UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2018~~2019



o	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 ý No o

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 ý No o

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 o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

Emerging growth company o

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. o

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

~~There were 32,146,065~~35,289,096 shares of the Registrant's common stock, par value $0.0001, outstanding on ~~November 6, 2018.~~August 2, 2019

Table of Contents

OVERSTOCK.COM, INC.

FORM 10-Q

For the ~~quarterly period ended September~~Quarterly Period Ended June 30, ~~2018~~2019

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Loss	5
	Consolidated Statements of Changes in Stockholder's Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Unaudited Consolidated Financial Statements	910

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3235

Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	55

Item 4.	Controls and Procedures	5655

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5861

Item 3.	Defaults Upon Senior Securities	5961

Item 4.	Mine Safety Disclosures	5961

Item 5.	Other Information	5962

Item 6.	Exhibits	5962

Signature		6063

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Overstock.com, Inc.

Consolidated Balance Sheets (Unaudited)

(in ~~thousands)~~thousands, except per share data)


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	182,042		$	203,215		$	121,294		$	141,512
Restricted cash	1,395			455			2,313			1,302
Accounts receivable, net	30,552			30,080			23,635			35,930
Inventories, net	17,308			13,703			11,877			14,108
Prepaids and other current assets	23,863			17,744			19,513			22,415
Total current assets	255,160			265,197			178,632			215,267
Fixed assets, net	133,425			129,343
Deferred tax assets, net	135			—
Property and equipment, net							131,633			134,687
Intangible assets, net	25,140			7,337			15,474			13,370
Goodwill	22,058			14,698			27,120			22,895
Equity investments	57,436			13,024
Equity securities							43,757			60,427
Operating lease right-of-use assets							45,066			—
Other long-term assets, net	8,113			4,216			7,492			14,573
Total assets	$	501,467		$	433,815		$	449,174		$	461,219
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	93,277		$	85,406		$	70,857		$	102,574
Accrued liabilities	100,753			82,611			82,710			87,858
Deferred revenue	39,917			46,468			40,950			50,578
Other current liabilities, net	472			178
Operating lease liabilities, current							5,731			—
Short-term debt							3,108			—
Other current liabilities							486			476
Total current liabilities	234,419			214,663			203,842			241,486
Long-term debt, net	3,069			—			—			3,069
Long-term debt, net - related party	—			39,909
Operating lease liabilities, non-current							44,105			—
Other long-term liabilities	5,934			7,120			2,147			5,958
Total liabilities	243,422			261,692			250,094			250,513
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $0.0001 par value authorized shares - 5,000
Series A, issued and outstanding - 127 and 127	—			—
Series B, issued and outstanding - 555 and 555	—			—
Common stock, $0.0001 par value
Authorized shares -100,000
Issued shares - 35,138 and 30,632
Outstanding shares - 31,941 and 27,497	3			3
Preferred stock, $0.0001 par value, authorized shares - 5,000
Series A, issued and outstanding - 3 and 127							—			—
Series A-1, issued and outstanding - 123 and 0							—			—
Series B, issued and outstanding - 356 and 355							—			—
Common stock, $0.0001 par value, authorized shares - 100,000
Issued shares - 38,561 and 35,346
Outstanding shares - 35,239 and 32,146							3			3
Additional paid-in capital	651,482			494,732			719,010			657,981
Accumulated deficit	(413,395		)	(254,692		)	(522,397		)	(458,897		)
Accumulated other comprehensive loss	(587		)	(599		)	(576		)	(584		)
Treasury stock:
Shares at cost - 3,197 and 3,135	(66,709		)	(63,816		)
Treasury stock at cost - 3,322 and 3,200							(68,746		)	(66,757		)
Equity attributable to stockholders of Overstock.com, Inc.	170,794			175,628			127,294			131,746
Equity attributable to noncontrolling interests	87,251			(3,505		)	71,786			78,960
Total equity	258,045			172,123
Total stockholders' equity							199,080			210,706
Total liabilities and stockholders' equity	$	501,467		$	433,815		$	449,174		$	461,219

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Overstock.com, Inc.

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue, net
Direct	$	15,424		$	19,645		$	46,409		$	64,572
Partner and other	425,156			404,362			1,322,635			1,223,894
Retail													$	367,475		$	477,683		$	730,100		$	917,679
Other													6,234			5,450			11,338			10,785
Total net revenue	440,580			424,007			1,369,044			1,288,466			373,709			483,133			741,438			928,464
Cost of goods sold
Direct(1)	16,205			19,577			45,649			61,687
Partner and other	337,659			320,755			1,051,067			972,026
Retail(1)													294,984			387,252			585,624			734,832
Other													4,826			4,138			8,791			8,020
Total cost of goods sold	353,864			340,332			1,096,716			1,033,713			299,810			391,390			594,415			742,852
Gross profit	86,716			83,675			272,328			254,753			73,899			91,743			147,023			185,612
Operating expenses:
Sales and marketing(1)	55,312			45,153			226,942			126,068			34,560			94,416			68,037			171,630
Technology(1)	33,880			28,746			97,597			85,982			33,153			32,423			68,586			63,717
General and administrative(1)	45,356			21,651			116,551			66,622			31,964			31,440			72,196			71,195
Total operating expenses	134,548			95,550			441,090			278,672			99,677			158,279			208,819			306,542
Operating loss	(47,832		)	(11,875		)	(168,762		)	(23,919		)	(25,778		)	(66,536		)	(61,796		)	(120,930		)
Interest income	383			189			1,547			450			630			620			1,033			1,164
Interest expense	(101		)	(713		)	(1,370		)	(2,139		)	(105		)	(395		)	(232		)	(1,269		)
Other income (expense), net	(1,848		)	5,882			(1,489		)	2,751			(2,995		)	368			(9,267		)	359
Loss before income taxes	(49,398		)	(6,517		)	(170,074		)	(22,857		)	(28,248		)	(65,943		)	(70,262		)	(120,676		)
Benefit from income taxes	(141		)	(5,412		)	(445		)	(7,727		)
Consolidated net loss	$	(49,257	)	$	(1,105	)	$	(169,629	)	$	(15,130	)
Provision (benefit) from income taxes													(622		)	(27		)	256			(304		)
Net loss													$	(27,626	)	$	(65,916	)	$	(70,518	)	$	(120,372	)
Less: Net loss attributable to noncontrolling interests	(1,334		)	(319		)	(5,886		)	(942		)	(2,945		)	(1,005		)	(6,593		)	(4,552		)
Net loss attributable to stockholders of Overstock.com, Inc.	$	(47,923	)	$	(786	)	$	(163,743	)	$	(14,188	)	$	(24,681	)	$	(64,911	)	$	(63,925	)	$	(115,820	)
Net loss per common share—basic:
Net loss attributable to common shares—basic	$	(1.55	)	$	(0.03	)	$	(5.47	)	$	(0.55	)	$	(0.69	)	$	(2.20	)	$	(1.85	)	$	(3.94	)
Weighted average common shares outstanding—basic	30,279			25,003			29,256			25,024			35,225			28,903			33,806			28,736
Net loss per common share—diluted:
Net loss attributable to common shares—diluted	$	(1.55	)	$	(0.03	)	$	(5.47	)	$	(0.55	)	$	(0.69	)	$	(2.20	)	$	(1.85	)	$	(3.94	)
Weighted average common shares outstanding—diluted	30,279			25,003			29,256			25,024			35,225			28,903			33,806			28,736


(1) Includes stock-based compensation as follows (Note 9):
Cost of goods sold — direct	$	41	$	46	$	152	$	134
(1) Includes stock-based compensation as follows (Note 10):
Cost of goods sold — retail									$	54	$	41	$	101	$	111
Sales and marketing	277		109		1,465		318		533		315		974		1,188
Technology	583		166		1,725		476		1,670		621		2,897		1,142
General and administrative	1,345		703		8,312		2,081		2,914		1,996		5,184		6,967
Total	$	2,246	$	1,024	$	11,654	$	3,009	$	5,171	$	2,973	$	9,156	$	9,408

See accompanying notes to unaudited consolidated financial statements.

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Overstock.com, Inc.

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Consolidated net loss	$	(49,257	)	$	(1,105	)	$	(169,629	)	$	(15,130	)
Net loss													$	(27,626	)	$	(65,916	)	$	(70,518	)	$	(120,372	)
Other comprehensive loss:
Unrealized gain on cash flow hedges, net of expense for taxes of $0, $31, $0, and $71	4			52			12			120
Unrealized gain on cash flow hedges, net of expense for taxes of $0, and $0													4			4			8			8
Other comprehensive income	4			52			12			120			4			4			8			8
Comprehensive loss	$	(49,253	)	$	(1,053	)	$	(169,617	)	$	(15,010	)	$	(27,622	)	$	(65,912	)	$	(70,510	)	$	(120,364	)
Less: Comprehensive loss attributable to noncontrolling interests	(1,334		)	(319		)	(5,886		)	(942		)	(2,945		)	(1,005		)	(6,593		)	(4,552		)
Comprehensive loss attributable to stockholders of Overstock.com, Inc.	$	(47,919	)	$	(734	)	$	(163,731	)	$	(14,068	)	$	(24,677	)	$	(64,907	)	$	(63,917	)	$	(115,812	)

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Overstock.com, Inc.

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(in thousands)


				Three months ended June 30,					Six months ended June 30,
	Nine months ended September 30, 2018			2019			2018		2019			2018
Equity attributable to stockholders of Overstock.com, Inc.
Number of common shares issued
Balance at beginning of period	30,632			37,802			32,048		35,346			30,632
Common stock issued upon vesting of restricted stock	226			14			55		255			221
Common stock issued for asset purchase	147			—			100		—			100
Exercise of stock warrants	1,250			—			—		—			1,250
Common stock sold through ATM offering	2,883			745			—		2,960			—
Balance at end of period	35,138			38,561			32,203		38,561			32,203

Number of treasury stock shares
Balance at beginning of period	3,135			3,319			3,182		3,200			3,135
Common stock repurchased through business combination				—			—		47			—
Tax withholding upon vesting of restricted stock	62			3			14		75			61
Balance at end of period	3,197			3,322			3,196		3,322			3,196
Total number of outstanding shares	31,941			35,239			29,007		35,239			29,007

Common stock	$	3		$	3		$	3	$	3		$	3

Number of Series A preferred shares issued and outstanding	127

Balance at beginning of period				127			127		127			127
Exchange of shares to Series A-1				(123		)	—		(123		)	—
Conversion of shares to Series B				(1		)	—		(1		)	—
Balance at end of period				3			127		3			127
Number of Series A-1 preferred shares issued and outstanding
Balance at beginning of period				—			—		—			—
Exchange of shares from Series A				123			—		123			—
Balance at end of period				123			—		123			—
Number of Series B preferred shares issued and outstanding	555

Balance at beginning of period				355			555		355			555
Conversion of shares from Series A				1			—		1			—
Balance at end of period				356			555		356			555
Preferred stock	$	—		$	—		$	—	$	—		$	—

Additional paid-in capital
Balance at beginning of period	$	494,732		$	701,877		$	547,184	$	657,981		$	494,732
Stock-based compensation to employees and directors	7,614			5,171			2,973		9,156			5,368
Common stock issued for asset purchase	4,430			—			2,930		—			2,930
Exercise of stock warrants	50,562
Sale of stock warrants	25
Common stock sold through ATM offering, net of offering costs	94,624
Issuance and exercise of stock warrants				—			25		—			50,587
Common stock sold through ATM offering, net				12,198			—		52,112			—
Other	(505		)	(236		)	—		(239		)	(505		)
Balance at end of period	$	651,482		$	719,010		$	553,112	$	719,010		$	553,112

Accumulated deficit
Balance at beginning of period	$	(254,692	)
Cumulative effect of change in accounting principle	5,040
Net loss attributable to stockholders of Overstock.com, Inc.	(163,743		)
Balance at end of period	$	(413,395	)

Accumulated other comprehensive loss
Balance at beginning of period	$	(599	)
Net other comprehensive income	12
Balance at end of period	$	(587	)

Treasury stock
Balance at beginning of period	$	(63,816	)
Tax withholding upon vesting of restricted stock	(2,893		)
Balance at end of period	(66,709		)
Total equity attributable to stockholders of Overstock.com, Inc.	$	170,794
Continued on the following page				Continued on the following page

Table of Contents

~~Continued on the following page~~

~~Overstock.com, Inc.~~

~~Consolidated Statements of Changes in Stockholders' Equity (Unaudited)~~

~~(in thousands)~~


Overstock.com, Inc. Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (in thousands)				Overstock.com, Inc. Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (in thousands)
	Nine months ended September 30, 2018			Three months ended June 30,						Six months ended June 30,
				2019			2018			2019			2018
Accumulated deficit
Balance at beginning of period				$	(497,716	)	$	(300,561	)	$	(458,897	)	$	(254,692	)
Cumulative effect of change in accounting principle				—			—			—			5,040
Net loss attributable to stockholders of Overstock.com, Inc.				(24,681		)	(64,911		)	(63,925		)	(115,820		)
Other				—			—			425			—
Balance at end of period				$	(522,397	)	$	(365,472	)	$	(522,397	)	$	(365,472	)
Accumulated other comprehensive loss
Balance at beginning of period				$	(580	)	$	(595	)	$	(584	)	$	(599	)
Net other comprehensive income				4			4			8			8
Balance at end of period				$	(576	)	$	(591	)	$	(576	)	$	(591	)
Treasury stock
Balance at beginning of period				$	(68,753	)	$	(66,170	)	$	(66,757	)	$	(63,816	)
Common stock repurchased through business combination				—			—			(643		)	—
Tax withholding upon vesting of restricted stock				7			(492		)	(1,346		)	(2,846		)
Balance at end of period				(68,746		)	(66,662		)	(68,746		)	(66,662		)
Total equity attributable to stockholders of Overstock.com, Inc.	$	170,794		$	127,294		$	120,390		$	127,294		$	120,390

Equity attributable to noncontrolling interests
Balance at beginning of period	$	(3,505	)	$	74,731		$	76,232		$	78,960		$	(3,505	)
Proceeds from security token offering, net of offering costs (Note 2 - Noncontrolling Interest)	82,610
Proceeds from security token offering, net				—			2,491			—			78,442
Stock-based compensation to employees and directors	4,040			—			—			—			4,040
Tax withholding upon vesting of restricted stock	(1,681		)	—			—			—			(1,680		)
Net loss attributable to noncontrolling interests	(5,886		)	(2,945		)	(1,005		)	(6,593		)	(4,552		)
Fair value of noncontrolling interests at acquisition	4,468
Paid in capital for noncontrolling interest	6,700
Fair value of noncontrolling interest at acquisition				—			—			—			4,468
Other	505			—			—			(581		)	505
Total equity attributable to noncontrolling interests	$	87,251		$	71,786		$	77,718		$	71,786		$	77,718

Total equity	$	258,045
Total stockholders' equity				$	199,080		$	198,108		$	199,080		$	198,108

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,						Twelve months ended September 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018
Cash flows from operating activities:
Consolidated net loss	$	(169,629	)	$	(15,130	)	$	(266,421	)	$	(12,369	)
Net loss													$	(70,518	)	$	(120,372	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of fixed assets	19,437			21,895			26,390			29,468
Depreciation of property and equipment													12,914			12,983
Amortization of intangible assets	3,596			2,839			4,756			3,614			2,604			2,051
Amortization of right-of-use assets													2,992			—
Stock-based compensation to employees and directors	11,654			3,009			12,722			3,795			9,156			9,408
Deferred income taxes, net	(383		)	(8,682		)	73,498			(7,651		)	102			(298		)
Gain on investment in precious metals	—			(1,907		)	(64		)	(2,108		)
Gain on sale of cryptocurrencies													(128		)	(8,348		)
Impairment of cryptocurrencies	9,641			—			9,641			—			318			9,491
Gain on sale of cryptocurrencies	(8,412		)	(845		)	(9,562		)	(845		)
Impairment of equity securities	511			4,500			1,498			4,500			4,214			—
Early extinguishment costs of long term debts	283			—			2,747			—
Other	741			420			1,197			569
Losses on equity method securities													3,058			1,381
Other non-cash adjustments													1,068			(1,707		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(73		)	3,814			(5,825		)	(3,283		)	12,295			1,882
Inventories, net	(1,833		)	5,375			(1,974		)	2,155			2,231			120
Prepaids and other current assets	(4,806		)	(5,950		)	(1,655		)	(680		)	3,311			(7,680		)
Other long-term assets, net	(4,120		)	(121		)	(6,306		)	(551		)	(547		)	(3,827		)
Accounts payable	7,143			(35,794		)	21,942			(14,370		)	(31,722		)	6,686
Accrued liabilities	18,044			(35,831		)	41,564			(10,217		)	(5,317		)	26,911
Deferred revenue	(1,511		)	(275		)	3,452			248			(9,628		)	1,216
Operating lease liabilities													(2,340		)	—
Other long-term liabilities	(583		)	235			(673		)	280			85			(476		)
Net cash used in operating activities	(120,300		)	(62,448		)	(93,073		)	(7,445		)	(65,852		)	(70,579		)
Cash flows from investing activities:
Purchases of intangible assets	(9,583		)	—			(10,006		)	—
Proceeds from sale of precious metals	—			11,603			314			13,213
Investment in precious metals	—			—			—			(1,633		)
Disbursement of note receivable	(2,700		)	(750		)	(2,700		)	(1,368		)
Investment in equity securities	(43,670		)	(4,188		)	(44,670		)	(4,938		)
Purchase of intangible assets													—			(9,241		)
Purchase of equity securities													(2,500		)	(29,570		)
Proceeds from sale of equity securities													7,082			—
Disbursement of notes receivable													(2,000		)	(200		)
Acquisitions of businesses, net of cash acquired	(12,912		)	—			(12,912		)	28			4,886			(12,912		)
Expenditures for fixed assets, including internal-use software and website development	(20,677		)	(20,873		)	(23,390		)	(33,772		)
Other	34			(160		)	264			(179		)
Expenditures for property and equipment													(10,586		)	(12,749		)
Other investing activities, net													3			22
Net cash used in investing activities	(89,508		)	(14,368		)	(93,100		)	(28,649		)	(3,115		)	(64,650		)
Cash flows from financing activities:
Payments on capital lease obligations	(372		)	—			(455		)	—
Payments on interest swap	—			—			(1,535		)	—
Proceeds from finance obligations	—			—			—			5,324
Payments on finance obligations	—			(2,436		)	(12,880		)	(2,988		)
Proceeds from long-term debt	—			—			40,000			4,826
Payments on long-term debt	(40,000		)	(750		)	(85,016		)	(750		)	—			(40,000		)
Payments of preferred dividends	—			—			(109		)	—
Proceeds from exercise of stock options	—			654			10			1,473
Proceeds from rights offering, net of offering costs	—			—			—			7,591
Proceeds from issuance and exercise of stock warrants	50,587			—			157,046			—			—			50,587
Proceeds from security token offering, net of offering costs	82,610			3			83,515			3
Proceeds from security token offering, net of offering costs and withdrawals													—			78,442
Proceeds from sale of common stock, net of offering costs	94,624			—			94,624			—			52,112			—
Purchase of treasury stock	—			(10,000		)	—			(10,000		)
Paid in capital for noncontrolling interest	6,700			—			6,700			—
Payments of taxes withheld upon vesting of restricted stock	(4,574		)	(1,104		)	(4,699		)	(1,207		)	(1,346		)	(4,526		)
Payment of debt issuance costs	—			(251		)	(419		)	(251		)
Net cash provided by (used in) financing activities	189,575			(13,884		)	276,782			4,021
Other financing activities, net													(1,006		)	(248		)
Net cash provided by financing activities													49,760			84,255
Net increase (decrease) in cash, cash equivalents and restricted cash	(20,233		)	(90,700		)	90,609			(32,073		)	(19,207		)	(50,974		)
Cash, cash equivalents and restricted cash, beginning of period	203,670			183,528			92,828			124,901			142,814			203,670
Cash, cash equivalents and restricted cash, end of period	$	183,437		$	92,828		$	183,437		$	92,828		$	123,607		$	152,696

Continued on the following page

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Overstock.com, Inc.

