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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, 2021
 
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
Utah84047
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueOSTKNASDAQ 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 filerAccelerated filer
Non-accelerated filerSmaller 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 

43,014,524 shares of the registrant's common stock, par value $0.0001, are outstanding on October 29, 2021.




Table of Contents


OVERSTOCK.COM, INC.
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended September 30, 2021
 
Page
 
Item 1.
  
Item 2.
  
Item 3.
  
Item 4.
  
  
Item 1.
  
Item 1A.
  
Item 2.
  
Item 3.
  
Item 4.
  
Item 5.
  
Item 6.
  

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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 COVID-19 pandemic, or other wide-spread disease or illness, may have on our business and the industries in which we operate, including the impact that our business may experience at such time as the pandemic or other health risks subside;
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, in particular at such time as the pandemic subsides;
any downturn in the U.S. housing industry or other changes in U.S. and global economic conditions or U.S. consumer spending;
any inability to generate and maintain unpaid natural traffic to our website;
any inability to attract and/or retain key personnel;
the impact that any government policies, mandates, or regulations, including those created in response to COVID-19, could have on our business;
any inability of Pelion to successfully manage the Medici Ventures Fund limited partnership or our direct minority interest in tZERO;
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;
the risk that the amount of deferred tax assets we consider realizable could be reduced if estimates of future taxable income during the carryforward period are reduced;
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 and future claims of intellectual property infringement to which we are subject;
the commercial, competitive, technical, operational, financial, regulatory, legal, reputational, marketing and other obstacles Pelion faces in trying to create economic success for the blockchain assets held within the Medici Ventures Fund it manages;
any losses or issues we may encounter as a consequence of accepting or holding bitcoin or other cryptocurrencies;
the adequacy of our liquidity and our ability to fund our capital requirements;
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.

3


Table of Contents


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 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


Table of Contents


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

Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
September 30,
2021
December 31,
2020
Assets  
Current assets:  
Cash and cash equivalents$512,188 $495,425 
Restricted cash228 1,197 
Accounts receivable, net of allowance for credit losses of $2,227 and $1,417
25,172 22,867 
Inventories5,782 6,243 
Prepaids and other current assets21,302 22,879 
Current assets of discontinued operations 34,129 
Total current assets564,672 582,740 
Property and equipment, net109,784 113,767 
Deferred tax assets, net37,955 37 
Goodwill6,160 6,160 
Equity securities, including securities measured at fair value of $100,706 and $1,127
330,196 1,412 
Operating lease right-of-use assets13,367 17,297 
Other long-term assets, net2,783 2,646 
Long-term assets of discontinued operations 106,155 
Total assets$1,064,917 $830,214 
Liabilities and Stockholders' Equity  
Current liabilities:  
Accounts payable$124,763 $109,759 
Accrued liabilities103,898 123,646 
Unearned revenue65,206 72,165 
Operating lease liabilities, current5,157 5,152 
Other current liabilities3,454 2,935 
Current liabilities of discontinued operations 13,924 
Total current liabilities302,478 327,581 
Long-term debt, net38,837 41,334 
Operating lease liabilities, non-current9,095 13,206 
Other long-term liabilities5,393 4,082 
Long-term liabilities of discontinued operations 7,685 
Total liabilities355,803 393,888 
Commitments and contingencies (Note 8)
Continued on the following page

See accompanying notes to unaudited consolidated financial statements.
5


Table of Contents


Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
September 30,
2021
December 31,
2020
Stockholders' equity:  
Preferred stock, $0.0001 par value, authorized shares - 5,000
  
Series A-1, issued and outstanding - 4,204 and 4,204
  
Series B, issued and outstanding - 357 and 357
  
Common stock, $0.0001 par value, authorized shares - 100,000
  
Issued shares - 46,610 and 46,331
  
Outstanding shares - 43,014 and 42,768
4 4 
Additional paid-in capital957,060 970,873 
Accumulated deficit(168,803)(525,233)
Accumulated other comprehensive loss(541)(553)
Treasury stock at cost - 3,596 and 3,563
(78,606)(71,399)
Equity attributable to stockholders of Overstock.com, Inc.709,114 373,692 
Equity attributable to noncontrolling interests 62,634 
Total stockholders' equity709,114 436,326 
Total liabilities and stockholders' equity$1,064,917 $830,214 

