

 
3,702

Shares of Series B preferred stock issued and outstanding
 
 
 
 
 
 
 
Balance at beginning of period
357

 
356

 
357

 
355

Conversion of shares from Series A preferred stock

 
1

 

 
2

Balance at end of period
357

 
357

 
357

 
357

Preferred stock
$

 
$

 
$

 
$

Additional paid-in capital
 
 
 
 
 
 
 
Balance at beginning of period
$
770,984

 
$
719,010

 
$
764,845

 
$
657,981

Stock-based compensation to employees and directors
2,623

 
4,467

 
8,356

 
13,623

Common stock sold through offerings, net
192,692

 

 
192,692

 
52,112

Other

 
2,655

 
406

 
2,416

Balance at end of period
$
966,299

 
$
726,132

 
$
966,299

 
$
726,132

 
Continued on the following page

9





Overstock.com, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands)
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Accumulated deficit
 
 
 
 
 
 
 
Balance at beginning of period
$
(560,480
)
 
$
(522,397
)
 
$
(580,390
)
 
$
(458,897
)
Net income (loss) attributable to stockholders of Overstock.com, Inc.
23,391

 
(30,938
)
 
43,414

 
(94,863
)
Other

 

 
(113
)
 
425

Balance at end of period
$
(537,089
)
 
$
(553,335
)
 
$
(537,089
)
 
$
(553,335
)
Accumulated other comprehensive loss
 
 
 
 
 
 
 
Balance at beginning of period
$
(560
)
 
$
(576
)
 
$
(568
)
 
$
(584
)
Net other comprehensive income
4

 
4

 
12

 
12

Balance at end of period
$
(556
)
 
$
(572
)
 
$
(556
)
 
$
(572
)
Treasury stock
 
 
 
 
 
 
 
Balance at beginning of period
$
(70,537
)
 
$
(68,746
)
 
$
(68,807
)
 
$
(66,757
)
Common stock repurchased through business combination

 

 

 
(643
)
Tax withholding upon vesting of restricted stock
(587
)
 
(27
)
 
(2,317
)
 
(1,373
)
Balance at end of period
(71,124
)
 
(68,773
)
 
(71,124
)
 
(68,773
)
Total equity attributable to stockholders of Overstock.com, Inc.
$
357,534

 
$
103,455

 
$
357,534

 
$
103,455

 
 
 
 
 
 
 
 
Equity attributable to noncontrolling interests
 
 
 
 
 
 
 
Balance at beginning of period
$
63,937

 
$
71,786

 
$
62,771

 
$
78,960

Paid in capital for noncontrolling interest

 

 
5,000

 

Net loss attributable to noncontrolling interests
(2,165
)
 
(3,604
)
 
(7,372
)
 
(10,197
)
Other

 
(2,685
)
 
1,373

 
(3,266
)
Total equity attributable to noncontrolling interests
$
61,772

 
$
65,497

 
$
61,772

 
$
65,497

 
 
 
 
 
 
 
 
Total stockholders' equity
$
419,306

 
$
168,952

 
$
419,306

 
$
168,952


See accompanying notes to unaudited consolidated financial statements.

10





Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Nine months ended
September 30,
 
2020
 
2019
Cash flows from operating activities:
 

 
 

Consolidated net income (loss)
$
36,042

 
$
(105,060
)
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
22,709

 
23,033

Non-cash operating lease cost
4,379

 
4,940

Stock-based compensation to employees and directors
8,356

 
13,623

Impairment of equity securities
813

 
6,964

Losses on equity method securities
11,909

 
4,922

Gain on disposal of business
(10,705
)
 

Impairments on intangible assets

 
1,406

Other non-cash adjustments
2,587

 
1,978

Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable, net
(15,715
)
 
12,858

Inventories
(1,027
)
 
6,864

Prepaids and other current assets
(42
)
 
5,473

Other long-term assets, net
26

 
(1,046
)
Accounts payable
44,101

 
(42,110
)
Accrued liabilities
59,657

 
(8,683
)
Unearned revenue
37,161

 
(10,066
)
Operating lease liabilities
(4,954
)
 
(4,086
)
Other long-term liabilities
3,413

 
(205
)
Net cash provided by (used in) operating activities
198,710

 
(89,195
)
Cash flows from investing activities:
 

 
 

Purchase of equity securities
(1,553
)
 
(5,106
)
Proceeds from sale of equity securities and marketable securities
6,306

 
7,082

Acquisitions of businesses, net of cash acquired

 
4,886

Expenditures for property and equipment
(15,067
)
 