Consolidated Statements of Cash Flows (Unaudited)

~~(Continued)~~

(in thousands)

Nine months ended
September 30, Twelve months ended
September 30,
2018 2017 2018 2017
Supplemental disclosures of cash flow information:

Cash paid during the period:

Interest paid, net of amounts capitalized $ 1,232
$ 1,980
$ 2,192
$ 2,574
Income taxes paid, net of refunds 59
492
54
624
Non-cash investing and financing activities:

Fixed assets, including internal-use software and website development, costs financed through accounts payable and accrued liabilities $ 731
$ 618
$ 731
$ 618
Equipment acquired under capital lease obligations —
—
1,421
362
Capitalized interest cost —
—
—
(12 )
Change in fair value of cash flow hedge —
(180 ) (1,558 ) (2,619 )
Note receivable converted to equity investment 200
869
699
869
Acquisition of assets through stock issuance 4,430
—
4,430
—



	Six months ended June 30,
	2019			2018
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest paid, net of amounts capitalized	$	173		$	1,113
Income taxes paid (refunded), net	(469		)	7
Non-cash investing and financing activities:
Property and equipment financed through accounts payable and accrued liabilities	$	43		$	735
Acquisition of assets through stock issuance	—			2,930
Common stock repurchased through business combination	643			—
Note receivable converted to equity security	359			200
Deposit applied to business combination purchase price	7,347			—
Equity method security applied to business combination purchase price	3,800			—
Recognition of right-of-use assets upon adoption of ASC 842	30,968			—

See accompanying notes to unaudited consolidated financial statements.

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Overstock.com, Inc.

Notes to Unaudited Consolidated Financial Statements

1. BASIS OF PRESENTATION

Overstock.com, Inc. is an online retailer and advancer 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.

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, ~~2017.~~2018. 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~~six months ended ~~September~~June 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

In the fourth quarter of 2018, we completed our annual review of our segment reporting and in light of a strategic shift in our Chief Operating Decision Maker's long-term strategic focus for our organization of transitioning our retail business to focus on the retail partner portion of our business which has resulted in the retail direct portion of our business becoming less significant, we no longer consider the split of retail direct and retail partner as a distinct and relevant measure of our business. Accordingly, revenues and cost of goods sold previously recorded in "Direct" and "Partner and Other" are now split between "Retail" and "Other" on the consolidated statements of operations. "Retail" includes retail revenue and costs of goods sold from both "Direct" and "Partner" transactions. Our revenues and costs of goods sold related to our Medici business remains in "Other". In addition, we have recast the prior period revenues and cost of goods sold to conform with current year presentation. Direct and Partner are no longer considered separate reportable segments in our Business Segment disclosures. In addition, tZERO has been identified as a reportable segment separate from Other due to its operating activities exceeding quantitative thresholds for separate reporting.

For purposes of comparability, ~~the presentation of~~we reclassified other certain immaterial amounts in the prior periods ~~have been conformed~~presented to conform with the current period presentation. ~~We retrospectively applied certain accounting standard updates as discussed in Note 2—Accounting Policies,~~ ~~Recently adopted accounting standards~~.

2. ACCOUNTING POLICIES

Principles of consolidation

The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries and ~~majority-owned subsidiaries.~~other subsidiaries for which we exercise control. All intercompany account balances and transactions have been eliminated in consolidation. ~~The financial results of Verify Investor, LLC have been included~~Included in our consolidated financial statements ~~from~~are the ~~date of acquisition on February 12, 2018. The~~ financial results of Bitsy, Inc. from the acquisition date of January 1, 2019, Verify Investor, LLC from the acquisition date of February 12, 2018, and Mac Warehouse, LLC ~~have been included in our consolidated financial statements~~ from the acquisition date of ~~acquisition on~~ June 25, 2018.

Use of estimates

The preparation of financial statements in conformity with ~~generally accepted accounting principles~~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, ~~investment valuation,~~ receivables valuation, revenue recognition, Club O and gift card breakage, sales returns, incentive discount offers, inventory valuation, depreciable lives of ~~fixed assets~~property and equipment and internally-developed software, goodwill valuation, intangible asset valuation, equity ~~investment~~securities valuation, income taxes, stock-based compensation, performance-based compensation, self-funded health insurance liabilities and contingencies. Although these estimates are based on our best knowledge of current events and actions that we may undertake in the future, actual results may differ materially from these estimates.

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Cash equivalents

We classify all highly liquid instruments, including instruments with a remaining maturity of three months or less at the time of purchase, as cash equivalents. Cash equivalents were ~~$20.1~~$3.0 million and ~~$25.5~~$3.1 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Restricted cash

We consider cash that is legally restricted and cash that is held as compensating balances for credit arrangements, surety bonds, and self-funded health insurance as restricted cash.

Fair value of financial instruments

We account for our assets and liabilities using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the fair-value hierarchy below. This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining 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.

~~Under GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis.~~ Our assets and liabilities that are adjusted to fair value on a recurring basis are cash equivalents, ~~trading~~certain equity 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 ~~fair value hierarchy~~following levels of inputs as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018, as indicated (in thousands):


p	Fair Value Measurements at September 30, 2018:									Fair Value Measurements at June 30, 2019:
	Total		Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents - Money market mutual funds	$	20,055	$	20,055	$	—		$	—	$	2,991	$	2,991	$	—	$	—
Investments in equity securities, at fair value	4,264		4,264		—			—
Equity securities, at fair value										1,518		1,518		—		—
Trading securities held in a "rabbi trust" (1)	88		88		—			—		100		100		—		—
Total assets	$	24,407	$	24,407	$	—	��	$	—	$	4,609	$	4,609	$	—	$	—
Liabilities:
Deferred compensation accrual "rabbi trust" (2)	$	93	$	93	$	—		$	—	$	102	$	102	$	—	$	—
Total liabilities	$	93	$	93	$	—		$	—	$	102	$	102	$	—	$	—

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	Fair Value Measurements at December 31, 2017:								Fair Value Measurements at December 31, 2018:
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents - Money market mutual funds	$	25,455	$	25,455	$	—	$	—	$	3,135	$	3,135	$	—	$	—
Equity securities, at fair value									2,636		2,636		—		—
Trading securities held in a "rabbi trust" (1)	74		74		—		—		84		84		—		—
Total assets	$	25,529	$	25,529	$	—	$	—	$	5,855	$	5,855	$	—	$	—
Liabilities:
Deferred compensation accrual "rabbi trust" (2)	$	92	$	92	$	—	$	—	$	85	$	85	$	—	$	—
Total liabilities	$	92	$	92	$	—	$	—	$	85	$	85	$	—	$	—

___________________________________________


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


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

Accounts receivable, net

Accounts receivable consist primarily of carrier rebates, trade amounts due from customers in the United States, and uncleared credit card transactions at period ~~end, and carrier rebates.~~end. Accounts receivable are recorded at invoiced amounts and do not bear interest. From time to time, we grant credit to some of our business customers on normal credit terms (typically 30 days). We maintain an allowance for doubtful accounts receivable based upon our business customers' financial condition and payment history, and our historical collection experience and expected collectability of accounts receivable. The allowance for doubtful accounts receivable was ~~$1.9~~$2.5 million and ~~$1.3~~$2.1 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018, respectively.

Concentration of credit risk

~~Three banks~~One bank held the majority of our cash and cash equivalents at ~~September~~June 30, ~~2018. Two banks held the majority of our cash~~2019 and ~~cash equivalents at~~ December 31, ~~2017.~~2018. Our cash equivalents primarily consist of money market securities which are uninsured. We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.

Inventories, net

Inventories, net include merchandise purchased for resale, which are accounted for using a standard costing system which approximates the first-in-first-out ("FIFO") method of accounting, and are valued at the lower of cost and net realizable value. Inventory valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.

Prepaids and other current assets

Prepaids and other current assets represent expenses paid prior to receipt of the related goods or services, including advertising, license fees, maintenance, packaging, insurance, prepaid inventories, other miscellaneous costs, and cryptocurrency-denominated assets ("cryptocurrencies"). See Cryptocurrencies below.

Cryptocurrencies

~~Cryptocurrency holdings are included~~We hold cryptocurrency-denominated assets ("cryptocurrencies") such as bitcoin and we include them in Prepaids and other current assets in our consolidated balance ~~sheets and totaled $3.1~~sheets. Our cryptocurrencies were $2.3 million and ~~$1.5~~$2.4 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017, respectively. Cryptocurrency holdings~~2018, respectively, and are recorded at cost less impairment.

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We recognize impairment on these assets caused by decreases in market value, ~~based upon Level 1 inputs.~~determined by taking quoted prices from various digital currency exchanges with active markets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Fair value of financial instruments above. Such impairment in the value of our cryptocurrencies is recorded in General and administrative expense in our consolidated statements of operations. Impairments on cryptocurrencies were ~~$150,000~~zero and ~~$9.6 million~~$318,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. There was no$702,000 and $9.5 million impairment on cryptocurrencies during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Gains and losses realized upon sale of cryptocurrencies are also recorded in General and administrative expense in our consolidated statements of operations. We occasionally use our cryptocurrencies to purchase other cryptocurrencies. Gains and losses realized with these non-cash transactions are also recorded in General and administrative expense in our consolidated statements of operations. These non-cash transactions as well as gains (losses) from cryptocurrencies received through our tZERO security token offering are also presented as an adjustment to reconcile ~~Consolidated net loss~~Net income (loss) to Net cash ~~used in~~provided by (used in) operating activities in our consolidated statements of cash flows. Further, the proceeds from the sale of cryptocurrencies received through our tZERO security token offering are presented as a financing activity in our consolidated statements of cash flows due to its near immediate conversion into cash and its economic similarity to the receipt of cash proceeds under the tZERO security token offering. Realized gains on sale of cryptocurrencies were ~~$64,000~~$119,000 and ~~$8.4 million~~$128,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. There were ~~$3.6~~$6.8 million and $8.3 million realized gains ~~or losses~~ on sale of cryptocurrencies ~~during~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2018.

~~Fixed assets,~~Property and equipment, net

~~Fixed assets~~Property and equipment are recorded at cost and stated net of depreciation and amortization. ~~Fixed~~Upon sale or retirement of assets, cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in our consolidated statements of operations. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets or the term of the related ~~capital~~finance lease, whichever is shorter, as follows:



	Life (years)
Building	40
Land improvements	20
Building machinery and equipment	15-20
Furniture and equipment	5-7
Computer hardware	3-4
Computer software, including internal-use software and website development	2-4

Leasehold improvements are amortized over the shorter of the term of the related leases or estimated useful lives.

Included in ~~fixed assets~~property and equipment is the capitalized cost of internal-use software and website development, including software used to upgrade and enhance our Website and processes supporting our business. We capitalize costs incurred during the application development stage of internal-use software and amortize these costs over the estimated useful life. Costs incurred related to design or maintenance of internal-use software are expensed as incurred.

During the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, we capitalized ~~$4.0~~$4.1 million and ~~$2.2~~$8.3 million, respectively, of costs associated with internal-use software and website development, both developed internally and acquired externally. ~~Amortization~~Depreciation of costs for the same periods associated with internal-use software and website development was ~~$3.4~~$3.1 million and ~~$3.9~~$3.2 million, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, we capitalized ~~$14.7~~$7.6 million and ~~$8.0~~$10.6 million, respectively, of costs associated with internal-use software and website development, both developed internally and acquired externally. ~~Amortization~~Depreciation of ~~costs associated with~~ internal-use software and website development during the six months ended June 30, 2019 and 2018 was ~~$10.0~~$6.4 million and ~~$12.2~~$6.7 million, respectively.

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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,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Cost of goods sold - direct	$	85	$	72	$	252	$	230	$	171	$	83	$	346	$	167
Technology	5,330		5,940		16,103		18,802		4,892		5,296		10,067		10,772
General and administrative	1,038		974		3,082		2,863		1,277		1,023		2,501		2,044
Total depreciation, including internal-use software and website development	$	6,453	$	6,986	$	19,437	$	21,895
Total depreciation									$	6,340	$	6,402	$	12,914	$	12,983

Total accumulated depreciation of ~~fixed assets~~property and equipment was ~~$202.3~~$215.1 million and ~~$186.4~~$204.9 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Upon sale or retirement of assets, cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in our consolidated statements of operations.

Fixed assets included assets under capital leases of $1.8 million at September 30, 2018 and December 31, 2017. Accumulated depreciation related to assets under capital leases was $842,000 and $458,000 at September 30, 2018 and December 31, 2017, respectively.

Depreciation expense of assets recorded under capital leases was $120,000 and $1.1 million for the three months ended September 30, 2018 and 2017, respectively, and $384,000 and $3.5 million for the nine months ended September 30, 2018 and 2017, respectively.

Equity ~~investments~~securities under ASC 321

At ~~September~~June 30, ~~2018,~~2019, we held minority interests (less than 20%) in ~~thirteen~~certain privately held entities accounted for under ~~ASC~~Accounting Standards Codification ("ASC") Topic 321, Investments - Equity Securities ("ASC 321"), which are included in Equity ~~investments~~securities in our consolidated balance sheets. One of these equity ~~investments,~~securities, which had a carrying value of ~~$4.3~~$1.5 million at ~~September~~June 30, ~~2018,~~2019, is carried at fair value based on Level 1 inputs. See Fair value of financial instruments above. The remaining equity ~~investments~~securities lack readily determinable fair values and therefore the ~~investments~~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. Dividends received are reported in ~~current earnings.~~earnings if and when received. We review our ~~investments~~securities individually for impairment by evaluating if events or circumstances have occurred that may indicate the fair value of the investment is less than its carrying value. If such events or circumstances have occurred, we estimate the fair value of the investment and recognize an impairment loss equal to the difference between the fair value of the investment and its carrying ~~value.~~value, which are recorded as unrealized gains or losses on our investments in Other income (expense), net on our consolidated statements of operations. In such cases, the estimated fair value of the investment is determined using unobservable inputs including assumptions by the investee's management including quantitative information such as lower valuations in recently completed or proposed financings. These inputs are classified as Level 3. Because several of ~~our investees~~these private companies are in the early startup or development stages, these entities are subject to potential changes in cash flows and valuation, ~~and~~as well as inability to ~~attract new investors~~raise additional capital which may be necessary for the liquidity needed to support their operations.

The carrying amount of our ~~investments~~equity securities under ASC 321 was approximately ~~$18.5~~$15.1 million and ~~$6.5~~$20.3 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. ~~We recognized unrealized losses~~The portion of ~~$73,000 and~~ unrealized gains ~~of $1.8 million on investments carried~~and losses for the period related to equity securities still held at ~~fair value during the three~~June 30, 2019 and ~~nine months ended September 30,~~ 2018 respectively. We recognized a $511,000 impairment loss during the three and nine months ended September 30, 2018. We recognized a $4.5 million impairment loss during the nine months ended September 30, 2017. Impairment loss and any unrealized gains or losses on our investments are recorded in Other income (expense), net on our consolidated statements of operations.is calculated as follows:



	Three months ended June 30,					Six months ended June 30,
	2019			2018		2019			2018
Net gains/(losses) recognized during the period on equity securities	$	220		$	1,836	$	(3,810	)	$	1,836
Less: Net gains recognized during the period on equity securities sold	720			—		266			—
Gains/(losses) recognized during the reporting period on equity securities still held	$	(500	)	$	1,836	$	(4,076	)	$	1,836

Equity method ~~investments~~securities under ASC 323

At ~~September~~June 30, ~~2018,~~2019, we held minority ~~interests~~ interests in ~~nine privately~~certain privately held entities accounted for as equity method ~~investments~~securities under ASC Topic 323, Investments - Equity Method and Joint Ventures ("ASC 323"), which are included in Equity ~~investments~~securities in our consolidated balance sheets. We can exercise significant influence, but not control, over ~~the investees~~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. Based on the nature of our ownership interests, we have variable interests in certain of these entities. However, because we do not have power to direct the investee's activities and we are not the investee's primary beneficiary, we therefore do not consolidate the investee in our financial statements.

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The following table includes our equity method securities and related ownership interest as of June 30, 2019:



	Ownership interest
Bitt Inc.	21%
Boston Security Token Exchange LLC	50%
Chainstone Labs, Inc.	29%
GrainChain, Inc.	10%
Minds, Inc.	24%
SettleMint NV	30%
Spera, Inc.	19%
VinX Network Ltd.	21%
Voatz, Inc.	21%

The carrying amount of our equity method securities was approximately $28.6 million and $40.1 million at June 30, 2019 and December 31, 2018, respectively. The carrying value of our equity method ~~investments~~securities exceeded the amount of underlying equity in net assets of ~~the investees~~our equity method securities and the difference was primarily related to goodwill and the fair value of intangible assets. The basis difference ~~related~~attributable to amortizable intangible assets is amortized over their estimated useful lives. We record our proportionate share of the net income or loss ~~of the investee~~from our equity method securities and the amortization of the basis difference related to intangible assets in Other income (expense), net in our consolidated statements of operations with corresponding adjustments to ~~the~~their carrying ~~value of the investment.~~value.