See accompanying notes to unaudited consolidated financial statements.
6


Table of Contents


Overstock.com, Inc.
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
 
 Three months ended
September 30,
Nine months ended
September 30,
 2021202020212020
Net revenue$689,390 $717,695 $2,143,787 $1,824,249 
Cost of goods sold532,682 548,982 1,658,729 1,403,418 
Gross profit156,708 168,713 485,058 420,831 
Operating expenses    
Sales and marketing75,650 71,292 234,460 186,852 
Technology31,178 29,934 92,084 86,278 
General and administrative21,031 28,625 66,562 73,347 
Total operating expenses127,859 129,851 393,106 346,477 
Operating income28,849 38,862 91,952 74,354 
Interest expense, net(139)(264)(424)(639)
Other income (expense), net(79)59 (7)18 
Income from continuing operations before income taxes28,631 38,657 91,521 73,733 
Provision (benefit) for income taxes(1,795)753 (47,328)1,756 
Income from continuing operations30,426 37,904 138,849 71,977 
Income (loss) from discontinued operations, net of income taxes (16,678)217,246 (35,935)
Consolidated net income$30,426 $21,226 $356,095 $36,042 
Less: Net loss attributable to noncontrolling interests—discontinued operations (2,165)(335)(7,372)
Net income attributable to stockholders of Overstock.com, Inc.$30,426 $23,391 $356,430 $43,414 
Consolidated net income per share of common stock:    
Net income (loss) attributable to common shares—basic
Continuing operations$0.64 $0.81 $2.91 $1.66 
Discontinued operations (0.31)4.58 (0.66)
Total$0.64 $0.50 $7.49 $1.00 
Net income (loss) attributable to common shares—diluted
Continuing operations$0.63 $0.81 $2.89 $1.65 
Discontinued operations (0.31)4.54 (0.66)
Total$0.63 $0.50 $7.43 $0.99 
Weighted average shares of common stock outstanding:
Basic43,014 41,595 42,970 40,697 
Diluted43,324 42,202 43,320 41,030 

See accompanying notes to unaudited consolidated financial statements.
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Overstock.com, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
 
 Three months ended
September 30,
Nine months ended
September 30,
 2021202020212020
Consolidated net income$30,426 $21,226 $356,095 $36,042 
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 income4 4 12 12 
Comprehensive income30,430 21,230 356,107 36,054 
Less: Comprehensive loss attributable to noncontrolling interests—discontinued operations (2,165)(335)(7,372)
Comprehensive income attributable to stockholders of Overstock.com, Inc.$30,430 $23,395 $356,442 $43,426 

See accompanying notes to unaudited consolidated financial statements.

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Overstock.com, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands)
 Three months ended
September 30,
Nine months ended
September 30,
2021202020212020
Equity attributable to stockholders of Overstock.com, Inc. 
Shares of common stock issued
Balance at beginning of period46,607 43,885 46,331 42,790 
Common stock issued upon vesting of restricted stock 3 17 279 696 
Common stock sold through offerings 2,415  2,831 
Balance at end of period46,610 46,317 46,610 46,317 
Shares of treasury stock
Balance at beginning of period3,595 3,553 3,563 3,326 
Tax withholding upon vesting of restricted stock1 6 80 233 
Sale of treasury stock  (47) 
Balance at end of period3,596 3,559 3,596 3,559 
Total shares of common stock outstanding43,014 42,758 43,014 42,758 
Common stock$4 $4 $4 $4 
Number of Series A-1 preferred shares issued and outstanding4,204 4,204 4,204 4,204 
Number of Series B preferred shares issued and outstanding357 357 357 357 
Preferred stock$ $ $ $ 
Additional paid-in capital
Balance at beginning of period$954,518 $770,984 $970,873 $764,845 
Stock-based compensation to employees and directors2,542 2,623 8,216 8,356 
Common stock sold through offerings, net 192,692  192,692 
Sale of treasury stock  2,726  
Subsidiary equity award tender offer  (2,130) 
Change in noncontrolling interest ownership  (22,625) 
Other   406 
Balance at end of period$957,060 $966,299 $957,060 $966,299 
Accumulated deficit
Balance at beginning of period$(199,229)$(560,480)$(525,233)$(580,390)
Net income attributable to stockholders of Overstock.com, Inc.30,426 23,391 356,430 43,414 
Other   (113)
Balance at end of period$(168,803)$(537,089)$(168,803)$(537,089)
Continued on the following page