(17,902
)
Deconsolidation of cash of Medici Land Governance, Inc.
(4,056
)
 

Other investing activities, net
(1,061
)
 
(3,219
)
Net cash used in investing activities
(15,431
)
 
(14,259
)
Continued on the following page

11





Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Nine months ended
September 30,
 
2020
 
2019
Cash flows from financing activities:
 

 
 

Payments on long-term debt
(1,566
)
 
(3,141
)
Proceeds from long-term debt
47,500

 

Proceeds from sale of common stock, net of offering costs
195,540

 
52,112

Payments of taxes withheld upon vesting of restricted stock
(2,317
)
 
(1,373
)
Other financing activities, net
(5,054
)
 
(1,161
)
Net cash provided by financing activities
234,103

 
46,437

Net increase (decrease) in cash, cash equivalents and restricted cash
417,382

 
(57,017
)
Cash, cash equivalents and restricted cash, beginning of period
114,898

 
142,814

Cash, cash equivalents and restricted cash, end of period
$
532,280

 
$
85,797


See accompanying notes to unaudited consolidated financial statements.


12





Overstock.com, Inc.
Notes to Unaudited Consolidated Financial Statements
 
1. DESCRIPTION OF BUSINESS
 
Overstock.com, Inc. is an online retailer business and advocate of blockchain technology. As used herein, "Overstock," "the Company," "we," "our" and similar terms include Overstock.com, Inc. and its majority-owned subsidiaries, unless the context indicates otherwise.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES
 
Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been omitted in accordance with the rules and regulations of the SEC. These financial statements should be read in conjunction with our audited annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no significant changes to our significant accounting policies disclosed in Note 2—Accounting Policies, included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2019, except as disclosed below.

The accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of results for the interim periods presented. For purposes of comparability, we reclassified other certain immaterial amounts in the prior periods presented to conform with the current period presentation. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for any future period or the full fiscal year, due to seasonality and other factors.

Principles of consolidation
 
The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries and other subsidiaries over which we exercise control. All intercompany account balances and transactions have been eliminated in consolidation.
 
In February 2020, Medici Land Governance, Inc. ("MLG"), an indirect majority-owned subsidiary, consummated the sale of shares of its common stock to an unrelated third party. Upon completion of the transaction, our indirect ownership in MLG was reduced from 57% to 35% of MLG's issued and outstanding shares of common stock. As a result of our loss of a controlling financial interest in MLG under the voting interest model, we performed an assessment of control under the variable interest entity ("VIE") model and determined MLG does not meet the qualifications of a VIE for purposes of consolidation. Accordingly, we deconsolidated MLG's consolidated net assets and noncontrolling interest from our consolidated financial statements and results beginning on February 22, 2020, the date that control ceased. The amount of gain recognized on the deconsolidation was $10.7 million, which is included in our consolidated statements of operations in Other income (expense), net. The gain primarily relates to the remeasurement of our retained equity interest in MLG at fair value, which was determined based on the same price per share MLG provided for the sale of common stock to the third-party and price per share we received in settling a portion of our intercompany debt for additional shares in MLG. Post deconsolidation, MLG became one of our equity method investees for which we perform services. See Note 6—Equity Securities for additional information.
    
Use of estimates
 
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in our consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, receivables valuation, revenue recognition, Club O and gift card breakage, sales returns, vendor incentive discount offers, inventory valuation, depreciable lives and valuation of property and equipment and internally-developed software, goodwill valuation, intangible asset valuation, equity securities valuation, income taxes, stock-based compensation, performance-based compensation, self-

13





funded health insurance liabilities and contingencies. Our estimates involving, among other items, forecasted revenues, sales volume, pricing, cost and availability of inventory, consumer demand and spending habits, the continued operations of our supply chain and logistics network, and the overall impact of social distancing on our workforce are even more difficult to estimate as a result of uncertainties associated with the scope and duration of the pandemic and various actions taken by governmental authorities, private business and other third parties in response to the global novel coronavirus ("COVID-19") pandemic, the ultimate geographic spread of the virus, the ongoing economic effect of the pandemic and the post-pandemic economic recovery. Although these estimates are based on our best knowledge of current events and actions that we may undertake in the future, the variability of these factors depends on a number of conditions, including uncertainty associated with the COVID-19 pandemic, how long these conditions will persist, what additional measures may be introduced or reintroduced by governments or private parties or what effect any such additional measures may have on our business and thus our accounting estimates may change from period to period. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.