The ~~carrying amount of our~~following table summarizes the net losses recognized on equity method investments was approximately $39.0 million and $6.5 million at September 30, 2018 and December 31, 2017, respectively, and the difference between the carrying value and the amount of underlying equity in net assets of each investee was not significant. Our proportionate share of the net income or loss of our equity method investees was approximately $1.2 million in losses and $74,000 in lossessecurities for the three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, respectively, and approximately $2.5 million in losses and $74,000 in losses for the nine months ended September 30, 2018 and 2017, respectively.~~2018:



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Net loss recognized on our proportionate share of the net losses of our equity method securities and amortization of the basis difference	$	2,033	$	1,032	$	3,058	$	1,381
Impairments on equity method securities	1,256		—		1,256		—
Net loss recognized during the period on equity method securities sold	—		—		524		—

Noncontrolling interests in Controlled Subsidiaries

Our wholly-owned subsidiary, Medici Ventures, Inc. ("Medici Ventures"), ~~conducts its primary business through its majority-owned subsidiary,~~holds a majority ownership interest in tZERO Group, Inc. ("tZERO"), formerly tØ.com, Inc., ~~which includes~~and Medici Land Governance Inc., a Delaware public benefit corporation ("MLG"). tZERO's subsidiaries include a financial technology company, two related registered broker dealers, a ~~registered investment advisor,~~digital wallet and exchange services company, and an accredited investor verification company. tZERO, MLG, and ~~its~~their consolidated subsidiaries are included in our consolidated financial statements. For controlled subsidiaries that are not wholly-owned, the noncontrolling interests are included in Net loss and Total equity. Intercompany transactions have been eliminated and the amounts of contributions and gains or losses that are attributable to the noncontrolling interests are disclosed in our consolidated financial statements.

~~On December 18, 2017, tZERO launched an offering (the "security token offering")~~Table of the right to acquire tZERO Preferred Equity Tokens (the "tZERO Security Token") through a Simple Agreement for Future Equity ("SAFE"). The security token offering closed on August 6, 2018. At September 30, 2018, the SAFEs were classified as equity by tZERO. At September 30, 2018, cumulative proceeds, net of withdrawals, from the security token offering totaling $104.8 million, have been classified as a component of noncontrolling interest within our consolidated financial statements. As of September 30, 2018, tZERO has incurred $21.3 million of offering costs associated with the security token offering that are classified as a reduction in proceeds within noncontrolling interest of our consolidated financial statements. On October 12, 2018, tZERO issued the tZERO Security Tokens in settlement of the SAFEs. The tZERO Security Tokens are subject to a 90 day trading lock-up period.Contents

During the first quarter of 2018, tZERO purchased 65.8% of ES Capital Advisors, LLC ("ES Capital"), a registered investment advisor under the Investment Advisers Act of 1940, which was accounted for as an asset acquisition. tZERO operates the ES Capital business under the name tZERO Advisors and offers automated investment advisory services under the FinanceHub tab on our Website. tZERO also purchased 81.0% of Verify Investor, LLC, an accredited investor verification company. This transaction is described further in Note 3—Acquisitions, Goodwill, and Acquired Intangible Assets. These entities are included in our consolidated financial statements.

Medici Land Governance Inc., a Delaware public benefit corporation ("MLG"), was recently formed by Medici Ventures with our President and Chief Executive Officer, Dr. Patrick M. Byrne ("Dr. Byrne"). Pursuant to the Subscription Agreements dated September 21, 2018, Medici Ventures contributed certain of its assets, including intellectual property relating to technologies regarding land governance and property rights, to MLG in exchange for 510,000 shares of MLG common stock and at the same time Dr. Byrne personally contributed $6.7 million in cash to MLG in exchange for 390,000 shares of MLG common stock. As a result of the transactions described above, Medici Ventures holds approximately 57% of the outstanding capital stock of MLG, and Dr. Byrne, holds approximately 43% of the outstanding capital stock of MLG.

Leases

We determine if an arrangement is a lease at inception. We account for lease agreements as either operating or ~~capital~~finance leases depending on certain defined criteria. Operating leases are recognized in Operating lease right-of-use ("ROU") assets, Operating lease liabilities, current, and Operating lease liabilities, non-current on our consolidated balance sheets. Finance leases are included in Other long-term assets, net, Other current liabilities, and Other long-term liabilities on our consolidated balance sheets. Lease assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In certain of our lease agreements, we receive rent holidays and other incentives. We recognize lease costs on a straight-line basis over the lease term without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. ~~Additionally, tenant improvement allowances are amortized as a reduction in rent expense over~~Our lease terms may include options to extend or terminate the ~~term~~lease, and we adjust our measurement of the ~~lease.~~lease when it is reasonably certain that we will exercise that option. Lease payments used in measurement of the lease liability typically do not include executory costs, such as taxes, insurance, and maintenance, unless those costs can be reasonably estimated at lease commencement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised. We do not separate lease and non-lease components for our leases.

Treasury stock

We account for treasury stock of our common shares under the cost method and include treasury stock as a component of stockholders' equity.

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business ~~combinations.~~combinations (see Note 3—Business Combinations for current period activity). Goodwill is not amortized but is tested for impairment at least ~~annually.~~annually or when we deem that a triggering event has occurred. When evaluating whether goodwill is impaired, we make a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount, we compare the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If the carrying amount exceeds its fair value, ~~then~~an impairment loss is recognized in an amount equal to the ~~amount~~excess of the ~~impairment loss must be measured. The impairment loss, if any, is calculated by comparing the implied fair value of the goodwill to its~~ carrying ~~amount. In calculating the implied fair value of goodwill,~~amount over the fair value of the reporting unit, ~~is allocated~~not to the other assets and liabilities within the reporting unit based on estimated fair value. The excess of the fair value of a reporting unit over the amount allocated to its other assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized whenexceed the carrying amount of ~~goodwill exceeds its implied fair value.~~

~~We test for impairment of goodwill annually or when we deem that a triggering event has occurred.~~the goodwill. There were no impairments to goodwill recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

The following table provides information about changes in the carrying amount of goodwill for the periods presented (in thousands):



	Amount
Balances as of December 31, 2017 (1)	$	14,698
Goodwill acquired during year	8,197
Balances as of December 31, 2018 (2)	22,895
Goodwill acquired during year	1,685
Purchase price adjustment	2,540
Balances as of June 30, 2019 (3)	$	27,120

(1), (2), (3) — Goodwill is net of an accumulated impairment loss of $3.3 million.

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For nine months ended September 30, 2018, we recognized $7.4 million in goodwill related to a business acquisition as described in Note 3—Acquisitions, Goodwill, and Acquired Intangible Assets. The change in goodwill relates to a non-reportable segment, included in Other as described in Note 10—Business Segments.

Intangible assets other than goodwill

We capitalize and amortize intangible assets other than goodwill over their estimated useful lives unless such lives are indefinite. Intangible assets other than goodwill acquired separately from third-parties are capitalized at cost while such assets acquired as part of a business combination are capitalized at their acquisition-date fair value. Indefinite lived intangible assets include intellectual property and investment advisor licenses purchased in connection with our tZERO Advisors and Medici Ventures' portfolio company in the blockchain property titling businesses. Certain licenses are subject to annual renewal terms with immaterial fees which are expensed as incurred. Indefinite-lived intangible assets are tested for impairment annually or more frequently when events or circumstances indicate that the carrying value more likely than not exceeds its fair value. In addition, we routinely evaluate the remaining useful life of intangible assets not being amortized to determine whether events or circumstances continue to support an indefinite useful life, including any legal, regulatory, contractual, competitive, economic, or other factors that may limit their useful lives. Definite lived intangible assets are amortized using the straight-line method of amortization over their useful lives, with the exception of certain intangibles (such as acquired technology, customer relationships, and trade names) which are amortized using an accelerated method of amortization based on cash flows. ~~Definite~~These definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable as described below under Impairment of long-lived assets.

Intangible assets, net consist of the following (in thousands):


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Intangible assets subject to amortization, gross (1)	$	28,347		$	17,779		$	32,343		$	29,099
Less: accumulated amortization of intangible assets subject to amortization	(14,040		)	(10,442		)	(16,869		)	(15,729		)
Intangible assets subject to amortization, net	14,307			7,337
Intangible assets not subject to amortization	10,833			—
Total intangible assets, net	$	25,140		$	7,337		$	15,474		$	13,370


(1)	— At ~~September~~June 30, ~~2018,~~2019, the weighted average remaining useful life for intangible assets subject to amortization ~~excluding fully amortized intangible assets,~~ was ~~5.69~~9.50 years.

Amortization of intangible assets other than goodwill 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,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019			2018
Technology	$	885	$	905	$	2,534	$	2,715	$	938	$	895	$	1,791		$	1,650
Sales and marketing	119		22		442		62		16		204		32			323
General and administrative	542		21		620		62		170		34		(659		)	78
Total amortization	$	1,546	$	948	$	3,596	$	2,839	$	1,124	$	1,133	$	1,164		$	2,051

General and administrative amortization above was net of reversals due to adjustments to the purchase price allocation for Mac Warehouse, as further described in Note 3—Business Combinations.

Estimated amortization expense for the next five years is: ~~$1.3~~$2.2 million for the remainder of ~~2018, $4.7 million in~~ 2019, ~~$2.2~~$3.2 million in 2020, ~~$1.8~~$2.9 million in 2021, ~~$892,000~~$1.5 million in 2022, $705,000 in 2023, and ~~$3.5~~$5.0 million thereafter.

Impairment of long-lived assets

We review property and equipment, right-of-use assets, and other long-lived assets, including ~~amortizable~~ intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. See the Cryptocurrencies section above for our impairment policy over cryptocurrencies. Recoverability is measured by comparison of the assets' carrying amount to future undiscounted net cash flows the asset group is expected to generate. Cash flow forecasts are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic

conditions. If such asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair values. There were no impairments to long-lived assets recorded during the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

Other long-term assets, net

Other long-term assets, net consist primarily of long-term prepaid ~~expenses.~~expenses, deposits, and assets acquired under finance leases.

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Revenue recognition

Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. Revenue excludes taxes that have been assessed by governmental authorities and that are directly imposed on revenue-producing transactions between the Company and its customers, including sales and use taxes. Revenue recognition is evaluated through the following five-step process:

1) identification of the contract with a customer;

2) identification of the performance obligations in the contract;

3) determination of the transaction price;

4) allocation of the transaction price to the performance obligations in the contract; and

5) recognition of revenue when or as a performance obligation is satisfied.

Product Revenue

We derive our revenue primarily from our retail ~~merchandise sales on~~business through our ~~Website. We~~Website, but may also ~~earn~~derive revenue from ~~advertising on~~sales of merchandise through offline and other channels. Our Retail revenue is derived primarily from merchandise sold at a point in time and shipped to customers. Merchandise sales are fulfilled with inventory sourced through our ~~Website and~~partners or from ~~other sources. We have organized~~ our ~~operations into two principal reporting segments based~~owned inventory, depending on the ~~primary source~~most efficient means of ~~revenue: (i) direct revenue and (ii) partner and other revenue. Net revenue~~fulfilling the customer contract. The majority of our sales, however, are fulfilled from ~~contracts with customers is further disaggregated by Retail and Other net revenue as disclosed in Note 10—Business Segments.~~inventory sourced through our partners.

~~On January 1, 2018, we adopted ASU 2014-09,~~ Revenue ~~from Contracts with Customers~~ ~~(Topic 606). See~~ ~~Recently adopted accounting standards, below. Under Topic 606, revenue~~ is recognized when control of the product passes to the customer, typically at the date of delivery of the merchandise to the customer or the date a service is provided, and is recognized in an amount that reflects the expected consideration to be received in exchange for such goods or services. Shipping and handling is considered a fulfillment activity and fees charged to customers are included in net revenue upon completion of our performance obligation. We present revenue net of sales taxes, discounts, and expected refunds. We record an allowance for returns based on current period revenues and historical returns experience. We analyze actual historical returns, current economic trends and changes in order volume and acceptance of our products when evaluating the adequacy of the sales returns allowance in any accounting period.

Generally, we require authorization from credit card or other payment vendors whose services we offer to our customers (such as PayPal), or verification of receipt of payment, before we ship products to consumers or business purchasers. From time to time we grant credit to our business purchasers with normal credit terms (typically 30 days). For sales in our partner business, we generally receive payments from our customers before our payments to our suppliers are due.

~~We evaluate the criteria outlined in ASC 606-10-55,~~ ~~Principal versus Agent Considerations~~, in determining whether it is appropriate to record the gross amount of merchandise sales and related costs or the net amount earned as commissions. When we are the principal in a transaction and control the specific good or service before it is transferred to the customer, revenue is recorded gross; otherwise, revenue is recorded on a net basis. Currently, the majority of both direct revenue and partner revenue is recorded on a gross basis.

~~Revenue related to merchandise sales is recognized upon transfer of control to our customers which generally occurs upon delivery of the product to our customers.~~ As such, customer orders are recorded as deferred revenue prior to delivery of products or services ordered. As we ship high volumes of packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times, which are calculated using the following factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfillment source (either our warehouses, those warehouses we control, or those of our partners); (iii) the delivery destination; and (iv) actual transit time experience, which shows that delivery date is typically one to eight business days from the date of shipment. We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates.

~~During~~Generally, we require authorization from credit card or other payment vendors whose services we offer to our customers (such as PayPal), or verification of receipt of payment, before we ship products to consumers or business purchasers. From time to time we grant credit to our business purchasers with normal credit terms (typically 30 days). We generally receive payments from our customers before our payments to our suppliers are due. We do not recognize assets associated with costs to obtain or fulfill a contract with a customer.

Shipping and handling is considered a fulfillment activity, as it takes place prior to the ~~nine months ended September 30, 2018, we recognized $37.8 million~~customer obtaining control of the merchandise, and fees charged to customers are included in net revenue ~~included in Deferred~~upon completion of our performance obligation. We present revenue ~~at December 31, 2017.~~net of sales taxes, discounts, and expected refunds.

~~The~~Our merchandise sales contracts include terms that could cause variability in the transaction price for items such as discounts, credits, or sales returns. Accordingly, the transaction price for product sales includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. At the time of sale, we estimate a sales return liability for the variable consideration based on historical experience, which is recorded within Accrued liabilities in the consolidated balance sheet. We record an allowance for returns ~~was $12.4 million~~based on current period revenues and ~~$17.4 million at September 30, 2018~~historical returns experience. We analyze actual historical returns, current economic trends and ~~December 31, 2017, respectively.~~changes in order volume and acceptance of our products when evaluating the adequacy of the sales returns allowance in any accounting period.

We evaluate the criteria outlined in ASC 606-10-55, Principal versus Agent Considerations, in determining whether it is appropriate to record the gross amount of merchandise sales and related costs or the net amount earned as commissions. When we are the principal in a transaction and control the specific good or service before it is transferred to the customer, revenue is recorded gross; otherwise, revenue is recorded on a net basis. Through contractual terms with our partners, we have the ability to control the promised goods or services and as a result record the majority of our retail revenue on a gross basis.

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Our Other revenue occurs primarily through our broker dealer subsidiaries in our tZERO segment. We evaluate the revenue recognition criteria above for our broker dealer subsidiaries and we recognize revenue based on the gross amount of consideration that we expect to receive on securities transactions (commission revenue) on a trade date basis.

~~Direct revenue~~

Direct revenue is derived from merchandise sales of our owned inventory to individual consumers and businesses. Direct revenue comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels.

~~Partner and other revenue~~

Partner and other revenue is derived primarily from merchandise sales of inventory sourced through our partners which are generally shipped directly to our consumers and businesses. Through contractual terms with our partners, we have the ability to control the promised goods or services and as a result record the majority of our partner revenue on a gross basis. Partner and other revenue comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels, including through our broker dealer subsidiaries in our Other segment.

Club O loyalty program

We have a customer loyalty program called Club O Gold for which we sell annual memberships. For Club O Gold memberships, we record membership fees as deferred revenue and we recognize revenue ratably over the membership period.

The Club O Gold loyalty program allows members to earn Club O Reward dollars for qualifying purchases made on our Website. ~~We also have a co-branded credit card program which provides Club O Gold members additional reward dollars for purchases made on our Website, and from other merchants.~~

~~Earned~~Customers may redeem Club O Reward dollars ~~may be redeemed~~ on future purchases made through our ~~Website.~~Website, which conveys a material right to the customer. As such, the initial transaction price giving rise to the reward dollar is allocated to each separate performance obligation based upon its relative standalone selling price. In determining the stand-alone selling price, we incorporate assumptions about the redemption rates of loyalty points. We recognize revenue for Club O Reward dollars when customers redeem such rewards as part of a purchase on our Website.

We ~~account for these transactions as multiple element arrangements and allocate~~record the ~~transaction price to separated performance obligations using their relative fair values. We include the fair~~standalone value of reward dollars earned in deferred revenue at the time the reward dollars are earned. Club O Reward dollars expire 90 days after the customer's Club O Gold membership expires. We recognize estimated reward dollar breakage, to which we ~~expected~~expect to be entitled, over the expected redemption period in proportion to actual redemptions by customers. Upon adoption of Topic 606, Revenue Contracts with Customers, on January 1, 2018, we began classifying the breakage income related to Club O Reward dollars and gift cards as a component of Retail revenue in our consolidated statements of operations rather than as a component of Other income (expense), net. Breakage included in revenue was ~~$1.3 million~~$923,000 and ~~$4.2~~$1.3 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2018. We also recognized a cumulative adjustment that reduced Accumulated deficit by approximately $5.0~~2019 and 2018 and $2.0 million ~~upon adoption related to~~and $3.0 million for the ~~unredeemed portion of our gift cards~~six months ended June 30, 2019 and ~~loyalty program rewards.~~2018.

Our total deferred revenue related to the outstanding Club O Reward dollars was ~~$6.6~~$7.0 million and ~~$8.7~~$6.9 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The timing of revenue recognition of these reward dollars is driven by actual customer activities, such as redemptions and expirations.

Advertising Revenue

Advertising revenues isare derived primarily from sponsored links and display advertisements that are placed on our Website, distributed via email, or sent out as direct mailers. Advertising revenue is recognized in ~~net~~Retail revenue when the advertising services are rendered. Advertising revenues were less than 2% of total net revenues for all periods presented.

Revenue Disaggregation

Disaggregation of revenue by major product line is included in Segment Information in Note 12—Business Segments.

Deferred Revenue

When the timing of our provision of goods or services is different from the timing of the payments made by our customers, we recognize a contract liability (customer payment precedes performance).

Customer orders are recorded as deferred revenue prior to delivery of products or services ordered. We record amounts received for Club O Gold membership fees as deferred revenue and we recognize it ratably over the membership period. We record Club O Reward dollars earned from purchases as deferred revenue at the time they are earned based upon the relative standalone selling price of the Club O Reward dollar and we recognize it as Retail revenue in proportion to the estimated pattern of rights exercised by the customer. If reward dollars are not redeemed, we recognize Retail revenue upon expiration. In addition, we sell gift cards and record related deferred revenue at the time of the sale. We sell gift cards without expiration dates and we recognize revenue from a gift card upon redemption of the gift card. For the unredeemed portion of our gift cards and loyalty program rewards, we will recognize Retail revenue over the expected redemption period based upon the estimated pattern of rights exercised by the customer.