See accompanying notes to unaudited consolidated financial statements.
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Overstock.com, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands)
Three months ended
September 30,
Nine months ended
September 30,
2021202020212020
Accumulated other comprehensive loss
Balance at beginning of period$(545)$(560)$(553)$(568)
Net other comprehensive income4 4 12 12 
Balance at end of period$(541)$(556)$(541)$(556)
Treasury stock
Balance at beginning of period$(78,568)$(70,537)$(71,399)$(68,807)
Tax withholding upon vesting of restricted stock(38)(587)(7,850)(2,317)
Sale of treasury stock  643  
Balance at end of period(78,606)(71,124)(78,606)(71,124)
Total equity attributable to stockholders of Overstock.com, Inc.$709,114 $357,534 $709,114 $357,534 
Equity attributable to noncontrolling interests
Balance at beginning of period$ $63,937 $62,634 $62,771 
Paid in capital for noncontrolling interest   5,000 
Net loss attributable to noncontrolling interests (2,165)(335)(7,372)
Change in noncontrolling interest ownership  22,625  
Deconsolidation of subsidiaries  (84,924)1,837 
Other   (464)
Total equity attributable to noncontrolling interests$ $61,772 $ $61,772 
Total stockholders' equity$709,114 $419,306 $709,114 $419,306 

See accompanying notes to unaudited consolidated financial statements.
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Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Nine months ended
September 30,
 20212020
Cash flows from operating activities:  
Consolidated net income$356,095 $36,042 
(Income) loss from discontinued operations, net of income taxes(217,246)35,935 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:  
Depreciation and amortization14,332 16,288 
Non-cash operating lease cost3,758 3,781 
Stock-based compensation to employees and directors7,649 6,201 
Increase in deferred income taxes, net(51,749)35 
Other non-cash adjustments1,400 (59)
Changes in operating assets and liabilities:  
Accounts receivable, net(2,305)(12,368)
Inventories461 (1,027)
Prepaids and other current assets3,259 (85)
Other long-term assets, net(1,050)(137)
Accounts payable14,831 44,011 
Accrued liabilities(19,945)57,619 
Unearned revenue(6,959)37,403 
Operating lease liabilities(3,891)(4,756)
Other long-term liabilities1,444 2,941 
Net cash provided by continuing operating activities100,084 221,824 
Net cash used in discontinued operating activities(17,128)(23,114)
Net cash provided by operating activities82,956 198,710 
Cash flows from investing activities:  
Contributions for capital calls(41,122) 
Expenditures for property and equipment(9,658)(12,008)
Other investing activities, net(1,281)(161)
Net cash used in continuing investing activities(52,061)(12,169)
Net cash used in discontinued investing activities(29,703)(3,262)
Net cash used in investing activities(81,764)(15,431)
Continued on the following page

See accompanying notes to unaudited consolidated financial statements.
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Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Nine months ended
September 30,
20212020
Cash flows from financing activities:  
Payments on long-term debt(2,191)(1,566)
Proceeds from long-term debt 47,500 
Proceeds from sale of common stock, net of offering costs 195,540 
Payments of taxes withheld upon vesting of restricted stock(7,850)(2,317)
Other financing activities, net(1)(5,054)
Net cash provided by (used in) continuing financing activities(10,042)234,103 
Net cash provided by discontinued financing activities2,085  
Net cash provided by (used in) financing activities(7,957)234,103 
Net increase (decrease) in cash, cash equivalents, and restricted cash(6,765)417,382 
Cash, cash equivalents, and restricted cash, beginning of period, inclusive of cash balances of discontinued operations519,181 114,898 
Cash, cash equivalents, and restricted cash, end of period, inclusive of cash balances of discontinued operations512,416 532,280 
Less: Cash, cash equivalents, and restricted cash of discontinued operations 17,113 
Cash, cash equivalents, and restricted cash, end of period$512,416 $515,167 

See accompanying notes to unaudited consolidated financial statements.