Supplemental cash flow information

The following table shows supplemental cash flow information (in thousands):
 
Nine months ended September 30,
 
2020
 
2019
Non-cash investing and financing activities:
 
 
 
Recognition of right-of-use assets upon adoption of ASC 842
$

 
$
30,968

Deposit applied to business combination purchase price

 
7,347

Recognition of right-of-use assets obtained in exchange for new operating lease liabilities
5,132

 
17,238



Recently adopted accounting standards

In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises how entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Topic 326 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial InstrumentsCredit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial InstrumentsCredit Losses. Under the guidance, the measurement of credit losses will be based on a current expected credit losses methodology. We adopted the changes under the new standard on January 1, 2020. We utilized a prospective transition approach for our debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of ASU 2016-13. The implementation of ASU 2016-13 did not have a material impact on our consolidated financial statements and disclosures. We will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

Recently issued accounting standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes ("Topic 740")Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. For public entities, ASU 2019-12 is required to be adopted for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this ASU on our consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, InvestmentsEquity Securities (Topic 321), InvestmentsEquity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. For public entities, ASU 2020-01 is required to be adopted for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this ASU on our consolidated financial statements and related disclosures.


14





3. FAIR VALUE MEASUREMENT

Our financial assets and liabilities are initially measured at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Quoted prices for identical instruments in active markets; 
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Our assets and liabilities that are adjusted to fair value on a recurring basis are cash equivalents, certain equity and marketable securities, and deferred compensation liabilities, which fair values are determined using quoted market prices from daily exchange traded markets on the closing price as of the balance sheet date and are classified as Level 1. Our other financial instruments, including cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, finance obligations, and debt are carried at cost, which approximates their fair value. Certain assets, including long-lived assets, certain equity securities, goodwill, cryptocurrencies, and other intangible assets, are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments using fair value measurements with unobservable inputs (level 3), apart from cryptocurrencies which use quoted prices from various digital currency exchanges with active markets, in certain circumstances (e.g., when there is evidence of impairment).

The following tables summarize our assets and liabilities measured at fair value on a recurring basis using the following levels of inputs as of September 30, 2020 and December 31, 2019, as indicated (in thousands):
 
Fair Value Measurements at September 30, 2020:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 

 
 

 
 

 
 

Cash equivalents - Money market mutual funds
$
566

 
$
566

 
$

 
$

Equity securities, at fair value
455

 
455

 

 

Marketable securities, at fair value
1,355

 
1,355

 

 

Trading securities held in a "rabbi trust" (1)
121

 
121

 

 

Total assets
$
2,497

 
$
2,497

 
$

 
$

Liabilities:
 

 
 

 
 

 
 

Deferred compensation accrual "rabbi trust" (2)
$
138

 
$
138

 
$

 
$

Total liabilities
$
138

 
$
138

 
$

 
$

 
Fair Value Measurements at December 31, 2019:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 

 
 

 
 

 
 

Cash equivalents - Money market mutual funds
$
2,799

 
$
2,799

 
$

 
$

Equity securities, at fair value
823

 
823

 

 

Marketable securities, at fair value
10,308

 
10,308

 

 

Trading securities held in a "rabbi trust" (1)
116

 
116

 

 

Total assets
$
14,046

 
$
14,046

 
$

 
$

Liabilities:
 

 
 

 
 

 
 

Deferred compensation accrual "rabbi trust" (2)
$
116

 
$
116

 
$

 
$

Total liabilities
$
116

 
$
116

 
$

 
$


 ___________________________________________
(1)
 — Trading securities held in a rabbi trust are included in Prepaids and other current assets and Other long-term assets, net in the consolidated balance sheets.

15





(2)
— Non-qualified deferred compensation in a rabbi trust is included in Accrued liabilities and Other long-term liabilities in the consolidated balance sheets.

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following (in thousands):
 
 
September 30,
2020
 
December 31, 2019
 
 
Computer hardware and software
$
234,782

 
$
223,309

 
Building
69,245

 
69,266

 
Furniture and equipment
16,440

 
17,739

 
Land
12,781

 
12,781

 
Leasehold improvements
5,400

 
11,921

 
Building machinery and equipment
9,785

 
9,796

 
Land improvements
7,004

 
7,003

 
 
355,437

 
351,815

 
Less: accumulated depreciation
(230,295
)
 
(221,787
)
 
Total property and equipment, net
$
125,142

 
$
130,028



Capitalized costs associated with internal-use software and website development, both developed internally and acquired externally, and depreciation of costs for the same periods associated with internal-use software and website development consist of the following (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Capitalized internal-use software and website development
$
4,005