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The following table provides information about deferred revenue from contracts with customers, including significant changes in deferred revenue balances during the periods presented (in thousands):



	Amount
Deferred revenue at December 31, 2017	$	46,468
Increase due to deferral of revenue at period end	43,216
Decrease due to beginning contract liabilities recognized as revenue	(39,106		)
Deferred revenue at December 31, 2018	50,578
Increase due to deferral of revenue at period end	33,033
Decrease due to beginning contract liabilities recognized as revenue	(42,661		)
Deferred revenue at June 30, 2019	$	40,950

Sales returns allowance

We inspect returned items when they arrive at our processing facilities. We refund the full cost of the merchandise returned and all original shipping charges if the returned item is defective or we or our partners have made an error, such as shipping the wrong product. If the return is not a result of a product defect or a fulfillment error and the customer initiates a return of an unopened item within 30 days of delivery, for most products we refund the full cost of the merchandise minus the original shipping charge and actual return shipping fees. However, we reduce refunds for returns initiated more than 30 days after delivery or that are received at our returns processing facility more than 45 days after initial delivery. If our customer returns an item that has been opened or shows signs of wear, we issue a partial refund minus the original shipping charge and actual return shipping fees.

Revenue is recorded net of estimated returns. We record an allowance for returns based on current period revenues and historical returns experience. We analyze actual historical returns, current economic trends and changes in order volume and acceptance of our products when evaluating the adequacy of the sales returns allowance in any accounting period.

The following table provides additions to and deduction from the sales returns allowance (in thousands):



	Amount
Allowance for returns at December 31, 2017	$	17,391
Additions to the allowance	174,864
Deductions from the allowance	(176,994		)
Allowance for returns at December 31, 2018	15,261
Additions to the allowance	62,545
Deductions from the allowance	(67,618		)
Allowance for returns at June 30, 2019	$	10,188

Cost of goods sold

~~Cost~~Our Retail cost of goods sold includes product costs, warehousing costs, outbound shipping costs, handling and fulfillment costs, customer service costs, and credit card fees, and is recorded in the same period in which related revenues have been recorded. Our Other cost of goods sold primarily consists of exchange fees, clearing agent fees, and other exchange fees from our broker dealer subsidiaries in our tZERO segment. These fees are primarily for executing, processing, and settling trades on exchanges and other venues. These fees fluctuate based on changes in trade and share volumes, rate of clearance fees charged by clearing brokers, and exchanges.

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~~Cost of goods sold, including product cost and other costs and fulfillment and related costs are as follows (in thousands):~~


	Three months ended September 30,								Nine months ended September 30,								Three months ended June 30,								Six months ended June 30,
	2018				2017				2018				2017				2019				2018				2019				2018
Total revenue, net	$	440,580	100	%	$	424,007	100	%	$	1,369,044	100	%	$	1,288,466	100	%	$	373,709	100	%	$	483,133	100	%	$	741,438	100	%	$	928,464	100	%
Cost of goods sold
Product costs and other cost of goods sold	334,156		76	%	321,678		76	%	1,039,518		76	%	977,827		76	%	283,502		76	%	371,841		77	%	560,719		76	%	705,361		76	%
Fulfillment and related costs	19,708		4	%	18,654		4	%	57,198		4	%	55,886		4	%	16,308		4	%	19,549		4	%	33,696		5	%	37,491		4	%
Total cost of goods sold	353,864		80	%	340,332		80	%	1,096,716		80	%	1,033,713		80	%	299,810		80	%	391,390		81	%	594,415		80	%	742,852		80	%
Gross profit	$	86,716	20	%	$	83,675	20	%	$	272,328	20	%	$	254,753	20	%	$	73,899	20	%	$	91,743	19	%	$	147,023	20	%	$	185,612	20	%

Advertising expense

We expense the costs of producing advertisements the first time the advertising takes place and expense the cost of communicating advertising in the period during which the advertising space or airtime is used. Internet advertising expenses are recognized as incurred based on the terms of the individual agreements, which are generally: 1) a commission for traffic driven to our Website that generates a sale or 2) a referral fee based on the number of clicks on keywords or links to our Website generated during a given period. Advertising expense is included in Sales and marketing expenses and totaled ~~$49.7~~$29.9 million and ~~$41.2~~$88.9 million during the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. For the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ advertising ~~expenses~~expense totaled ~~$207.5~~$58.4 million and ~~$114.6~~$157.8 million, respectively. Prepaid advertising (included in Prepaids and other current assets in the accompanying consolidated balance sheets) was ~~$1.2 million~~$367,000 and ~~$987,000~~$961,000 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~,2018, respectively.

Stock-based compensation

We measure compensation expense for all outstanding unvested share-based awards at fair value on the date of grant and recognize compensation expense over the service period for awards at the greater of a straight-line basis or on an accelerated schedule when vesting of the share-based awards exceeds a straight-line basis. When an award is forfeited prior to the vesting date, we recognize an adjustment for the previously recognized expense in the period of the forfeiture. See Note 9—10—Stock-Based Awards.

~~Self-funded health insurance~~

We have a partially self-funded health insurance plan for our employees. We maintain a stop-loss insurance policy through an insurance company that limits our losses both on a per employee basis and an aggregate basis. Although we intend to maintain this plan indefinitely, we may terminate, modify, suspend, or discontinue this plan at any time and for any reason.

We are responsible for estimating our liability for unpaid costs of insured events that have occurred, which includes known cases on a case-by-case basis, and also for events that have occurred, but have not yet been reported. The accrued liability related to the self-funded health insurance plan was $1.5 million and $1.0 million at September 30, 2018 and December 31, 2017, respectively, and is included in Accrued liabilities in the accompanying consolidated balance sheets. Actual claims may differ from the amount accrued and any difference could be significant.

Loss contingencies

In the normal course of business, we are involved in legal proceedings and other potential loss contingencies. We accrue a liability for such matters when it is probable that a loss has been incurred and the amount can be reasonably estimated. When only a range of probable loss can be estimated, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. We expense legal fees as incurred (see Note 6—7—Commitments and Contingencies).

Income taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, for relevant interim periods. We update our estimate of the annual effective tax rate each quarter and make cumulative adjustments if our estimated annual effective tax rate changes.

Our quarterly tax provision and our quarterly estimate of our annual effective tax rate are subject to significant variations due to several factors including variability in predicting our pre-tax and taxable income and the mix of jurisdictions to which those items relate, relative changes in expenses or losses for which tax benefits are not recognized, how we do business, fluctuations in our stock price, and changes in law, regulations, and administrative practices. Our effective tax rate can be volatile based on the amount of pre-tax income. For example, the impact of discrete items on our effective tax rate is greater when pre-tax income is lower.

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Each quarter we assess the recoverability of our deferred tax assets under ASC Topic 740. We assess the available positive and negative evidence to estimate whether we will generate sufficient future taxable income to use our existing deferred tax assets. We have limited carryback ability and do not have significant taxable temporary differences to recover our existing deferred tax assets, therefore we must rely on future taxable income, including tax planning strategies, to support their realizability. We have established a valuation allowance for our deferred tax assets not supported by carryback ability or taxable temporary differences, primarily due to uncertainty regarding our future taxable income. We have considered, among other things, the cumulative loss incurred over the three-year period ended ~~September~~June 30, ~~2018~~2019 as a significant piece of objective negative evidence. We intend to continue maintaining a valuation allowance on our net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The amount of the deferred tax asset considered realizable could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as long-term projections for growth. We will continue to monitor the need for a valuation allowance against our remaining deferred tax assets on a quarterly basis.

Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. On December 22, 2017, the President signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act ("TCJA"), following its passage by the United States Congress. The TCJA made significant changes to U.S. federal income tax laws, mostly effective for tax years beginning after December 31, 2017. Among many other changes, the new law lowers the corporate tax rate from 35% to 21% for tax years beginning in 2018, transitions U.S international taxation from a worldwide tax system to a territorial system, and includes a one-time transition tax on the mandatory deemed repatriation of cumulativeWe have indefinitely reinvested foreign earnings as of December 31, 2017. Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. As noted$1.6 million at year-end, however, we were able to reasonably estimate certain effects and, therefore, recorded adjustments associated with the remeasurement of certain deferred tax assets and liabilities and the mandatory deemed repatriation of cumulative foreign earnings.

Our accounting for the following elements of the TCJA is complete. The expense related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $25.2 million. The expense related to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings was $47,000.June 30, 2019. We did not make any measurement-period adjustments related to these items during the quarter because there were no significant changes to our provisional amounts, and therefore, there is no impact to our effective tax rate due to measurement-period adjustments.

The TCJA includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries beginning in 2018. Under GAAP, we can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense, or factor such amounts into our measurement of deferred taxes. We will elect to treat any potential GILTI inclusions as a period cost as we are not projecting any material impact from GILTI inclusions and any deferred taxes related to any inclusion would ~~be immaterial.~~

~~The TCJA included a mandatory deemed repatriation of cumulative foreign earnings for the year ended December 31, 2017, for which we accrued U.S. tax expense. However, we would still~~ need to accrue and pay various ~~other~~ taxes on this amount if ~~repatriated, which we have~~repatriated. We do not ~~provided for because we~~ intend to ~~indefinitely reinvest~~repatriate these ~~earnings outside the U.S. We have begun expansion of operations outside of the U.S. and have plans for additional expansion for which we have incurred~~

~~and will continue to incur capital requirements. We have considered ongoing capital requirements of the parent company in the U.S.~~earnings.

We are subject to taxation in the United States and several state and foreign jurisdictions. Tax years beginning in ~~2013~~2014 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used. ~~We are under~~An audit by the Ireland Revenue Agency for the calendar year ~~2016. We expect the audit to continue~~2016 was finalized during ~~2018.~~2019 with no assessment.

Net loss per share

~~In 2016, we issued shares of our~~Our Blockchain Voting Series A Preferred Stock, Voting Series A-1 Preferred Stock, and our Voting Series B Preferred Stock (collectively the "preferred shares")~~. These shares~~ are considered participating securities, and as a result, net loss per share is calculated using the two-class method. Under this method, we give effect to preferred dividends and then allocate remaining net loss attributable to our stockholders to both common shares and participating securities (based on the percentages outstanding) in determining net loss per common share.

Basic net loss per common share is computed by dividing net loss attributable to common shares (after allocating between common shares and participating securities) by the weighted average number of common shares outstanding during the period.

Diluted net loss per share is computed by dividing net loss attributable to common shares (after allocating between common shares and participating securities) by the weighted average number of common and potential common shares outstanding during the period (after allocating total dilutive shares between our common shares outstanding and our preferred shares outstanding). Potential common shares, comprising incremental common shares issuable upon the exercise of stock options, warrants, and restricted stock awards are included in the calculation of diluted net loss per common share to the extent such shares are dilutive. Net loss attributable to common shares is adjusted for options and restricted stock awards issued by our subsidiaries when the effect of our subsidiary's diluted earnings per share is dilutive.

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The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated (in thousands, except per share data):


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net loss attributable to stockholders of Overstock.com, Inc.	$	(47,923	)	$	(786	)	$	(163,743	)	$	(14,188	)	$	(24,681	)	$	(64,911	)	$	(63,925	)	$	(115,820	)
Less: Preferred stock (Token) repurchase (gain)/loss													—			—			(425		)	—
Less: Preferred stock dividends - declared and accumulated	27			27			80			80			19			27			38			53
Undistributed loss	(47,950		)	(813		)	(163,823		)	(14,268		)	(24,700		)	(64,938		)	(63,538		)	(115,873		)
Less: Undistributed loss allocated to participating securities	(1,055		)	(22		)	(3,728		)	(386		)	(333		)	(1,495		)	(892		)	(2,683		)
Net loss attributable to common shares	$	(46,895	)	$	(791	)	$	(160,095	)	$	(13,882	)	$	(24,367	)	$	(63,443	)	$	(62,646	)	$	(113,190	)
Net loss per common share—basic:
Net loss attributable to common shares—basic	$	(1.55	)	$	(0.03	)	$	(5.47	)	$	(0.55	)	$	(0.69	)	$	(2.20	)	$	(1.85	)	$	(3.94	)
Weighted average common shares outstanding—basic	30,279			25,003			29,256			25,024			35,225			28,903			33,806			28,736
Effect of dilutive securities:
Stock options and restricted stock awards	—			—			—			—			—			—			—			—
Weighted average common shares outstanding—diluted	30,279			25,003			29,256			25,024			35,225			28,903			33,806			28,736
Net loss attributable to common shares—diluted	$	(1.55	)	$	(0.03	)	$	(5.47	)	$	(0.55	)	$	(0.69	)	$	(2.20	)	$	(1.85	)	$	(3.94	)

The following shares were excluded from the calculation of diluted shares outstanding as their effect would have been anti-dilutive (in thousands):

Three months ended
September 30, Nine months ended
September 30,
2018 2017 2018 2017
Stock options and restricted stock units 498
192
578
165
Common shares issuable under stock warrant —
—
28
—

~~Warrants~~

On November 8, 2017, we issued warrants to purchase up to a combined aggregate of 3,722,188 shares of our common stock to two purchasers in privately negotiated transactions, for an aggregate purchase price of $6.5 million, net of issuance costs. The exercise price for the warrants was $40.45 per share of common stock. On December 29, 2017, one of the warrant holders exercised its warrant in full and purchased a total of 2,472,188 shares of common stock for $100.0 million. On January 17, 2018, the other warrant holder exercised its warrant in full and purchased 1,250,000 shares of common stock for $50.6 million.



	Three months ended June 30,		Six months ended June 30,
	2019	2018	2019	2018
Stock options and restricted stock units	904	550	967	617
Common shares issuable under stock warrant	—	—	—	42

Recently adopted accounting standards

In ~~May 2014,~~February 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU 2014-09,~~Accounting Standards Update ("ASU") 2016-02, ~~Revenue from Contracts with Customers~~Leases (Topic ~~606)~~842), which requires ~~an entity~~lessees to recognize operating leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize an ROU asset and lease liability on the ~~amount~~balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of ~~revenue to which it expects to be entitled for~~expense recognition in the ~~transfer of promised goods or services to customers.~~ income statement.

We adopted the new standard on January 1, ~~2018 with a cumulative adjustment that reduced Accumulated deficit by approximately $5.0 million as opposed~~2019. A modified retrospective transition approach is required, applying the new standard to ~~retrospectively adjusting prior periods. The adjustment primarily relates~~all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the ~~unredeemed portion~~beginning of ~~our gift cards and loyalty program rewards, which we will recognize over~~ the ~~expected redemption~~earliest comparative period ~~rather than waiting until the likelihood of redemption becomes remote or the rewards expire. We have also updated revenue disclosures~~presented in the ~~notes to our~~ financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required ~~under the new standard.~~

The implementation did not impact our gross and net recognition for our revenue transactions. In addition, we continue to recognize revenue related to merchandise sales upon delivery to our customers. However, we now present breakage on our Club O Rewards and gift cards in Partner and other revenue in our consolidated statement of operations rather as a component of Other expense, net.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~, which requires equity investments previously recognized under the cost method to be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. We adopted the changes underby the new standard ~~on January 1, 2018 on a prospective basis. The implementation of ASU 2016-01 did not have a material impact on our consolidated financial statements and related disclosures.~~

~~In November 2016,~~for the ~~FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~, which requires amounts generally described as restricted cash be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown in the statement of cash flows.comparative periods. We adopted the new standard on January 1, ~~2018 retrospectively to each period presented~~2019 and thus used the effective date as our date of initial application. Consequently, financial information has not been updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. Upon adoption we recognized cumulative operating lease liabilities of approximately $35.1 million and operating right-of-use assets of approximately $31.0 million which were reflected as non-cash items in the consolidated statement of cash flows. The ~~implementation~~difference of ~~ASU 2016-18 did not have a material impact on our consolidated financial statements and related disclosures.~~$4.2 million represented deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of right-of-use assets.

~~In January 2017,~~

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The new standard provides a number of optional practical expedients in transition. We elected the ~~FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition~~"package of ~~a Business,~~practical expedients", which ~~provides guidance~~permits us to ~~assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We adopted the changes~~not reassess under the new standard ~~on January 1, 2018 on a prospective basis. The implementation of ASU 2017-01~~our prior conclusions about lease identification, lease classification, and initial direct costs as well as the practical expedient pertaining to land easements. We did not ~~have a material impact on our consolidated financial statements and related disclosures.~~

~~Recently issued accounting standards~~

~~In February 2016,~~elect the ~~FASB issued ASU 2016-02,~~ ~~Leases (Topic 842), which, among other things, requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases.~~use-of-hindsight practical expedient. The new standard also ~~requires~~provides practical expedients for an entity's ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we did not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.

The standard had a material effect on our financial statements, primarily related to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our warehouse, office, data center, and equipment operating leases; and (2) providing significant new disclosures ~~to help financial statement users better understand the amount, timing, and uncertainty of cash flows~~

~~arising from leases.~~about our leasing activities. The new standard becomes effective for us on January 1, 2019, with early adoption permitted. We plan to adopt this ASU beginning on January 1, 2019. The amendments in this update should be applied under a modified retrospective approach. We are evaluating the effect that ASU 2016-02 will haveadditional operating liabilities on our consolidated ~~financial statements and related disclosures.~~balance sheets were recognized based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases, discounted by our incremental borrowing rate for borrowings of a similar duration on a fully secured basis, with corresponding ROU assets of approximately the same amount.

In June 2018, the FASB issued ASU ~~2018- 07,~~2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting; which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. ~~The~~We adopted the changes under the new standard ~~becomes effective for us~~ on January 1, 2019 ~~with early adoption permitted. We plan to adopt this~~on a prospective basis. The implementation of ASU ~~beginning on January 1, 2019. We do~~2017-01 did not ~~expect the adoption to~~ have a material impact on our consolidated financial statements and related disclosures.

3. ~~ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS~~

~~Verify Investor, LLC~~BUSINESS COMBINATIONS

Bitsy, Inc.

Through a series of transactions in 2018, Medici Ventures acquired a 33% equity interest in Bitsy, Inc. ("Bitsy"), a U.S.-based startup company that plans to build a regulatory-compliant bridge between the U.S. Dollar and cryptocurrencies and offer our customers the ability to purchase cryptocurrencies. Bitsy was founded by Steve Hopkins, Medici Ventures' former chief operating officer and general counsel, and current president of tZERO, who held a significant equity interest in Bitsy. On ~~February 12,~~December 21, 2018, tZERO ~~acquired 81%~~entered into a stock purchase agreement with the owners of Bitsy to acquire the ~~total~~remaining 67% equity ~~interests of Verify Investor, LLC, an accredited investor verification company, for a total purchase price of $12.0 million in cash. With the acquisition of the majority~~ interest in ~~Verify Investor, LLC,~~Bitsy for $8.0 million with effective control of Bitsy transferring to tZERO effective January 1, 2019. tZERO plans to integrate the software and technology of ~~Verify Investor, LLC~~Bitsy to offer customers a digital wallet service intended to create a bridge between traditional fiat currencies and cryptocurrencies.