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Overstock.com, Inc.
Notes to Unaudited Consolidated Financial Statements
 
1. DESCRIPTION OF BUSINESS
 
Overstock.com, Inc. is an online retailer and technology company. It is a leading e-commerce retailer offering customers a wide selection of quality brands for the home at smart value, including furniture, décor, area rugs, bedding and bath, home improvement, outdoor, and kitchen and dining items, among others. The online shopping site, which receives tens of millions of visits per month, provides customers access to millions of products from third-party partners. As used herein, "Overstock," "the Company," "we," "our" and similar terms include Overstock.com, Inc. and its wholly-owned subsidiaries, unless the context indicates otherwise. As used herein, the term "Website" refers to the Company's internet websites located at www.overstock.com, www.o.co, www.overstock.ca, and www.overstockgovernment.com and the Company's mobile app.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
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, 2020. 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, 2020, 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. The results of operations for the three and nine months ended September 30, 2021 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.

On April 23, 2021, we entered into a Limited Partnership Agreement (the "Limited Partnership Agreement") with Pelion MV GP, L.L.C. ("Pelion"), in connection with the closing (the "Medici Closing") of the Transaction Agreement dated January 25, 2021 between the Company, Medici Ventures, Inc. ("Medici Ventures"), Pelion, and Pelion, Inc. (the "Transaction Agreement"). In connection with the execution of the Limited Partnership Agreement, Pelion acquired control over Medici Ventures and its blockchain assets. As a result of this transaction, we performed an assessment of control under the variable interest entity ("VIE") model and determined that effective as of the Medici Closing, we held a variable interest in both Medici Ventures and tZERO Group, Inc. ("tZERO") (collectively, the "Disposal Group"), both of which meet the definition of variable interest entities; however, we are not the primary beneficiary of either entity for purposes of consolidation. Accordingly, we deconsolidated the Disposal Group's consolidated net assets and noncontrolling interest from our consolidated financial statements and results beginning on April 23, 2021, the date that control ceased. The Disposal Group met the criteria to be reported as held for sale and discontinued operations as of March 31, 2021. As a result of closing the transaction during the second quarter of 2021, the Disposal Group's operating results for the periods prior to deconsolidation have been reflected in our consolidated statements of income as discontinued operations for all periods presented. Additionally, the related assets and liabilities of the Disposal Group associated with the prior periods are classified as discontinued operations in our consolidated balance sheets. The majority of the Disposal Group was previously included in the Medici Ventures and tZERO reportable segments, and the remainder was included in Other. Effective as of the first quarter of fiscal year 2021, the Company has one reportable segment: Retail. See Note 14—Business Segments for additional segment information.

Unless otherwise specified, disclosures in these consolidated financial statements reflect continuing operations only. Certain prior period data, primarily related to discontinued operations, have been reclassified in the consolidated financial statements and accompanying notes to conform to the current period presentation. See Note 3—Discontinued Operations for further information.
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Principles of consolidation
 
The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany account balances and transactions have been eliminated in consolidation.
     
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-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 global novel coronavirus ("COVID-19") pandemic and various actions taken by governmental authorities, private businesses, and other third parties in response to the pandemic, 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 and the post-pandemic economic recovery, how long these conditions will persist, ongoing developments related to the production, approval and distribution of vaccines, the emergence and spread of new variants of the virus (including variants that may be more contagious and/or impact the effectiveness of existing vaccines), and additional measures that may be introduced or reintroduced by governments or private parties or the 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.

