Financial: Egghead.com Same Quarter Sales Increase 73%, Exceed $35 Million; Company Prepares for Further Growth - Company Financial Information

Edge: Work-Group Computing Report, Oct 26, 1998

Egghead.com, Inc. (Nasdaq:EGGS), Tuesday released financial results for the fiscal 1999 second quarter ended September 26, 1998.

The company's total revenues were $35.1 million, a 73 percent increase from the proforma ongoing revenue of $20.2 million for the comparable period last year and a 19 percent increase over revenues of $29.5 million for the quarter ended June 27, 1998.

Egghead.com Chairman and CEO George Orban said, "While growing our business we made substantial investments to consolidate and integrate our web sites on a common Oracle technology platform. We are already experiencing benefits from this effort which over the long term is designed to enable us to increase merchandise revenues, improve the management of gross margin, expand into new product categories, add revenue from advertising, and lower our operating expense ratios. This developmental effort is key to launching our new web site and off-line marketing program in November."

Egghead's sites, in the aggregate, ranked 8th among at-home and at-work visitors respectively, when compared to all shopping sites on the web, according to Media Metrix, a leading independent market research firm.

During the quarter Egghead.com's registered auction bidders increased 44 percent from 168,000 to 242,000. The company's e-mail customer database expanded 14 percent from 2.0 million to 2.3 million and the number of visitors to its web sites exceeded 20 million, consistent with the prior quarter. Further, Egghead.com entered into marketing agreements with AOL, Netscape, Microsoft, ZDNet, CNET's Shopper.com and ebay.com and also selectively canceled certain on-line agreements.

"Egghead.com's long-term strategy is to create a major value- oriented on-line retail enterprise," Orban added. "We were also pleased to announce during the quarter that C. Scott Gibson, Robert T. Wall and Karen White, all individuals with substantial industry experience, joined our board of directors."

Financial Results The company's total revenues were $35.1 million, a 73 percent increase from the proforma ongoing revenue of $20.2 million for the same period in fiscal 1998. Proforma ongoing revenues for the same period in fiscal 1998 exclude retail store revenue of $50.7 million attributable to retail stores closed February 28, 1998 and include revenues of $7.6 million attributable to Surplus Direct for the period prior to its acquisition.

Total revenues for the six months ended September 26,1998 were $64.6 million, a 67 percent increase from the proforma ongoing revenue of $38.6 million for the same period in fiscal 1998. Proforma ongoing revenues exclude retail store revenue of $102.7 million for closed stores and include revenues of $21.9 million attributable to Surplus Direct for the period prior to its acquisition.

Gross margin from ongoing operations was 10.6 percent for the second quarter of fiscal 1999, an increase of 20 basis points from the first quarter of fiscal 1999.

Operating expenses for the quarter, excluding depreciation and amortization of $0.9 million declined $5.1 million from the comparable period in fiscal 1998. Management attributed the improvement to the elimination of retail store operations expense of $7.3 million and the reduction in administrative and corporate expense of $1.2 million, offset by an increase in ongoing operations selling and marketing expenses of $3.5 million.

The second quarter pre-tax loss from ongoing operations was $7.2 million, or $0.30 per share compared to $4.9 million or $0.24 per share for the comparable period last year. The six month pretax loss from ongoing operations was $12.7 million compared to $8.6 million for the prior year comparable period.

The company's cash position was $59.5 million as of September 26, 1998.

EGGHEAD.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
                     13 Weeks Ended                 26 weeksEnded
                 ---------------------         ------------------
                      (unaudited)                    (unaudited)
                      Sept.         Sept.      Sept.      Sept.
                       26,           27,        26,        27,
                      1998          1997       1998       1997
                   -----------  ----------- ---------------------Net sales:
  Retail           $  --        $  50,655     $   --    $ 102,724
  Ongoing          35,054          12,635       64,574     16,727
                  -----------   ----------- ---------------------
                   35,054          63,290       64,574    119,451
Cost of sales
  Retail              --           41,745         --       85,251
  Ongoing          31,342          10,270       57,805     13,687
                  -----------   ----------- ---------------------
                   31,342          52,015       57,805     98,938
Gross margin        3,712          11,275        6,769     20,513
Selling and
  marketing
  expense           6,920          10,745       12,689     19,746
General and
  administrative
  expense           3,687           4,918        6,754      8,585
Amortization of
  goodwill            429             184          848        184
Depreciation
  expense             507           1,161          87       2,415
                  ------------  -------------  ------------------
Operating loss     (7,831)         (5,733)     (14,394)  (10,417)
Other income
  (expense)           632             828        1,646      1,854
                 -----------    -----------   -------------------
Loss before
  income taxes     (7,199)         (4,905)     (12,748)   (8,563)
Income tax
  benefit            --                --           --         --
                  -------         --------       -------   ------
Net loss          $(7,199)        $(4,905)     $(12,748) $(8,563)
                ===========     ===========   ===================
Basic loss
  per share        $(0.30)         $(0.24)       $(0.53)  $(0.45)
               ===========     ============   ===================
Weighted average
 common shares
 outstanding       24,281          20,127        23,925    18,859
               ===========     ===========    ===================
EGGHEAD.COM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
ASSETS
                            Sept. 26        Sept. 27     June 27,
                              1998            1997         1998
                            ---------       ---------    --------
Current assets:
 Cash and cash
  equivalents               $59,523         $54,131      $67,034
 Accounts receivable,
  net                         2,721          10,532        5,134
 Merchandise inventories,
  net                        16,671          63,268       10,896
 Prepaid expenses and
  other current assets          789           3,768          561
 Property held for sale       1,224           7,852        1,224
                          -------------  ------------------------
  Total current assets       80,928         139,551       84,849
                          -------------  ------------------------
Property and equipment,
  net                         3,536          12,922        2,524
Goodwill, net                32,490          34,153       32,920
Other assets                    299             430          320
                          ============  =========================
                           $117,253        $187,056     $120,613
                          ============  =========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable         $13,015          $36,991      $16,869
  Accrued liabilities       11,559           11,805       10,694
  Liabilities related to
   disposition of CGE division --             5,860          --
  Reserves and liabilities
   related to restructuring  8,865            7,870       11,589
                          ------------   ------------ -----------
   Total current liabilities33,439           62,526       39,152
                          ------------   ------------ -----------
Other long-term liabilities    --               243         --
                          ------------   ------------ -----------
   Total liabilities        33,439           62,769       39,152
                          ------------   ------------ -----------
Commitments and
  contingencies
Shareholders' equity:
 Preferred stock,
  $.01 par value:
  10,000,000 authorized
  no shares issued and
  outstanding                --                --           --
 Common stock,
  $.01 par value:
  50,000,000 shares
  authorized; 24,395,044,
  22,953,851,
  and 23,570,032
  shares issued and
  outstanding, respectively    244              230          236
 Additional paid-in capital171,135          157,206       161,591
 Retained earnings
  (deficit)               (87,565)         (33,149)      (80,366)
                          -----------     ------------ ----------
     Total shareholders'
      equity                83,814          124,287        81,461
                          -----------     ------------ ----------
                          $117,253         $187,056      $120,613
                          ===========    ============= ==========