In connection with the ~~Token Trading System that~~December 2018 stock purchase agreement, Medici Ventures transferred its 33% equity interest in Bitsy to tZERO ~~plans~~for a $4.0 million convertible promissory note due December 31, 2020 and an assignment of certain intellectual property to ~~develop and deploy.~~ Medici Ventures.

We estimated the fair value of the acquired assets based on Level 3 inputs, which were unobservable (see Note 2—Accounting Policies, Fair value of financial instruments). These inputs included our estimate of future revenues, operating margins, discount rates, and assumptions about the relative competitive environment. As of March 31, 2019, our determination and allocation of the purchase price to net tangible and intangible assets was based upon preliminary estimates. During the quarter ended June 30, 2019, we received the final valuation information and completed our determination and allocation of the purchase price and recognized adjustments to the provisional values as of June 30, 2019, which decreased Intangible assets by $650,000, increased Deferred tax liabilities by $943,000 and resulted in a corresponding increase to Goodwill of $1.7 million. We recognized an impairment of $1.3 million as a result of remeasuring to fair value our 33% equity interest in Bitsy held before the business combination which was based on Level 3 inputs (see Note 2—Accounting Policies, Fair value of financial instruments). The impairment is included in Other income (expense), net in our consolidated statement of operations for the six months ended June 30, 2019.

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The fair values of the assets acquired and liabilities assumed at the acquisition date are as follows (in thousands):



Purchase Price	Fair Value
Cash paid, net of cash acquired	$	3,115
Fair value of equity interest in Bitsy held before business combination	3,800
Less: Fair value of Overstock.com common stock held by Bitsy at acquisition date	(643		)
Less: Settlement of receivable due from tZERO at acquisition date	(10		)
Total transaction consideration, net of cash acquired	$	6,262

Allocation
Prepaids and other current assets	$	71
Property and equipment	16
Intangible assets	6,093
Goodwill	1,685
Deferred tax liability	(943		)
Other liabilities assumed	(660		)
Total net assets, net of cash acquired	$	6,262

The following table details the identifiable intangible assets acquired at their fair value and their corresponding useful lives at the acquisition date (amounts in thousands):



Intangible Assets	Fair Value		Weighted Average Useful Life (years)
Patents	$	4,293	20
Technology	1,500		5
Licenses	300		1
Total acquired intangible assets as of the acquisition date	$	6,093

Acquired intangible assets primarily include patents, technology, and licenses. The acquired assets, liabilities, and associated operating results of Bitsy were consolidated into our financial statements at the acquisition date. The acquired assets, liabilities, and associated operating results were consolidated into our financial statements at the acquisition date. The goodwill recognized arises from expected synergies with our tZERO operations that do not qualify for separate recognition as intangible assets and also the deferred tax liabilities arising from the business combination. None of the goodwill recognized is expected to be deductible for tax purposes. Pro forma results of operations have not been presented because the effects of this acquisition were not material to our consolidated results of operations.

Mac Warehouse, LLC

On June 25, 2018, we acquired 100% of the total equity interests of Mac Warehouse, LLC, an electronics retailer of refurbished Apple products, to complement our retail business. As of December 31, 2018, our determination and allocation of the purchase price to net tangible and intangible assets was based upon preliminary estimates. During the quarter ended March 31, 2019, we received the final valuation information and completed our determination and allocation of the purchase price and recognized adjustments to the provisional values as of March 31, 2019, which decreased the recognized Intangibles assets by $2.8 million, increased Accrued liabilities by $527,000, decreased Deferred tax liabilities by $837,000 and resulted in a corresponding increase to Goodwill of $2.5 million. Additionally, the change to the provisional amount resulted in a decrease in amortization expense and accumulated depreciation of $1.4 million, of which $981,000 relates to the year ended December 31, 2018, and a $459,000 increase in Other Income related to the Accrued Liabilities that were expensed in 2018. We estimated the fair value of the acquired assets and liabilities based on Level 3 inputs, which were unobservable (see Note 2—Accounting Policies, Fair value of financial instruments). These inputs included our estimate of future revenues, operating margins, discount rates, royalty rates, and assumptions about the relative competitive environment.

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The fair values of the assets acquired and liabilities assumed at the acquisition date are as follows (in thousands):


Purchase Price	Fair Value			Fair Value
Cash paid, net of cash acquired	$	11,769		$	1,143
Allocation
Accounts receivable, net				$	399
Inventories, net				1,033
Prepaids and other current assets				29
Property and equipment				154
Intangible assets	$	7,400		653
Goodwill	7,360			3,376
Other assets acquired	3
Other liabilities assumed	(179		)
Accounts payable and accrued liabilities				(1,432		)
Long-term debt, net				(3,069		)
Total net assets, net of cash acquired	14,584			$	1,143
Less: noncontrolling interest	(2,815		)
Total net assets attributable to tZERO, net of cash acquired	$	11,769

~~The following table details the identifiable intangible assets acquired at their fair value and estimated useful lives as of September 30, 2018 (amounts in thousands):~~

Intangible Assets Fair Value Estimated Useful Life (in years)
Technology and developed software $ 6,300
10
Trade name 700
10
Customer relationships 400
0.5
Total acquired intangible assets at the acquisition date 7,400

Less: accumulated amortization of acquired intangible assets 904

Total acquired intangible assets, net $ 8,304

~~The expense for amortizing intangible assets acquired in connection with this acquisition was $302,000 and $904,000 for the three and nine months ended September 30, 2018, respectively.~~

Acquired intangible assets primarily include technology, trade name, and customer relationships. As described above, we determined the fair value of these assets using an income approach method to determine the present value of expected future

cash flows for each identifiable intangible asset. This method was based on discount rates which incorporate a risk premium to take into account the risks inherent in those expected cash flows. The expected cash flows were estimated based on the company's historical operating results.

The acquired assets, liabilities, and associated operating results were consolidated into our financial statements at the acquisition dates, or the dates on which we obtained control of the acquired assets or interests.

~~Mac Warehouse, LLC~~

On June 25, 2018, we acquired 100% of the total equity interests of Mac Warehouse, LLC, an electronics retailer of refurbished Apple products, for a total purchase price of $1.2 million in cash. With the acquisition of Mac Warehouse, LLC, we plan to integrate the inventory and business processes of Mac Warehouse, LLC in our direct retail business. We estimated the fair value of the acquired assets based on Level 3 inputs, which were unobservable (see Note 2—Accounting Policies, ~~Fair value of financial instruments~~). ~~These inputs included our estimate of future revenues, operating margins, discount rates, royalty rates and assumptions about the relative competitive environment.~~

Determination and allocation of the purchase price to net tangible and intangible assets is based upon preliminary estimates. These preliminary estimates and assumptions could change significantly during the measurement period as we finalize the valuations of the net tangible and intangible assets acquired and liabilities assumed. Any change could result in variances between our future financial results and the amounts recognized in the financial information presented below, including variances in fair values recorded, as well as expenses associated with these items.

~~The preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date are as follows (in thousands):~~

Purchase Price Fair Value
Cash paid, net of cash acquired $ 1,143
Allocation
Accounts receivable, net $ 399
Inventories, net 1,772
Prepaids and other current assets 29
Fixed assets 154
Intangible assets 2,763
Accounts payable (682 )
Accrued liabilities (223 )
Long-term debt, net (3,069 )
Total net assets, net of cash acquired $ 1,143

~~Acquired intangible assets primarily include trade name and customer relationships which have an estimated useful life of 18 months.~~

~~The following unaudited pro forma financial information presents our results as if the current year acquisitions of Mac Warehouse, LLC had occurred at the beginning of 2017 (amounts in thousands):~~

Three months ended
September 30, Nine months ended
September 30,
2018 2017 2018 2017
Total revenue $ 440,580
$ 428,309
$ 1,373,228
$ 1,300,365
Consolidated net loss $ (49,257 ) $ (778 ) $ (171,673 ) $ (14,472 )

The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the acquisition been completed during the periods indicated, nor should it be taken as indicative of our future consolidated results of operations.

4. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018

Sales and other taxes payable	$	20,254	$	2,363
Accounts payable accruals	16,393		16,614		$	14,386	$	15,872
Accrued compensation and other related costs	16,200		10,716		11,909		12,099
Accrued loss contingencies					10,084		10,940
Allowance for returns					10,188		15,261
Sales and other taxes payable					9,881		9,923
Accrued marketing expenses	13,446		25,959		9,434		14,150
Allowance for returns	12,448		17,391
Accrued loss contingencies	10,304		608
Accrued freight	6,754		5,040		8,437		5,343
Other accrued expenses	4,954		3,920		8,391		4,270
Total accrued liabilities	$	100,753	$	82,611	$	82,710	$	87,858

5. BORROWINGS

High Bench Senior Credit Agreement

On June 25, 2018, we became party to a senior credit agreement, as amended, with High Bench-Mac Warehouse-Senior Debt, LLC ~~("High~~(the "High Bench Loan"), in connection with our acquisition of Mac Warehouse, LLC. Under the amended agreement, at the time of the acquisition, the loan ~~carries~~carried an annual interest rate of 11.0% and a default rate of 18.0%~~. The High Bench Loan is~~ and was subject to monthly interest only payments with the remaining principal amount and any then unpaid interest due and payable on April 18, 2020. ~~The~~At the time of the acquisition, the High Bench Loan iswas subject to mandatory prepayment under certain circumstances, such as a change-in-control of the business, and iswas prepayable at our election at any time without penalty or premium. There ~~are~~were no financial covenants associated with the High Bench Loan. At ~~September~~June 30, ~~2018,~~2019, our outstanding balance on the High Bench Loan was $3.1 million. During July 2019, we repaid the entire outstanding balance of the High Bench Loan.

Letters of credit

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, letters of credit totaling ~~$280,000~~$205,000 and ~~$355,000,~~$280,000, respectively, were issued on our behalf collateralized by compensating cash balances held at a bank, which are included in Restricted cash in our consolidated balance sheets.

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Commercial purchasing card agreement

We have a commercial purchasing card (the "Purchasing Card") agreement. We use the Purchasing Card for business purpose purchasing and must pay it in full each month. At ~~September~~June 30, ~~2018, $107,000~~2019, $64,000 was outstanding and ~~$893,000~~$936,000 was available under the Purchasing Card. At December 31, ~~2017, $822,000~~2018, $48,000 was outstanding and ~~$4.2 million~~$952,000 was available under the Purchasing Card.

~~Capital lease~~

6. LEASES

~~During~~We have operating and finance leases for warehouses, office space, data centers, and certain equipment. Our leases have remaining lease terms of 1 year to 12 years, some of which may include options to extend the leases perpetually, and some of which may include options to terminate the leases within 1 year. We note our finance leases are immaterial to our financial statements as a whole and thus are not discussed below.

The following table provides a summary of leases by balance sheet location as of June 30, 2019 (in thousands):



	June 30, 2019
Operating right-of-use assets	$	45,066
Operating lease liability - current	5,731
Operating lease liability - non-current	44,105

The components of lease expenses for the three and six months ended June 30, 2019 were as follows (in thousands):



	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	$	2,363	$	4,868
Short-term lease cost	28		62
Variable lease cost	442		972

The following tables provides a summary of other information related to leases for the six months ended June 30, 2019 (in thousands, apart from weighted-average lease term and weighted average discount rate):



	Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	(4,202	)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	17,090
Weighted-average remaining lease term - operating leases	7.02 years
Weighted-average discount rate - operating leases	8		%

Maturity of lease liabilities under our non-cancellable operating leases as of June 30, 2019, are as follows (in thousands):



Payments due by period
2019 (Remainder)	$	4,732
2020	9,385
2021	9,833
2022	9,826
2023	8,985
Thereafter	22,774
Total lease payments	65,535
Less interest	(15,699		)
Present value of lease liabilities	$	49,836

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Information for our leases for the year ended December 31, ~~2017, we entered into a capital lease arrangement of computer equipment~~2018 under ASC Topic 840, Leases, follows for $1.4 million. The arrangement will expire in 2020. At September 30, 2018, the outstanding balance under the capital lease was $1.0 million and is included in Other current liabilities, net and Other long-term liabilities on our consolidated balance sheets. Future payment obligations, including interest, under the capital lease are $124,000, $496,000 and $413,000 for the rest of 2018, 2019 and 2020, respectively.comparative purposes.

~~6. COMMITMENTS AND CONTINGENCIES~~

~~Summary of future minimum lease payments for all operating leases~~

Minimum future payments under all operating leases as of ~~September 30,~~December 31, 2018,~~, are~~ were as follows (in thousands):

Payments due by period
2018 (Remainder) $ 1,757
2019 7,446
2020 5,648
2021 6,038
2022 6,156
Thereafter 17,515
$ 44,560



Payments due by period
2019	$	8,822
2020	7,414
2021	7,654
2022	7,579
2023	6,677
Thereafter	19,571
Total lease payments	$	57,717

~~Rental expense for operating leases totaled $1.9 million and $2.1 million for~~Our subsidiary, tZERO, commenced a new lease subsequent to December 31, 2018. We have included the ~~three months ended September 30, 2018 and 2017, respectively, and $5.3 million and $7.0 million for~~future lease payments associated with this lease in the ~~nine months ended September 30, 2018 and 2017, respectively.~~table above.

7. COMMITMENTS AND CONTINGENCIES

Legal proceedings and contingencies

From time to time, we are involved in litigation concerning consumer protection, employment, intellectual property, claims under the securities laws, and other commercial matters related to the conduct and operation of our business and the sale of products on our Website. In connection with such litigation, we have been in the past and we may be in the future subject to significant damages. In some instances, other parties may have contractual indemnification obligations to us. However, such contractual obligations may prove unenforceable or non-collectible, and if we cannot enforce or collect on indemnification obligations, we may bear the full responsibility for damages, fees, and costs resulting from such litigation. We may also be subject to penalties and equitable remedies that could force us to alter important business practices. Such litigation could be costly and time consuming and could divert or distract our management and key personnel from our business operations. Due to the uncertainty of litigation and depending on the amount and the timing, an unfavorable resolution of some or all of ~~these~~such matters could materially affect our business, results of operations, financial position, or cash flows. The nature of the loss contingencies relating to claims that have been asserted against us are described below.

On September 23, 2009, SpeedTrack, Inc. sued us along with 27 other defendants in the United States District Court in the Northern District of California. We are alleged to have infringed a patent covering search and categorization software. We believe that certain third-party vendors of products and services sold to us are contractually obligated to indemnify us, and we have tendered defense of the case to an indemnitor who accepted the defense. On April 21, 2016, the court entered an order partially dismissing the claims against us. On May 4, 2016, the plaintiff filed an amended complaint, and we filed our answer. No estimate of the possible loss or range of loss can be made. We intend to continue vigorously ~~defend~~defending this action and ~~pursue~~pursuing our indemnification rights with our vendors.

On February 11, 2013, RPost Holdings, Inc., RPost Communications Limited, and RMail Limited, filed suit against us in the United States District Court in the Eastern District of Texas for infringement of patents covering products and services that verify the delivery and integrity of email messages. We tendered defense of the case to an indemnitor who accepted the defense. ~~No estimate of~~On June 27, 2019, the ~~possible loss or range of loss can be made. We intend~~court granted a motion to ~~vigorously defend this action and pursue our indemnification rights with our vendors.~~dismiss the case, thereby dismissing all claims asserted against us.

On ~~September 20, 2018, a jury returned a verdict against us in our Delaware unclaimed property case, which is expected to result in a judgment~~March 15, 2019, Consolidated Transaction Processing, LLC, filed suit against us in the amount of approximately $7.3 million (for certain unredeemed gift card balances, treble damages, and penalties) plus attorneys’ fees and costs. Our estimated liability for these amounts has been included in Accrued liabilities as of September 30, 2018 and the expense associate with these litigation charges are included in general and administrative expense in our consolidated statement of operationsUnited States District Court for the ~~three and nine months ended September 30, 2018.~~District of Delaware for infringement of patents covering our electronic transaction processing methods. On July 24, 2019, the case was dismissed.

In June 2013, William French ("French") and the State of Delaware ("Delaware") sued us, along with numerous other defendants, in the Superior Court of the State of Delaware for alleged violations of Delaware's unclaimed property laws. French and Delaware alleged that we knowingly refused to fulfill obligations under Delaware's Abandoned Property Law by failing to report and deliver unclaimed gift card funds to the State of Delaware, and knowingly made, used or caused to be made or used, false

statements and records to conceal, avoid or decrease an obligation to pay or transmit money to Delaware in violation of the Delaware False Claims and Reporting Act.

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On June 28, 2019, the court entered a judgment against us in the amount of approximately $7.3 million (for certain unredeemed gift card balances, treble damages, and penalties) as a result of a jury verdict which was returned September 20, 2018. The court has not yet determined an award of attorneys’ fees and costs which will be added to the judgment. We intend to file an ~~appeal once the judgment has been entered by the court.~~

Onappeal. Our estimated liability for these amounts was included in Accrued liabilities at June ~~21, 2018, the U.S. Supreme Court issued an opinion~~30, 2019. The expense associated with these litigation charges was included in general and administrative expense in our ~~South Dakota sales tax case and ruled against us. The State~~consolidated statement of ~~South Dakota sued us along with three other defendants in~~operations for the Sixth Judicial Circuit Court of South Dakota alleging that U.S. constitutional law should be revised to permit South Dakota to require out-of-state e-commerce websites to collect and remit sales tax in South Dakota in accordance with South Dakota's sales tax statute. Under the U.S. Supreme Court’s ruling, the longstanding ~~Quill Corp v. North Dakota~~ sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. We began collecting sales tax in all 45 states that have sales tax. Pursuant to South Dakota’s statute, we are not required to pay sales tax retroactively. The U.S. Supreme Court’s opinion vacated and remanded the case back to the South Dakota Supreme Court for further proceedings.

On July 7, 2017, the State of Wyoming sued us along with five other defendants in the Second Judicial District Court of Wyoming. Wyoming alleged that U.S. constitutional law should be revised to permit Wyoming to require out-of-state e-commerce retailers to collect and remit sales tax in Wyoming in accordance with Wyoming's sales tax statute. After the U.S. Supreme Court’s ruling in our South Dakota case listed above, we began collecting sales tax in Wyoming. Wyoming’s statute does not require us to pay sales tax retroactively. The Wyoming case has not yet been dismissed.

On August 28, 2017, the State of Indiana sued us along with one other defendant in the Superior Court of Indiana, Marion County. Indiana alleged that U.S. constitutional law should be revised to permit Indiana to require out-of-state e-commerce retailers to collect and remit sales tax in Indiana in accordance with Indiana's sales tax statute. After the U.S. Supreme Court’s ruling in our South Dakota case listed above, we began collecting sales tax in Indiana. Indiana’s statute does not require us to pay sales tax retroactively. The Indiana case was dismissed August 16,year ended December 31, 2018.