Initial valuation of retained noncontrolling interest in former subsidiaries

We measured our retained noncontrolling interest in former subsidiaries at fair value at the date of deconsolidation. In the absence of quoted market prices (e.g., a privately held entity), the fair value was determined in good faith under our valuation policy and process using generally accepted valuation approaches. We utilized an independent third party valuation firm to assist us in determining the fair values of our retained noncontrolling interest in former subsidiaries using a combination of a market approach and income approach. The market approach relied upon a comparison with guideline public companies or guideline transactions and entails selecting relevant financial information of the subject company, and capitalizing those amounts using valuation multiples that are based on empirical market observations. The income approach relied upon an analysis of its projected economic earnings discounted to present value (discounted cash flows). The fair value determination of our retained noncontrolling interest required the use of significant unobservable inputs (Level 3 inputs) as shown in the table within Note 3—Discontinued Operations. Due to the inherent uncertainty of determining the fair value of Level 3 securities that do not have a readily available market value, the determination of fair value required significant judgment or estimation and changes in the estimates and assumptions used in the valuation models could materially affect the determination of fair value for these assets. See Note 3—Discontinued Operations for further information.

Income taxes

We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including results of recent operations, projected future taxable income, scheduled reversals of our deferred tax liabilities, and tax planning strategies.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
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We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated income statements. Accrued interest and penalties are included within the related tax liability line in our consolidated balance sheets.

Recently adopted 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. We adopted the changes under the new standard on January 1, 2021. The implementation of ASU 2019-12 did not have a material impact on our consolidated financial statements and 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. We adopted the changes under the new standard on January 1, 2021. The implementation of ASU 2020-01 did not have a material impact on our consolidated financial statements and disclosures.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which amends and provides Codification improvements in order to either clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. We adopted the changes under the new standard on January 1, 2021. The implementation of ASU 2020-10 did not have a material impact on our consolidated financial statements and disclosures.

3. DISCONTINUED OPERATIONS

On January 25, 2021, we entered into the Transaction Agreement with Medici Ventures, Pelion, and Pelion, Inc., pursuant to which the parties agreed, among other things, that: (i) Medici Ventures would convert to a Delaware limited partnership (the "Partnership"), (ii) pursuant to the terms and subject to the conditions of a Limited Partnership Agreement which was entered into on the date of the Medici Closing, Pelion would become the sole general partner of the Partnership, and we (along with any other stockholders of Medici Ventures at the time of the Medici Closing), would become the limited partners of the Partnership, (iii) prior to the Medici Closing, Overstock would convert the outstanding intercompany debt owed to us by Medici Ventures into shares of common stock in Medici Ventures; and (iv) prior to the Medici Closing, Overstock would convert the outstanding intercompany debt owed to us by tZERO into shares of common stock in tZERO, in each case, on the terms and subject to the conditions set forth in the Transaction Agreement and the relevant definitive agreements to be entered into in connection therewith. Pursuant to the terms of the Limited Partnership Agreement, we and any other partners subsequently admitted to the Partnership agreed to make a capital commitment of $45 million to the Partnership in proportion to our equity interest in the Partnership in order to fund the Partnership's capital needs. The term of the Partnership is eight years. The debt conversion outlined in (iii) and (iv) above was completed during the quarter ended March 31, 2021, following which Medici Ventures and Overstock held approximately 42% and 41%, respectively, of tZERO's outstanding common stock.

The Transaction Agreement represents a strategic shift for Overstock and a substantive change in the purpose and design of Medici Ventures and its interplay with Overstock’s overall business objectives. The Board of Directors has determined that it is in the best interest of Overstock and its shareholders to have the Overstock management team focus on Overstock’s core e-commerce home furnishings business and strategies. Accordingly, after six years of committed effort to advance blockchain technology, Overstock has determined that the Medici Ventures businesses will be better served under the management of Pelion, a professional asset manager with technology expertise in early-stage companies. From and after the Medici Closing, Pelion has sole authority and responsibility regarding investing decisions, appointing board members of the portfolio companies, and exercising all shareholder rights for assets held by the Partnership, with the intent of generating capital appreciation for the held entities and investment income for the partners.