 
$
3,248

 
$
11,595

 
$
10,798

Depreciation of internal-use software and website development
$
3,721

 
$
3,162

 
$
10,644

 
$
9,523



Property and equipment depreciation expense is classified within the corresponding operating expense categories on our consolidated statements of operations as follows (in thousands): 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Cost of goods sold - retail
$
159

 
$
170

 
$
526

 
$
516

Technology
4,965

 
5,042

 
14,504

 
15,109

General and administrative
1,557

 
1,261

 
4,927

 
3,762

Total depreciation
$
6,681

 
$
6,473

 
$
19,957

 
$
19,387



5. INTANGIBLE ASSETS

Intangible assets, net consist of the following (in thousands):
 
September 30,
2020
 
December 31,
2019
Intangible assets subject to amortization, gross
$
30,267

 
$
30,284

Less: accumulated amortization of intangible assets subject to amortization
(21,258
)
 
(18,528
)
Total intangible assets, net
$
9,009

 
$
11,756




16





Amortization of intangible assets is classified within the corresponding operating expense categories in our consolidated statements of operations as follows (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Technology
$
846

 
$
896

 
$
2,539

 
$
2,687

Sales and marketing
10

 
16

 
31

 
48

General and administrative
55

 
133

 
182

 
(526
)
Total amortization
$
911

 
$
1,045

 
$
2,752

 
$
2,209



In connection with our 2018 acquisition of Mac Warehouse, we received the final valuation information and completed our determination and allocation of the purchase price during the quarter ended March 31, 2019 and recognized adjustments to the provisional values as of March 31, 2019, which among other items decreased the recognized Intangible assets and resulted in a reversal of previously recognized amortization expense of $1.4 million during the quarter ended March 31, 2019.

During the three and nine months ended September 30, 2019, we realized a $1.4 million impairment loss included in General and administrative expense in our consolidated statements of operations related to certain patents held by our Medici Ventures segment. The estimated fair value of the patents were determined based on Level 3 inputs, which were unobservable (see Note 3—Fair Value Measurement), including market participant assumptions for similar assets in an inactive market.

6. EQUITY SECURITIES

Equity securities under ASC 321

Certain of our equity securities lack readily determinable fair values and therefore the securities are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar equity securities of the same issuer. The carrying amount of our equity securities without readily determinable fair values was approximately $3.9 million and $3.9 million at September 30, 2020 and December 31, 2019, respectively. Cumulative downward adjustments for price changes and impairments for our equity securities without readily determinable fair values were $6.2 million, and the cumulative upward adjustments for price changes to equity investments were $958,000 as of September 30, 2020. The impairments and downward adjustments for the period related to equity securities without readily determinable fair values at September 30, 2020 and 2019 is as follows (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Impairments and downward adjustments of equity securities without readily determinable fair values
$

 
$
(2,750
)
 
$

 
$
(5,708
)


Certain of these equity securities and our marketable securities, which had a carrying value of $1.8 million at September 30, 2020 and $11.1 million at December 31, 2019, are carried at fair value based on Level 1 inputs. See Note 3—Fair Value Measurement. The portion of unrealized gains and losses for the period related to equity securities with readily determinable fair value still held at September 30, 2020 and 2019 is calculated as follows (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2020
 
2019
 
2020
 
2019
Net losses recognized during the period on equity securities and marketable securities
$
(813
)
 
$
(700
)
 
$
(3,268
)
 
$
(1,818
)
Less: Net gains recognized during the period on equity securities and marketable securities sold

 

 
2,161

 

Unrealized losses during the reporting period on equity securities and marketable securities still held
$
(813
)
 
$
(700
)
 
$
(5,429
)
 
$
(1,818
)



17





Equity method securities under ASC 323

Our equity method securities include equity securities in which we can exercise significant influence, but not control, over these entities through either holding more than a 20% voting interest in the entity or through our representation on the entity's board of directors. The following table includes our equity method securities and ownership interest as of September 30, 2020:
 
Ownership interest
Bitt Inc.
21%
Boston Security Token Exchange LLC
50%
Chainstone Labs, Inc.
29%
FinClusive Capital, Inc.
12%
GrainChain, Inc.
18%
Medici Land Governance, Inc.
35%
Minds, Inc.
23%
PeerNova, Inc.
11%
SettleMint NV
29%
Spera, Inc.
19%
VinX Network Ltd.
29%
Voatz, Inc.