In February 2018, the Division of Enforcement of the SEC informed tZERO and subsequently informed us that it is conducting an investigation and requested that we and tZERO voluntarily provide certain information and documents related to tZERO and the tZERO security token offering in connection with its investigation. In December of 2018, we received a follow-up request from the SEC relating to its investigation. We are cooperating fully with the SEC in connection with its investigation.

tZERO's broker-dealer subsidiaries are, and any broker-dealer subsidiaries that it acquires or forms in the future will be, subject to extensive regulatory requirements under federal and state laws and regulations and self-regulatory organization ("SRO") rules. Each of SpeedRoute LLC ("SpeedRoute") and PRO Securities LLC ("PRO Securities") is registered with the SEC as a broker-dealer under the Exchange Act and in the states in which it conducts securities business and is a member of FINRA and other SROs (as applicable). In addition, PRO Securities owns and operates the PRO Securities ATS, which is registered with the SEC as an alternative trading system. Each of SpeedRoute and PRO Securities is subject to regulation, examination, investigation, and disciplinary action by the SEC, FINRA, and state securities regulators, as well as other governmental authorities and SROs with which it is registered or licensed or of which it is a member. On February 22, 2018, the SEC's New York Regional Office notified PRO Securities that it is conducting an examination of PRO Securities, and on March 6, 2018 the SEC's Boston Regional Office notified tZERO Advisors that it is conducting an examination of tZERO Advisors. These examinations remain open.

AsMoreover, as a result of tZERO's projects seeking to apply distributed ledger technologies to the capital markets, tZERO's subsidiaries have been, and remain involved in, ongoing ~~discussions~~oral and written communications with regulatory authorities. ~~While certain of the discussions have been relatively informal,~~As previously disclosed, tZERO's broker-dealer subsidiaries ~~have also received and responded to several written~~are currently undergoing various examinations, inquiries, ~~from FINRA relating to~~and/or investigations undertaken by various regulatory authorities; as appropriate or required, we will provide further information regarding such ~~projects. While tZERO considers these continuing inquiries to be ordinary course in light of the non-traditional nature of tZERO's distributed ledger projects, any~~matters. Any failure by tZERO's broker-dealer subsidiaries to satisfy ~~their~~ regulatory authorities that they are in compliance with all applicable rules and regulations could have a material adverse effect on tZERO and on us. In addition, a newly-incorporated tZERO subsidiary recently applied for regulatory approvals to operate as a broker-dealer in a variety of areas, including retail activities. The approval process will involve satisfying the regulatory authorities that the tZERO subsidiary can operate in the manner it proposes and, in addition, if approval is granted, the tZERO subsidiary will be subject to a number of legal and regulatory requirements, some of which will be new to tZERO’s broker-dealer subsidiaries.

~~In addition, in December 2017, SpeedRoute received~~On January 31, 2019, a letter from FINRA stating that the Department of Enforcement at FINRA has received a referral from the staff of FINRA's Department of Market Regulation relating to rules applicable to supervision and required supervisory procedures for review of certain potential trading activity, such as pre-arranged trades or wash trades. In addition, SpeedRoute continues to have discussions with FINRA about several matters, including a matter related to potential violations of FINRA rules relating to Order Audit Trail System reporting and trading practice matters, and has received document requests from FINRA in connection with certain ongoing matters. SpeedRoute has received and responded to inquiries from FINRA and the SEC. In an unrelated matter, SpeedRoute and PRO Securities have been named in a FINRA investigatory matter in which FINRA has conducted on the record interviews of certain senior officers of SpeedRoute and PRO Securities, who are also senior officers of tZERO.

~~On March 29, 2018, a purported securities~~putative class action lawsuit was filed against us ~~and two of our executives~~ in the United States District Court, ~~in the Central~~Southern District of ~~Utah,~~New York, alleging ~~violations~~that our website violates the Americans with Disabilities Act ("ADA") in addition to other New York specific laws, because it is not accessible to blind and visually impaired people. No estimate of the ~~Securities Exchange Act~~possible loss or range of 1934 ("Exchange Act"). On April 6, 2018, a substantially similar lawsuit was filed in the same court also naming the Company, and two of our executives as defendants, bringing the same claims under the Exchange Act, and seeking substantially similar relief. On June 20, 2018, the Court consolidated the two cases and appointed a lead plaintiff in the case. On August 7, 2018, the plaintiffs voluntarily dismissed the lawsuit without prejudice.loss can be made. We intend to vigorously defend this action.

We ~~have recognized~~establish liabilities ~~for contingencies deemed~~when a particular contingency is probable and ~~estimable totaling $10.3 million and $608,000 at September~~estimable. At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we have accrued $10.1 million and $10.3 million, respectively, which are included in Accrued liabilities in our consolidated balance sheets. It is reasonably possible that the actual losses may exceed our accrued liabilities.

7.8. INDEMNIFICATIONS AND GUARANTEES

During our normal course of business, we have made certain indemnities, commitments, and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include, but are not limited to, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, the environmental indemnity we entered into in favor of the lenders under our prior loan agreements, customary indemnification arrangements in underwriting agreements and similar agreements, and indemnities to our directors and officers to the maximum extent permitted under the laws of the State of Delaware. The duration of these indemnities, commitments, and guarantees varies, and in certain cases, is indefinite. In addition, the majority of these indemnities, commitments, and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. As such, we are unable to estimate with any reasonableness our potential exposure under these items. We have not recorded any liability for these indemnities, commitments, and guarantees in the accompanying consolidated balance sheets. We do, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is both probable and reasonably estimable.

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9. STOCKHOLDERS' EQUITY

Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends declared by the Board of Directors out of funds legally available, subject to prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have ~~ever~~ been declared or paid on our common ~~stock.~~stock through June 30, 2019.

Preferred Stock

On May 1, 2019, we informed holders of our Blockchain Voting Series A Preferred Stock, par value $0.0001 per share (the "Series A Preferred"), of an opportunity to exchange (the "Exchange") outstanding Series A Preferred for newly-issued shares of the Company's Digital Voting Series A-1 Preferred Stock, par value $0.0001 per share (the "Series A-1 Preferred"). On June 26, 2019, the Exchange was completed for participating stockholders. In connection with the Exchange, 122,526 shares of Series A Preferred were validly tendered and accepted for exchange by the Company and the Company issued 122,526 shares of Series A-1 Preferred in exchange therefore.

On June 26, 2019, in connection with the completion of the Exchange, 1,144 shares of Series A Preferred were converted into shares of Voting Series B Preferred Stock (the "Series B Preferred") (such transaction, the "Conversion"). Following the Conversion, 2,895 shares of Series A Preferred remained outstanding as of June 30, 2019 and in July 2019, 2,020 of those remaining shares were exchanged for shares of Series A-1 Preferred and 875 of those remaining shares were converted into shares of Series B Preferred. Following that time, the Company eliminated the Series A Preferred by filing a Certificate of Elimination with the Delaware Secretary of State.

Each share of Series A Preferred, each share of Series A-1 Preferred, and each share of Series B Preferred (collectively the "preferred shares") is intended to have voting and dividend rights similar to those of one share of common stock. Preferred shares rank senior to common stock with respect to dividends. Holders of the preferred shares will be entitled to an annual cash dividend of $0.16 per share, in preference to any dividend payment to the holders of the common stock, out of funds of the Company legally available for payment of dividends and subject to declaration by our Board of Directors. Holders of the preferred shares are also entitled to participate in any cash dividends we pay to the holders of the common stock and are also entitled to participate in non-cash dividends we pay to holders of the common stock, subject to potentially different treatment if we effect a stock dividend, stock split, or combination of the common stock. There are no arrearages in cumulative preferred dividends. We declared and paid a cash dividend of $0.16 per share onto the holders of our preferred stock during ~~2017.~~2017 and 2018.

Neither the Series A Preferred, orSeries A-1 Preferred, nor Series B Preferred is ~~convertible~~required to be converted into or ~~exchangeable~~exchanged for shares of our common stock or any other entity; however, at our sole discretion, we may convert the Series A Preferred shares or Series A-1 Preferred shares into Series B Preferred shares at any time on a one-to-one basis. Until ~~the third anniversary of the original issuance date,~~December 15, 2019, we may redeem, at our discretion, ~~both~~ the Series A, Series A-1, and Series B Preferred shares for an amount equal to the highest of the following: (1) ~~the subscription price~~$15.68 plus any accrued but unpaid dividends, (2) 105% of the average trading price of our common stock during a five-trading-day period and (3) 105% of the average trading price of the series of preferred shares during the same five-day-trading period. In the event of any liquidation, any amount available for distribution to stockholders after payment of all liabilities will be distributed proportionately, with each share of Series A Preferred, each share of Series A-1 Preferred, and each share of Series B Preferred being treated as though it were a share of our common stock.

JonesTrading Sales Agreement

In August 2018, we entered into a sales agreement with JonesTrading Institutional Services LLC ("JonesTrading"), under which we conducted "at the market" public offerings of our common stock ~~during the quarter ended September 30, 2018 and may conduct additional "at the market" public offerings of our common stock~~ from time to time. Under the sales agreement, JonesTrading, acting as our agent, may offer our common stock in the market on a daily basis or otherwise as we request from time to time. We have no obligation to sell additional shares under the sales agreement, but expect to do so from time to time. We will pay JonesTrading up to a 2.0% sales commission on all sales. The sales agreement contemplates sales of up to $150 million of our common stock over a period of up to three years. As of September 30, 2018, we had sold ~~2,883,344~~5,843,147 shares of our common stock ~~pursuant to the sales agreement and have received $94.6~~resulting in $146.7 million in proceeds, net of ~~$2.6~~$3.3 million of offering costs, including commissions paid to JonesTrading. Of the cumulative amount sold under the sales agreement, we sold shares of common stock for $52.1 million, net of offering expenses (including commissions) during the six months ended June 30, 2019. The average gross price per share of stock sold pursuant to the sales agreement during the six months ended June 30, 2019 was $17.84.

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tZERO Tokens

On December 18, 2017, tZERO launched an offering (the "security token offering") of the right to acquire tZERO Preferred Equity Tokens (the "tZERO Security Token") through a Simple Agreement for Future Equity ("SAFE"). The security token offering closed on August 6, 2018 and funded through August 8, 2018, and on October 12, 2018 tZERO distributed the tZERO Security Tokens in settlement of the SAFEs. tZERO Security Token holders have the right to, prior to distributing earnings to tZERO common shareholders, a noncumulative dividend equal to 10% of tZERO's consolidated Adjusted Gross Revenue (as defined by the security token offering documents) for the most recently completed fiscal quarter, if declared by tZERO's Board of Directors, to be paid out of funds lawfully available on a quarterly basis. tZERO Security Token holders are not entitled to participate in any dividends paid to the holders of tZERO's common stock, have no rights to vote, and have no rights to the undistributed earnings of tZERO and are not entitled to any utility functionality as part of the tZERO Security Tokens. Any remaining undistributed earnings or losses of tZERO for a period shall be allocated to the noncontrolling interest held by the tZERO Security Token holders based on the contractual participation rights of the security to share in those earnings as if all the earnings for the period had been distributed and the effect will be reflected in determining net income/(loss) per share under the two-class method. In the event of any liquidation, dissolution or winding up of tZERO, the tZERO Security Token holders will be entitled to the limited preferential liquidation rights equal to USD $0.10 per token to the extent funds are available.

At December 31, 2018, cumulative proceeds since December 18, 2017 from the security token offering totaling $104.8 million, net of $22.0 million of withdrawals, were classified as a component of noncontrolling interest within our consolidated financial statements. As of December 31, 2018, tZERO incurred $21.5 million of offering costs associated with the security token offering that are classified as a reduction in proceeds within noncontrolling interest of our consolidated financial statements. During the six months ended ~~September~~June 30, 2018, ~~excluding~~proceeds from the security token offering were $95.9 million, net of $22.0 million of withdrawals. During the six months ended June 30, 2018, tZERO incurred offering costs ~~was $33.71.~~of $16.5 million.

~~JonesTrading Standby Equity~~GSR Agreement

In August 2018 we also entered into a standby equity underwriting agreement with JonesTrading. We did not sell any shares under the standby equity underwriting agreement, and the agreement terminated in accordance with its terms during the quarter ended September 30, 2018. Under the standby underwriting agreement, we had the right, but no obligation, to sell up to $50 million of our common stock to JonesTrading, as underwriter, for sale to the public in a firm commitment public offering. We paid a 1% commitment fee to JonesTrading for entering into the underwriting agreement.

~~GSR~~ ~~Agreements~~

~~As previously announced, in~~ August 2018, Overstock signed a Token Purchase Agreement with GSR Capital Ltd., a Cayman Islands exempted company ("GSR")~~, and a term sheet contemplating a sale of Overstock common stock to GSR. Concurrently, tZERO signed a term sheet contemplating a sale of tZERO common stock to GSR.~~

. The Token Purchase Agreement sets forth the terms on which GSR had agreed to purchase, for $30 million, on May 6, 2019 or such other date as ~~may be~~ agreed by the parties, security tokens at a price of $6.67 per security token. ~~These security tokens were~~On May 8, 2019, the parties executed an Investment Agreement to replace the Token Purchase Agreement under which GSR agreed to purchase 508,710 shares of tZERO common stock, representing approximately 0.5% of the issued and outstanding common stock of tZERO. In exchange, GSR agreed to transfer to tZERO a total $5.0 million in consideration, consisting of $1.0 million U.S. dollars, $1.0 million U.S. dollars' worth of Chinese Renminbi, and securities traded on the Hong Kong Stock Exchange with a market value on the date of the Investment Agreement of $3.0 million U.S. dollars. As of June 30, 2019, GSR had not fully completed the funding by ~~tZERO to Overstock~~the anticipated closing date as outlined in ~~satisfaction~~the Investment Agreement. As of ~~$30~~June 30, 2019, GSR had provided $1.0 million of ~~tZERO's indebtedness~~USD, and such amount is included in Accrued liabilities at June 30, 2019. Subsequent to ~~Overstock. We may be required to obtain~~June 30, 2019, GSR provided an additional ~~tokens in order to fulfill our obligations under the agreement. The agreement states that the obligations~~$1.0 million of ~~GSR to complete the transaction described will be subject to conditions, some of which are unidentified.~~

Overstock, tZERO and GSR are currently negotiating definitive agreements for GSR's purchase of Overstock common stock and tZERO common stock. Although we continue to negotiate the terms, GSR has proposed purchasing fewer shares and at a lower price per share than those described in the Overstock term sheet. We believe that if a definitive agreement is reached regarding the purchase of tZERO shares, the terms, including the post money valuation of tZERO, may be less favorable than those described in the tZERO term sheet. Both the Overstock and tZERO term sheets constitute binding agreements for the parties to negotiate in good faith the terms of the transaction documents; however, the obligation to negotiate in good faith terminates on December 15, 2018, if any of the closing conditions, one of which is the negotiation, execution and delivery of mutually acceptable transaction documents, have not been satisfied. While we expect to complete these transactions, there can be no assurance that Overstock, tZERO or GSR will enter into definitive agreements regarding either of the proposed transactions.USD.

Warrants

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10. STOCK-BASED AWARDS

We have equity incentive plans that provide for the grant to employees and board members of stock-based awards, including stock options, and restricted stock. Employee accounting applies to awards granted by the Company or subsidiary in the company or subsidiary's shares only to its own employees, respectively. Stock-based compensation expense was as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Overstock restricted stock awards	$	1,779	$	1,015	$	6,863	$	3,000	$	4,560	$	2,700	$	8,428	$	5,084
Medici Ventures stock options	138		9		273		9		307		123		533		134
tZERO equity awards	329		—		4,518		—		304		150		195		4,190
Total stock-based compensation expense	$	2,246	$	1,024	$	11,654	$	3,009	$	5,171	$	2,973	$	9,156	$	9,408

Overstock restricted stock awards

The Overstock.com, Inc. Amended and Restated 2005 Equity Incentive Plan provides for the grant of restricted stock units and other types of equity awards of the ~~Company. The~~Company to our officers, board members and employees. These restricted stock awards generally vest over three years at 33.3% at the end of the first year, 33.3% at the end of the second year and 33.3% at the end of the third ~~year;~~year, subject to the recipient's continuing service to us. In addition to our traditional equity awards, during the quarter ended March 31, 2019, we granted 502,765 restricted stock awards with a cumulative grant date fair value of $8.6 million which vest over a one-year period.

The cost of restricted stock units is determined using the fair value of our common stock on the date of the grant and compensation expense is either recognized on a straight-line basis over the vesting schedule or on an accelerated schedule when vesting of restricted stock awards exceeds a straight-line basis. The cumulative amount of compensation expense recognized at any point in time is at least equal to the portion of the grant date fair value of the award that is vested at that date.

The following table summarizes restricted stock award activity during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


	Nine months ended September 30, 2018				Six months ended June 30, 2019
	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding—beginning of year	540		$	17.05	559		$	44.08
Granted at fair value	360		68.85		980		17.80
Vested	(226	)	17.29		(255	)	35.48
Forfeited	(109	)	43.63		(92	)	20.43
Outstanding—end of period	565		$	44.82	1,192		$	26.14

Medici Ventures stock options

The Medici Ventures, Inc. 2017 Stock Option Plan provides for the grant of options to employees and directors of and consultants to Medici Ventures to acquire up to ~~10%~~approximately 9% of the authorized shares of Medici Ventures' common stock. Medici Ventures authorized 1.5 million shares, 900,000 of which are issued and outstanding to Overstock, and 130,000 of which are subject to the 2017 Stock Option Plan. The remaining 470,000 are authorized but unissued. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, Medici Ventures granted ~~19,700~~27,350 stock options with a cumulative grant date fair value of ~~$1.7~~$2.4 million which vest over a ~~three year~~three-year period. During the year ended December 31, 2017, Medici Ventures granted 74,750 stock options to certain Medici Ventures and Overstock employees with a cumulative grant date fair value of $91,000 which will be expensed on a straight-line basis over the vesting period of three years.

tZERO equity awards

The tZERO.com 2017 Equity Incentive Plan provides for grant of options to employees and directors of and consultants to tZERO to acquire up to 5% of the authorized shares of tZERO's common stock. ~~In January 2018, tZERO granted stock awards under the equity incentive plan for an aggregate~~

Table of approximately 1.0% of tZERO's common stock all of which vested on January 23, 2018. In January 2018, tZERO recognized $4.0 million in compensation expense associated with these awards, which was the entire estimated fair value at the grant date. Accordingly, there is no expense to be recognized in future periods related to these awards. As a result of these vested awards, our indirect ownership interest in tZERO was reduced from 81% to approximately 80%. Contents

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, tZERO granted awards to acquire ~~382~~3,103,822 shares of its stock with a cumulative grant date fair value of ~~$3.1 million~~$453,000 which will be expensed on a straight-line basis over the vesting period of ~~two to~~ three years. ~~No awards were issued~~Additionally, during the ~~year~~six months ended ~~December 31, 2017.~~June 30, 2019, tZERO granted 245,500 restricted stock awards with a cumulative grant date fair value of $749,000 which will be expensed on a straight-line basis over a cliff vesting period of two years.