On April 23, 2021, we entered into the Limited Partnership Agreement with Pelion, as part of the Medici Closing, pursuant to which Pelion became the sole general partner, holding a 1% equity interest in the Partnership, and Overstock became a limited partner, holding a 99% equity interest in the Partnership. The Partnership meets the definition of an investment company under ASC Subtopic 946 - Financial Services - Investment Companies. As a result of this transaction, we performed an assessment of control under the VIE model and determined that upon closing of the transaction, we held a variable interest in both Medici Ventures and tZERO which meet the definition of variable interest entities; however, we are not
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the primary beneficiary of either entity for purposes of consolidation as we do not have the power (either explicit or implicit), through voting rights or similar rights, to direct the activities of the Partnership or tZERO that most significantly impact its economic performance. Pelion was not a related party at the time of the transaction and apart from their capacity as the general partner of the Partnership, we have no other relationship with them. We may not voluntarily withdraw from the Partnership without the consent of the general partner or upon certain limited events as outlined in the Limited Partnership Agreement. Any proceeds from the sales of assets by the Partnership will be allocated on an asset-by-asset basis to the partners of the Partnership in accordance with the Limited Partnership Agreement following such events.

At the transaction date, our retained equity interest in the Partnership and our direct minority interest in tZERO had a fair value of $288.8 million, inclusive of $3.4 million of capital calls funded at the transaction date. The fair value of these equity securities at the transaction date was estimated by taking the mid-point from a valuation range using a weighting of multiple valuation techniques on the underlying components of the equity securities to calculate a fair value for the whole, including discounted cash flow models and market transactional data, both of which incorporate significant unobservable inputs (Level 3). Approximately $149.9 million of the total $288.8 million Level 3 equity securities have been valued using unadjusted inputs that have not been internally developed by management, including third-party transactions and quotations. The significant unobservable inputs used in the $288.8 million fair value measurement of these Level 3 equity securities at the transaction date are summarized as follows:
Valuation techniqueUnobservable inputsRange (1)Weighted average (2)
Market approachEnterprise value to revenue multiple
0.88x
0.88x
Discounted cash flows - exit multipleDiscount rate
9.0% - 35.0%
32.4%
Enterprise value to revenue multiple
0.75x - 5.00x
4.40x
Projected terminal year2023 - 20272025
Annual revenue growth rate
1.3% - 124.0%
109.4%
Annual EBITDA % of revenues
5.2% - 41.2%
36.3%
Discounted cash flows - perpetual growthDiscount rate30.0%30.0%
Projected terminal year20282028
Perpetual revenue growth rate3.0%3.0%
Annual revenue growth rate25.7%25.7%
Annual EBITDA % of revenues14.9%14.9%
 __________________________________________
(1)     — The range for the Annual revenue growth rate and Annual EBITDA % of revenues are based on the weighted average metrics for the annual periods of the separate cash flow models for the respective component.
(2)     — Unobservable inputs were weighted by the relative fair value based on the fair value of the underlying components subjected to the identified valuation technique. For projected terminal year, the amount represents the median of the inputs and is not a weighted average.

We recognized a $243.5 million gain upon deconsolidation of these entities which primarily relates to the remeasurement of our retained equity method interest in the Partnership and our direct minority interest in tZERO at fair value, which was included in our consolidated statements of income as part of Income (loss) from discontinued operations, net of income taxes. We completed the entire funding of our $44.6 million capital commitment consistent with our proportional ownership interest, which was completed and funded in the second quarter of 2021.

Our retained equity interest in these entities are classified as equity method securities as we are deemed to have significant influence, but not control, over these entities through holding more than a 20% interest in the entity. We will record our proportionate share of the Partnership's reported net income or loss, which reflects the fair value changes of the underlying investments of the Partnership and any other operating income or losses of the Partnership, in Other income (expense), net in our consolidated statements of income with corresponding adjustments to the carrying value of the asset. There is no difference between the carrying amount of our investment in the Partnership and the amount of underlying equity we have in the Partnership's net assets. We have elected to apply the fair value option for valuing our retained direct minority interest in tZERO in future reporting periods as we determined that accounting for our direct equity interest in tZERO under the fair value option would approximate the same valuation approach used by the Partnership for valuing our indirect interest in tZERO
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through the Partnership and would be the most meaningful and transparent option for evaluating our continued exposure to the economics of tZERO.