~~10.~~11. OTHER INCOME (EXPENSE), NET

Other income (expense), net consisted of the following (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Equity method losses	$	(2,033	)	$	(1,031	)	$	(3,058	)	$	(1,381	)
Impairment of equity securities	(1,256		)	—			(4,214		)	—
Unrealized gain/(loss) on equity securities	(500		)	1,836			(1,118		)	1,836
Allowance on notes receivable	(5		)	—			(1,242		)	—
Gain/(loss) on sale of equity securities	720			—			(258		)	—
Other	79			(437		)	623			(96		)
Total other income (expense), net	$	(2,995	)	$	368		$	(9,267	)	$	359

12. BUSINESS SEGMENTS

Segment information has been prepared in accordance with ASC Topic 280 Segment Reporting. As described in Note 1—Basis of Presentation, we have recast our segment information to conform with current year presentation. We determined our segments based on how we manage our ~~business, which,~~business. In the fourth quarter of 2018, we completed our review of our segment reporting and in light of a strategic shift in our ~~view, consists primarily~~Chief Operating Decision Maker's long-term strategic focus for our organization, we no longer consider the split of retail direct and retail partner as a distinct and relevant measure of our ~~Retail and Medici businesses. Our Retail business consists of our~~business. Accordingly, Direct and Partner are no longer considered separate reportable ~~segments.~~segments but are included under Retail in our Business Segment disclosures. Beginning in the first quarter of 2019, we began allocating corporate support costs (administrative functions such as finance, human resources, and legal) to our operating segments based on their estimated usage and based on how we manage our business. Comparative prior year information has not been recast and as a result our corporate support costs for those comparative prior periods remain allocated to our Retail segment. Our Medici business includes one reportable segment, tZERO. We use ~~gross profit~~pre-tax net income (loss) as the measure to determine our reportable ~~segments because there is not discrete financial information available below gross profit for our Direct and Partner~~ segments. As a result, the remainder of our Medici business is not significant as compared to our ~~Direct~~Retail and ~~Partner segments and is included in Other.~~tZERO segments. Our Other segment consists of Medici ~~Ventures~~Ventures' remaining operations and ~~its subsidiaries, including tZERO. Although~~the remainder of our ~~Direct and Partner segments both relate to our Retail business, we do not combine these segments because they have dissimilar economic characteristics,~~unallocated corporate support costs (administrative functions such as ~~gross profit margins.~~ finance, human resources, and legal).

Our Retail segment primarily consists of amounts earned through e-commerce sales through our Website.

Our tZERO segment primarily consists of amounts earned through securities transactions through our broker-dealers and costs incurred to execute our tZERO business initiatives.

We do not allocate assets between our segments for our internal management purposes, and as such, they are not presented here. There were no significant inter-segment sales or transfers during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

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The following table summarizes information about reportable segments for three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended September 30,														Three months ended June 30,
															Retail			tZERO			Other			Total
2019
Revenue, net															$	367,475		$	5,551		$	683		$	373,709
Cost of goods sold															294,984			4,143			683			299,810
Gross profit															72,491			1,408			—			73,899
Operating expenses (1)															81,596			11,743			6,338			99,677
Interest and other income (expense), net (2)															40			340			(2,850		)	(2,470		)
Pre-tax loss															$	(9,065	)	$	(9,995	)	$	(9,188	)	(28,248		)
Benefit from income taxes																								(622		)
Net loss (3)																								$	(27,626	)
	Direct			Partner		Retail Total			Other			Total
2018
Revenue, net	$	15,424		$	420,351	$	435,775		$	4,805		$	440,580		$	477,683		$	4,890		$	560		$	483,133
Cost of goods sold	16,205			334,446		350,651			3,213			353,864			387,252			3,578			560			391,390
Gross profit	$	(781	)	$	85,905	$	85,124		$	1,592		$	86,716		90,431			1,312			—			91,743
Operating expenses						124,571			9,977			134,548			149,437			5,927			2,915			158,279
Interest and other expense, net (1)						(515		)	(1,051		)	(1,566		)
Interest and other income (expense), net (2)															1,624			(36		)	(995		)	593
Pre-tax loss						(39,962		)	(9,436		)	(49,398		)	$	(57,382	)	$	(4,651	)	$	(3,910	)	(65,943		)
Provision for (benefit from) income taxes						(155		)	14			(141		)
Net loss (2)						$	(39,807	)	$	(9,450	)	$	(49,257	)
Benefit from income taxes																								(27		)
Net loss (3)																								$	(65,916	)

2017
															Six months ended June 30,
															Retail			tZERO			Other			Total
2019
Revenue, net															$	730,100		$	10,047		$	1,291		$	741,438
Cost of goods sold															585,624			7,500			1,291			594,415
Gross profit															144,476			2,547			—			147,023
Operating expenses (1)															166,929			27,297			14,593			208,819
Interest and other income (expense), net (2)															175			(623		)	(8,018		)	(8,466		)
Pre-tax loss															$	(22,278	)	$	(25,373	)	$	(22,611	)	(70,262		)
Provision for income taxes																								256
Net loss (3)																								$	(70,518	)

2018
Revenue, net	$	19,645		$	400,419	$	420,064		$	3,943		$	424,007		$	917,679		$	9,742		$	1,043		$	928,464
Cost of goods sold	19,577			318,121		337,698			2,634			340,332			734,832			6,977			1,043			742,852
Gross profit	$	68		$	82,298	$	82,366		$	1,309		$	83,675		182,847			2,765			—			185,612
Operating expenses						90,592			4,958			95,550			274,969			25,886			5,687			306,542
Interest and other income (expense), net (1)						5,375			(17		)	5,358
Interest and other income (expense), net (2)															1,169			417			(1,332		)	254
Pre-tax loss						(2,851		)	(3,666		)	(6,517		)	$	(90,953	)	$	(22,704	)	$	(7,019	)	(120,676		)
Benefit from income taxes						(3,993		)	(1,419		)	(5,412		)										(304		)
Net income (loss) (2)						$	1,142		$	(2,247	)	$	(1,105	)
Net loss (3)																								$	(120,372	)

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Nine months ended
September 30,
Direct Partner Retail Total Other Total
2018

Revenue, net $ 46,409
$ 1,307,045
$ 1,353,454
$ 15,590
$ 1,369,044
Cost of goods sold 45,649
1,039,834
1,085,483
11,233
1,096,716
Gross profit $ 760
$ 267,211
$ 267,971
$ 4,357
$ 272,328
Operating expenses

399,540
41,550
441,090
Interest and other income (expense), net (1)

654
(1,966 ) (1,312 )
Pre-tax loss (130,915 ) (39,159 ) (170,074 )
Benefit from income taxes

(283 ) (162 ) (445 )
Net loss (2)

$ (130,632 ) $ (38,997 ) $ (169,629 )

2017

Revenue, net $ 64,572
$ 1,211,536
$ 1,276,108
$ 12,358
$ 1,288,466
Cost of goods sold 61,687
963,310
1,024,997
8,716
1,033,713
Gross profit $ 2,885
$ 248,226
$ 251,111
$ 3,642
$ 254,753
Operating expenses

264,455
14,217
278,672
Interest and other income (expense), net (1)

5,490
(4,428 ) 1,062
Pre-tax loss (7,854 ) (15,003 ) (22,857 )
Benefit from income taxes

(3,280 ) (4,447 ) (7,727 )
Net loss (2)

$ (4,574 ) $ (10,556 ) $ (15,130 )

(1)

— Corporate support costs for three months ended June 30, 2019 have been allocated $9.4 million, $1.3 million, and $2.7 million to Retail, tZERO, and Other, respectively. Unallocated corporate support costs of $1.3 million are included in Other. Corporate support costs for the six months ended June 30, 2019 have been allocated $22.0 million, $3.1 million, and $6.3 million to Retail, tZERO, and Other, respectively. Unallocated corporate support costs of $3.1 million are included in Other.


(2)	— Excludes intercompany transactions eliminated in consolidation, which consist primarily of service fees and interest. The net amounts of these intercompany transactions were ~~$539,000~~$491,000 and ~~$403,000~~$504,000 for the three months ended June 30, 2019 and 2018 and $907,000 and $2.5 million for the six months ended June 30, 2019 and 2018.

~~ended September 30, 2018 and 2017, respectively, and $3.0 million and $1.1 million for the nine months ended September 30, 2018 and 2017, respectively.~~


~~(2)~~(3)	— Net income (loss) presented for segment reporting purposes is before any adjustments attributable to noncontrolling interests.

Our Direct segment includes revenues, direct costs, and cost allocations associated with sales of inventory we own. Costs for this segment include product costs, freight, warehousing and fulfillment costs, credit card fees and customer service costs.

Our Partner segment includes revenues, direct costs and cost allocations associated with sales of inventory owned by our partners. Costs for this segment include product costs, outbound freight and fulfillment costs, credit card fees and customer service costs.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, substantially all of our ~~sales~~ revenues were attributable to customers in the United States. At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, substantially all our ~~fixed assets~~property and equipment were located in the United States.

~~11.~~13. BROKER DEALERS

As part of our Medici blockchain and fintech technology initiatives, we hold a controlling interest in each of two broker dealers, SpeedRoute LLC ("SpeedRoute") and ~~Pro~~PRO Securities LLC ("Pro Securities"), which we acquired in January 2016.

SpeedRoute is an electronic, agency-only FINRA-registered broker dealer that provides connectivity for its customers to U.S. equity exchanges as well as off-exchange sources of liquidity such as dark pools. All of SpeedRoute's customers are registered broker dealers. SpeedRoute does not hold, own or sell securities.

~~Pro~~PRO Securities is a FINRA-registered broker dealer that owns and operates the ~~Pro~~PRO Securities alternative trading system ("ATS"), which is registered with the SEC. An ATS is a trading system that is not regulated as an exchange, but is a licensed venue for matching buy and sell orders. The ~~Pro~~PRO Securities ATS is a closed system available only to its broker dealer subscribers. ~~Pro~~PRO Securities does not accept orders from non-broker dealers, nor does it hold, own or sell securities.

SpeedRoute and ~~Pro~~PRO Securities are subject to the SEC's Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. At ~~September~~June 30, ~~2018,~~2019, SpeedRoute had net capital of ~~$873,707,~~$780,173, which was ~~$746,775~~$615,124 in excess of its required net capital of ~~$126,932~~$165,049 and SpeedRoute's net capital ratio was ~~2.18~~3.17 to 1. At ~~September~~June 30, 2018, Pro Securities had net capital of $55,572 which was $50,572 in excess of its required net capital of $5,000 and Pro Securities net capital ratio was 0.34 to 1. At December 31, 2017, SpeedRoute had net capital of $334,848, which was $233,485 in excess of its required net capital of $101,363 and SpeedRoute's net capital ratio was 4.5 to 1. At December 31, 2017,2019, PRO Securities had net capital of ~~$24,175,~~$59,312 which was ~~$19,175~~$54,312 in excess of its required net capital of $5,000 and PRO Securities net capital ratio was ~~1.3~~0.34 to 1. At December 31, 2018, SpeedRoute had net capital of $1,251,579, which was $1,152,854 in excess of its required net capital of $98,725 and SpeedRoute's net capital ratio was 1.2 to 1. At December 31, 2018, PRO Securities had net capital of $13,958, which was $8,958 in excess of its required net capital of $5,000 and PRO Securities net capital ratio was 2 to 1.

SpeedRoute and ~~Pro~~PRO Securities did not have any securities owned or securities sold, not yet purchased at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

~~12. RELATED PARTY TRANSACTIONS~~

~~PCL L.L.C. term loan repayment~~14. SUBSEQUENT EVENTS

On ~~November 6, 2017,~~July 30, 2019, we entered into a loan agreement with PCL L.L.C., an entity directly or indirectly wholly-owned by the mother and brother of our President and Chief Executive Officer, Dr. Patrick M. Byrne ("Dr. Byrne"). The agreement provides for a $40.0 million term loan (the "PCL Loan") which carries an annual interest rate of 8.0%. On May 8, 2018,announced that our Board of Directors ~~approved~~declared a ~~prepayment~~dividend (the "Dividend") payable in shares of our Series A-1 Preferred Stock. The record date for the Dividend will be September 23, 2019, and the payment date for the Dividend will be November 15, 2019. The Dividend will be payable at a ratio of 1:10, meaning that one share of Series A-1 will be issued for every ten shares of common stock, Series A-1 or Voting Series B Preferred Stock held by all holders of such shares as of the ~~PCL Loan and we repaid~~record date. Existing Series A-1 shares can currently be traded on the ~~entire outstanding balance under the loan plus accrued interest.~~

~~SiteHelix~~

~~On June 28, 2018, we entered into and concurrently closed~~PRO Securities ATS operated by PRO Securities, LLC, a ~~Stock Purchase Agreement with the stockholders~~subsidiary of SiteHelix, Inc., a Delaware corporation ("SiteHelix") pursuant to which we purchased all of the common stock of SiteHelix for $500,000 plus 100,000 shares of Overstock common stock with a transaction date fair value of $2.9 million for an aggregate purchase price of $3.4 million.Overstock.com. The transaction was accounted for as an asset purchase. Saum Noursalehi, who owned approximately 62% of the SiteHelix common stock, is a member of our Board of Directors and served as President, Retail, of Overstock until May 8, 2018, when he became Chief Executive Officer of tZERO.

~~Bitsy Agreement~~

In July 2018, Medici Ventures entered into a stock purchase agreement with Bitsy, Inc. ("Bitsy") to acquire an additional 25% equity interest in Bitsy for $3.0 million and $1.5 million worth of Overstock.com common stock (47,378 shares). Subsequent to the purchase, Medici Ventures holds a 33% interest in Bitsy. Bitsy is a U.S.-based startup company founded and 25% owned by Medici Ventures' chief operating officer and general counsel, Steve Hopkins. Bitsy plans to build a regulatory-compliant bridge between the U.S. Dollar and cryptocurrencies and offer our customers the ability to purchase cryptocurrencies on or through the Bitsy app and our Website.

~~Chainstone Labs~~

In September 2018, Medici Ventures entered into a stock purchase agreement with Chainstone Labs, Inc. ("Chainstone") to acquire a 29% equity interest in Chainstone for $3.6 million. Chainstone is a U.S.-based startup company founded and 71% owned by a Board member of Medici Ventures, Bruce Fenton. Chainstone is focused on blockchain, tokenization of securities, and decentralized asset management.

~~Medici Land Governance~~

Medici Land Governance Inc., a Delaware public benefit corporation ("MLG"), was recently formed by Medici Ventures with Dr. Byrne. Pursuant to the Subscription Agreements dated September 21, 2018, Medici Ventures contributed certain of its assets, including intellectual property relating to technologies regarding land governance and property rights, to MLG in exchange for 510,000 shares of MLG common stock and at the same time Dr. Byrne personally contributed $6.7 million in cash to MLG in exchange for 390,000 shares of MLG common stock. At the same time MLG, Medici Ventures and Dr. Byrne entered into a Stockholders Agreement dated September 21, 2018 regarding MLG (the "MLG Stockholder Agreement"). The MLG Stockholder Agreement restricts the transfer of the shares held by Medici Ventures and Dr. Byrne, creates rights of first refusal in favor of MLG, Medici Ventures and Dr. Byrne to acquireSeries A-1 shares to be ~~sold by Medici Ventures or Dr. Byrne, creates purchase rights in favor of MLG and Medici Ventures~~issued in the ~~event of the death or incapacity of Dr. Byrne, creates preemptive rights in favor of MLG~~dividend are anticipated to be subject to restrictions on resales under federal and Medici Ventures if MLG proposes to sell capital stock to any other person (subject to certain exceptions), provides for voting for board members, and requires a supermajority consent of the stockholders for any sale of MLG or substantially all of its assets, merger, consolidation, or other transaction having substantially the same effect.