As of September 30, 2021, our 99% equity interest in the Partnership and the 40% direct minority interest in tZERO had a carrying value of $329.2 million which is included in Equity securities on our consolidated balance sheets, of which, $99.7 million is valued under the fair value option. This investment is valued using Level 3 inputs, which represents 98.9% of assets measured at fair value. This amount also constitutes our maximum exposure to loss as a result of our involvement in these entities as we have no additional financing obligations to these entities. There were no changes in the valuation of our equity interest in tZERO between the recognition date of April 23, 2021 and the period ended September 30, 2021. The operations of the Partnership post transaction date include a loss from operations of $718,000 through the period ended September 30, 2021. There were $711,000 of equity method losses due to this loss associated with our equity interest in the Partnership through the period ended September 30, 2021 that was recorded in Other income (expense), net on our consolidated statements of income.

Results of discontinued operations through the transaction date were as follows (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2021202020212020
Net revenue$ $13,956 $17,394 $41,519 
Cost of goods sold 11,901 13,716 35,860 
Gross profit 2,055 3,678 5,659 
Operating expenses
Technology 5,050 7,133 15,180 
Selling, general, and administrative 6,318 13,509 22,385 
Total operating expenses 11,368 20,642 37,565 
Operating loss from discontinued operations (9,313)(16,964)(31,906)
Interest income, net 87 192 560 
Other income (loss), net (7,585)4,081 (5,032)
Gain on deconsolidation  243,541  
Income (loss) from discontinued operations before income taxes (16,811)230,850 (36,378)
Provision (benefit) for income taxes (133)13,604 (443)
Net income (loss) from discontinued operations$ $(16,678)$217,246 $(35,935)
Less: Net loss attributable to noncontrolling interests from discontinued operations (2,165)(335)(7,372)
Net income (loss) from discontinued operations attributable to stockholders of Overstock.com, Inc.$ $(14,513)$217,581 $(28,563)

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Assets and liabilities of discontinued operations were as follows (in thousands):
September 30,
2021
December 31,
2020
Cash and cash equivalents$ $21,075 
Other current assets 13,054 
Total current assets of discontinued operations$ $34,129 
Property and equipment, net$ $8,783 
Intangible assets, net 13,852 
Goodwill 28,790 
Equity securities 45,878 
Operating lease right-of-use assets 7,226 
Other long-term assets, net 1,626 
Total long-term assets of discontinued operations$ $106,155 
Accounts payable and accrued liabilities$ $11,939 
Other current liabilities 1,985 
Total current liabilities of discontinued operations$ $13,924 
Operating lease liabilities, non-current 7,099 
Other long-term liabilities 586 
Total long-term liabilities of discontinued operations$ $7,685 

4. FAIR VALUE MEASUREMENT

The following tables summarize our assets and liabilities measured at fair value on a recurring basis using the following levels of inputs (in thousands): 
 
Fair Value Measurements at September 30, 2021
 TotalLevel 1Level 2Level 3
Assets:    
Equity securities, at fair value$100,706 $983 $ $99,723 
Trading securities held in a "rabbi trust" (1)165 165   
Total assets$100,871 $1,148 $ $99,723 
Liabilities:    
Deferred compensation accrual "rabbi trust" (2)$178 $178 $ $ 
Total liabilities$178 $178 $ $ 
 
 
Fair Value Measurements at December 31, 2020
 TotalLevel 1Level 2Level 3
Assets:    
Equity securities, at fair value$1,127 $1,127 $ $ 
Trading securities held in a "rabbi trust" (1)139 139   
Total assets$1,266 $1,266 $ $ 
Liabilities:    
Deferred compensation accrual "rabbi trust" (2)$148 $148 $ $ 
Total liabilities$148 $148 $ $ 
 ___________________________________________
(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.
(2)    — Non-qualified deferred compensation in a rabbi trust is included in Accrued liabilities and Other long-term liabilities in the consolidated balance sheets.