As a result of the transactions described above, Medici Ventures holds approximately 57% of the outstanding capital stock of MLG, and Dr. Byrne, our President and Chief Executive Officer, a member of our board of directors and our largest stockholder, holds approximately 43% of the outstanding capital stock of MLG. Dr. Byrne is also a member of the board of directors of MVI and is a member of the board of directors of MLG. state securities laws.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

This Report on Form 10-Q and the documents incorporated herein by reference, as well as our other public documents and statements our officers and representatives may make from time to time, contain forward-looking statements within the meaning of ~~Section 27A of~~ the ~~Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.~~federal securities laws. These statements relate to our financial condition, liquidity, results of operations, earnings outlook and prospects. You can find many of these statements by looking for words such as "may," "would," "could," "should," "will," "expect,"

~~"anticipate,~~ "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 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. ~~We claim the protection of the safe harbor provided by the Private Securities Litigation Reform Act of 1995, as amended, for all such forward-looking statements.~~

Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly any revisions to any forward-looking statements made or incorporated by reference in this report. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including the risks set forth in the "Risk Factors" section of this report, ~~and~~ the risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018, and the risks described in our Quarterly ~~Report~~Reports on Form 10-Q for the quarters ended March 31, ~~2018~~2019 and June 30, ~~2018.~~2019. Our forward-looking statements include all statements other than statements of historical fact including, without limitation, all statements regarding:

our strategies and plans for our ~~e-commerce~~retail business and our Medici businesses, including our tZERO initiatives;

the possibility that we will sell or attempt to sell our retail business or pursue or attempt to pursue aone or more other strategic ~~alternative~~alternatives that could change our business dramatically, ~~including the possibility and potential effects of a sale of our e-commerce business,~~ as well as the possibility that we will determine not to sell or attempt to sell our retail business or pursue any other strategic alternative at all in the foreseeable future;

whether we would or would not submit any sale of our ~~expectation that if~~retail business to a vote of our stockholders;

whether we ~~sell our e-commerce business for cash and retain the after-tax~~would or would not distribute any proceeds of ~~the~~any sale ~~we would return a portion~~ of ~~the after-tax proceeds~~our retail business to our stockholders ~~within 12 months after~~by any ~~such sale, by~~ means ~~of a stock repurchase program, dividend, one~~ or ~~more issuer tender offers or other means;~~

~~all statements of~~use those proceeds in our expectations regarding the "Capital on Demand" Sales Agreement we have entered into with JonesTrading Institutional Services LLC, including any statement about our ability to raise additional capital pursuant to such agreement;

~~all statements of our expectations regarding the term sheets we and tZERO signed with GSR Capital in August 2018 and the Token Purchase Agreement we signed with GSR Capital in August 2018;~~

~~our expectations regarding the effects on us of the recent Tax Cuts and Jobs Act;~~blockchain initiatives;

our expectations regarding the costs, benefits and risks of Medici Ventures' ~~efforts to develop blockchain applications~~ and tZERO's ~~efforts to develop financial technology ("fintech") applications,~~initiatives, including ~~applications using blockchain technology~~their acquisitions or purchases of interests in other companies;

potential negotiated equity investments in Overstock and/or tZERO, including the timing of such investments and ~~how effectively that technology will be adopted,~~their likelihood of closing on the agreed upon time frames, if at all;

the plans of tZERO and Medici Ventures and the costs, benefits and risks of their initiatives, including those of tZERO's ownership of SpeedRoute and PRO Securities;

our expectations regarding the costs, benefits and risks of the ~~operations of tZERO;~~

~~all statements regarding the plans of tZERO or Medici Ventures;~~

~~our expectations regarding the costs, benefits and risks of tZERO's ownership of SpeedRoute and PRO Securities, each of which is a registered broker dealer;~~

our expectations regarding the costs, benefits and risks of having less than wholly-owned subsidiaries, including our indirect approximately 80% owned subsidiary tZERO and our currently wholly-owned subsidiary Medici Ventures, which has issued stock options to employees and consequently may not be wholly-owned in the future;

~~all statements regarding the~~ tZERO security token offering including the possibility that the proceeds of the security token offering might be treated as income to us for federal income tax purposes, and might be treated as a liability rather than equity for accounting purposes;completed in 2018;

our expectations regarding the costs, benefits and risks of our efforts and plans to advertise or offer ~~financial product and services offerings on our website, including discount stock brokerage trading services, automated investment advisory services, accredited investor verification services, and~~ other ~~financial service offerings and other~~additional businesses, innovations and projects that we or our subsidiaries may engage in, offer or advertise in the future;

our expectations regarding Medici ~~Ventures' funding of~~Land Governance Inc., a newly-formed public benefit corporation;

our efforts to ~~create a system to help areas of the world that lack reliable widely-recognized land-titling and record-keeping processes implement blockchain-based systems for doing so;~~

improve our ~~plans to modify our branding and marketing strategy;~~

~~our beliefs regarding our ability to attract and retain customers in a cost-efficient manner;~~

~~the anticipated effectiveness of or potential improvements~~natural search results in our ~~marketing;~~

retail business;

our future operating ~~and~~or financial results, ~~including any projections of revenue, profits or losses, contribution, technology expense, general and administrative expense, cash flow, capital expenditures~~ or other ~~financial measures or amounts~~GAAP or non-GAAP financial measures or amounts or anticipated changes in any of them;

our beliefs and expectations regarding the adequacy of our facilities, including leased and any third-party operated warehouse facilities, as well as the possibility that we may add distribution centers or other distribution facilities to our distribution system and our expectations regarding the results of any such additions;

~~our future~~ capital requirements and our ability to ~~satisfy our capital needs;~~fund them;

the adequacy of our liquidity and our ability, if any, to increase our liquidity or capital ~~resources through traditional capital raising or otherwise;~~resources;

tZERO's plans, including without limitation its plans ~~to develop~~regarding its Token Trading ~~System and all statements about tZERO's plans and expectations regarding tZERO's~~Systems, as well as its joint venture with Box Digital;

~~whether the tZERO Token Trading System will be able to comply with SEC rules and regulations;~~

our plans and expectations regarding the costs, benefits, and risks of attempting to develop technology applications including applications using or relating to blockchain technology and our plans to commercialize any of these potential applications;

the competition we currently face and anticipate;

the effects of current and future government regulation;

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our expectations for our international sales ~~efforts;~~

efforts and the anticipated results of our ~~efforts to provide multi-channel fulfillment services;~~international operations;

our plans for further changes to our business;

~~our expectations and beliefs regarding our ability to effectively change business strategies, including by increasing or decreasing our e-commerce branding and marketing expenditures;~~

our beliefs regarding current or future litigation or regulatory actions or fines, including our expectations regarding the investigation the Division of Enforcement of the Securities and Exchange Commission is conducting and its request for information and documents related to tZERO and the tZERO security token offering;

~~our beliefs and expectations regarding existing and future tax laws and related laws and the application of those laws to our business including the results of tax assessments we receive periodically;~~

~~our beliefs regarding the adequacy of our insurance coverage;~~

our beliefs regarding the adequacy and anticipated functionality of our infrastructure, including our backup facilities and beliefs regarding the adequacy of our disaster planning and our ability to recover from a disaster or other interruption of our ability to operate our Website;

our beliefs regarding our cybersecurity efforts and measures and our efforts to prevent data breaches and the costs we will incur in our ongoing efforts to avoid interruptions to our product offerings and other business processes from cyber-attacks and from data breaches;

~~our ability to maintain or improve upon customer service levels that we and our customers consider acceptable;~~

~~our beliefs regarding the adequacy of our order processing systems and our fulfillment and distribution capabilities;~~

our belief that we and our partners will be able to maintain inventory levels at appropriate levels despite the seasonal nature of our business and the rapid changes we encounter in customer demand for various products;

our expectations regarding our emphasis on home and garden product offerings;

our ~~belief that~~expectations regarding our shipping costs and timing of shipments;

our expectations regarding our potential liabilities or exposure to claims under Delaware's Abandoned Property Law;

our expectations regarding the actual costs of our employees' health insurance claims for which we ~~can successfully offer and sell a constantly changing mix of products and services;~~may be liable; and

our other statements about the anticipated benefits and risks of our business and plans.

~~Our~~Further, in some cases, you can identify forward-looking statements by terminology such as may, will, could, should, likely, expect, plan, seek, intend, anticipate, project, believe, estimate, predict, potential, goal, strategy, future or continue, the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those contemplated by our forward-looking statements for a variety of reasons, including among others:

any changes we may make to our business as a result of our current ongoing review of potential strategic alternatives, which could involve a sale of our e-commerce business, additional equity or debt financings, or other significant changes to our business;

the possibility that we may sell our ~~e-commerce~~retail business ~~for cash~~ and retain ~~some or all of~~ the after-tax proceeds of the sale for use in our blockchain initiatives, which ~~could~~would result in our stockholders owning equity interests in a publicly-held corporation seeking to develop entirely new businesses and revenue streams, without the benefits of our current ~~e-commerce~~retail business and the ~~approximately $1.7 billion it generates in~~significant annual net revenues that it generates, but with most if not all of the expenses of operating a publicly-held corporation;

the potentially substantial corporate level income tax expense we could incur if we were to sell our ~~e-commerce~~retail business in a taxable transaction;

the possibility that our ~~publicly-disclosed~~well-publicized review of potential strategic alternatives including the potential sale of our retail business may distract our management and other employees, may cause members of our management and/or other key employees to seek employment elsewhere, and may have adverse effects on our business and financial results;

the technical, operational, financial, regulatory, legal, reputational, marketing and other obstacles we face in trying to create a profitable business ~~with significant revenues~~ from our blockchain initiatives;

our ability to reach a definitive agreement, enforce definitive agreements already entered, or complete a capital raising transaction for tZERO on the ~~possibility that we will be unable to raise the amount of capital we may need to continue funding both our e-commerce business losses and our blockchain initiatives as~~terms contemplated by the previously-disclosed memorandum of understanding and/or binding agreements we signed with GSR ~~term sheets or otherwise;~~

~~the possibility that the recent Tax Cuts~~Capital and ~~Jobs Act will have adverse effects on us in addition to those we have already identified;~~Makara Capital;

the possibility that the proceeds of the ~~tZERO~~ security token offering completed by tZERO in 2018 might be treated as income to us for federal income tax purposes;

~~the possibility that the tZERO security token offering could result in claims against tZERO and/or us;~~

the effects of changes we have recently made and of additional changes we may make in the future to the amount of our sales and marketing expenditures, which could continue to have an adverse effect on our near-term financial results as they did in the first nine months of 2018;

~~the costs of, and difficulties we have encountered and may continue to encounter with, the implementation of our strategies for our e-commerce business;~~

the possibility that we may be unable to fund our plans for sales and marketing activities, additional new distribution facilities, our technology platforms, our Club O rewards program, our private label strategy, and other e-commerce initiatives, and also continue to fund our blockchain initiatives at the level we think appropriate;

~~the efficiency of our e-commerce marketing and its effect on our business strategy;~~

~~the cost and availability of online and traditional advertising, and the results of our various brand building and marketing campaigns;~~

difficulties we have encountered and continue to encounter with ~~our~~changes that Google has made to its natural search ~~results;~~engine algorithms, which have periodically resulted in lower rankings of our products and may continue to do so, and future changes that Google and other search engine companies may make to their natural search engine algorithms, which may have similar effects on us;

increasing competition, including ~~competition~~ from ~~well-established competitors including Amazon.com, competition~~Amazon, from ~~competitors based~~well‑funded companies willing to incur substantial losses in ~~China or in other relatively low-cost jurisdictions, competition from well-funded companies, including Wayfair,~~order to build market share, and from others including ~~Amazon and other~~ competitors with ~~business models that include~~ delivery capabilities that we cannot currently match and do not expect to be able to match in the foreseeable future;

difficulties we may encounter in connection with our efforts to offer services to our customers outside of our ~~e-commerce business, including the credit, insurance, discount brokerage trading services, automated investment advisory services, and accredited investor verification services we advertise or offer;~~retail business;

difficulties, including expense and any operational or regulatory issues we may encounter in connection with tZERO or its ~~subsidiaries, including its two registered broker-dealers, SpeedRoute and PRO Securities;~~subsidiaries;

technical, operational, regulatory or other difficulties we may encounter with our Medici or tZERO blockchain orand financial technology initiatives, including any difficulties we ~~or tZERO~~ may have marketing any products or services tZERO may offer, whether due to lack of market size or acceptance or as a result of competition from any of the numerous competitors seeking to develop competing technologies or systems or as a result of patents that may be granted to other companies or ~~persons;~~persons, and losses we may continue to incur in connection with our Medici and tZERO blockchain and ~~financial~~ technology initiatives;

~~the possibility that blockchain technology may be adopted more slowly than we anticipate;~~

the fact that tZERO necessarily allocates its limited resources among the projects it is pursuing, and at present has re-allocated developers from working on its DLR Software to working on other projects, and at present does not have an agreement with a retail broker-dealer that will be necessary for the operation of the DLRs;

the difficulties tZERO will face in attempting to market its DLR Software, and the possibility that we and/or tZERO have overestimated the demand for, and/or the size of the intended market for the DLR Software or may face regulatory issues related to the DLR Software;

the substantial technical, operational, financial, regulatory, legal, marketing and other obstacles to tZERO's plans to create and launch a U.S. national exchange with regulatory approval to trade security tokens, including any difficulties tZERO may have with its joint venture with Box Digital;

the difficulties tZERO will face in attempting to generate revenues from blockchain-based applications of any ~~nature;~~nature, including its potential DLR software product;

~~Medici Ventures' current business model of providing the services of its developers at Medici Ventures' cost to companies in which Medici Ventures owns an interest;~~

~~any difficulties we may have with the interests in other companies that we or Medici Ventures or tZERO may own or acquire in the future, including any additional~~ impairment charges we may recognize with respect to ~~any of them;~~

~~the substantial obstacles~~assets or businesses that we, Medici Ventures faces in connection with its efforts to fund the creation of a system to help areas of the world that lack reliable widely-recognized land-titling and record-keeping processes implement blockchain-based systems for doing so, including the substantial difficulties itor tZERO have acquired or may ~~encounter with persons who benefit from existing locally-recognized systems currently in use in many places;~~acquire;

any liability or expense we may incur as a result of our interests in other companies, whether as a result of regulatory issues or otherwise;

~~the current downturn in portions~~

Table of ~~the U.S. housing market, which at least one article published in late July 2018 by a nationally-recognized online news service said "appears to be headed for the broadest slowdown in years," and~~ Contents

any ~~broader or deeper~~ downturn in the U.S. housing ~~market~~industry or other changes in U.S. and global economic conditions or U.S. consumer spending;

the ~~effects of recent tariffs or the~~ imposition of ~~additional~~ tariffs or occurrence of other ~~events or circumstances~~factors that increase the price of importing into the U.S. the types of merchandise we sell in our ~~e-commerce business or make it more difficult to import or obtain such merchandise;~~

~~our failure to maintain our existing relationships with our fulfillment partners or build new relationships with fulfillment partners on acceptable terms;~~

~~our failure to maintain optimal levels of product quality, quantity and assortment or to attract sufficient consumer interest in our product offerings;~~

~~any claims we may face regarding the quality, safety or labelling of the products we offer;~~retail business;

modifications we may make to our business model from time to time, including aspects relating to our product mix and the mix of direct/partner sourcing of the products we offer, and difficulties we may encounter as a result of our efforts to change various aspects of our business model frequently and rapidly;time;

the mix of products purchased by our customers and changes to that mix;

any claims we may face regarding cyber security issues or data breaches or difficulties we encounter regarding Internet or other infrastructure or communications impairment problems or the costs of preventing or responding to any such problems, including cyber security issues or data breaches that could result from cyber security issues or data breaches at companies with which we do business or at companies with which our customers do business;problems;

any problems with or affecting our payment card processors, including cyber-attacks, Internet or other infrastructure or communications impairment or other events that could interrupt the normal operation of the payment card processors or any difficulties we may have maintaining compliance with the rules of the payment card processors;

any future substantial decrease in our liquidity, whether as a result of our e-commerce business operations, our blockchain or fintech initiatives, or as a result of the expenses or results of governmental inquiries or investigations or litigation or other claims against us, and the possibility that we will be unable to raise additional capital or obtain financing ~~or any other source of liquidity~~ adequate to enable us to continue our operations;

problems with or affecting the facility where substantially all of our computer and communications hardware is located or other problems that result in the unavailability of our Website or reduced performance of our transaction systems;

~~any liabilities that may be asserted against us for not having collected sales tax in jurisdictions in which we did not do so;~~

any losses or issues we may encounter as a consequence of accepting or holding bitcoin or other cryptocurrencies, whether as a result of regulatory, tax or other legal issues, technological issues, value fluctuations, lack of widespread adoption of bitcoin or other cryptocurrencies as an acceptable medium of exchange or otherwise;

~~difficulties we may have in responding to technological changes;~~

~~losses we may incur due to fraud or our inability to prevent or limit fraud;~~

~~claims or other problems we may encounter as a result of the listing or sale on our Website of pirated, counterfeit or illegal items;~~

~~any environmental liabilities we may incur relating to the real estate owned by one of our wholly-owned subsidiaries and on which our corporate headquarters is located;~~

~~any failure of any of our product or service offerings outside of our main shopping Website offerings to provide the benefits we expect from them;~~

any difficulties we may encounter as a result of our reliance on numerous third parties that we do not control for the performance of critical functions material to our business;

~~any difficulties we may encounter in connection with the rapid shift of e-commerce and online payments to mobile and multi-channel commerce and payments;~~

~~our inability to increase market share or revenue in accordance with our plans;~~

~~additional difficulties we may have with our efforts to increase our revenues at an acceptable cost in accordance with our plans and to return to profitability;~~

difficulties we may encounter in connection with our efforts to emphasize our home and garden product offerings and to brand ourselves as a home and garden shopping destination, including the risk that our sales of home and garden product offerings could decrease substantially as a result of a significant downturn in some or all of the U.S. housing market;

~~fluctuations in our operating results;~~

difficulties we may encounter in connection with our efforts to expand internationally, including claims we may face and liabilities we may incur in connection with those efforts;

adverse results in legal proceedings, investigations or other claims, and costs we may incur in connection with any of them, including the costs of responding to the investigation the Division of Enforcement of the Securities and Exchange Commission is conducting;claims;

any difficulties we may have optimizing our warehouse operations;

~~the risks of inventory management and seasonality, particularly with inventory subject to rapid price declines;~~

any decrease in the ~~rate~~volume of ~~growth of e-commerce,~~retail sales, particularly in home goods, and the occurrence of any event that would adversely affect e-commerce or discourage or prevent consumers from shopping online or via mobile apps;

the possibility that we will suffer adverse consequences as a result of one or more of the related party transactions we have entered into or other related party transactions that we may enter into in the future; 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 or elsewhere in this report and the risks described in our Report on Form 10-K for the year ended December 31, ~~2017 filed with the SEC on March 15,~~ 2018 and ~~those~~the risks described in our Quarterly ~~Report~~Reports on Form 10-Q for the ~~quarter~~quarters ended March 31, ~~2018~~2019 and June 30, 2019 filed with the SEC, ~~on May 8, 2018, and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed with the SEC on August 9, 2018,~~ especially under the headings "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 in this report. 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.

~~Available Information~~

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Investor Relations section of our main website www.overstock.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our website and the information contained therein or connected thereto are not a part of or incorporated into this Quarterly Report on Form 10-Q.

Overview

We are an online retailer and advancer of blockchain technology. Through our online retail business, we offer a broad range of price-competitive products, including furniture, home decor, bedding and bath, housewares, ~~jewelry and watches,~~ among other products. We sell our products and services through our Internet websites located at www.overstock.com, www.o.co and www.o.biz (referred to collectively as the "Website"). Although our three websites are located at different domain addresses, the technology and equipment and processes supporting the Website and the process of order fulfillment described herein are the same for all three websites. Our retail business initiatives are described in more detail below under "Our Retail Business".

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~~In late 2014, we began working on~~

Our Medici business initiatives seek to develop and advance the concepts of "Government as a Service" and a "Technology Stack for Civilization" by creating or fostering a set of products and solutions that leverage the transparency and immutability of blockchain technology ~~which we refer~~ to ~~collectively as Medici. As part~~generate efficiencies and increase security and control in six areas of ~~our~~civilizational necessity: identity management, property rights and management, central banking and currencies, capital markets, supply chains and commerce, and voting systems. Our Medici business initiatives ~~we have formed a~~include our wholly-owned subsidiary, Medici Ventures, Inc. ("Medici Ventures") ~~and acquired a~~, which conducts the majority ~~interest in a financial technology company and two related registered broker dealers which are owned by our~~of its business through its majority-owned subsidiary tZERO Group, Inc. ("tZERO"), formerly tØ.com, Inc. ~~In 2015, we were the first public~~, a financial technology company ~~to issue a private security using~~pursuing potential financial applications of blockchain ~~technology and in December 2016,~~technologies as ~~a demonstration of our technology, we issued publicly traded blockchain preferred shares of Overstock.com, Inc.~~well as non-blockchain businesses. Medici Ventures

~~also~~ currently holds minority equity interests in several ~~blockchain~~ technology ~~companies.~~companies whose focuses include the areas mentioned above. Our Medici ~~Ventures has assembled~~business initiatives are described in more detail below under "Our Medici Business—Medici Ventures" and our tZERO business initiatives are described in more detail below under "Our Medici Business—tZERO".

We are considering a ~~core blockchain development group~~range of ~~software engineers, developers,~~potential transactions, including a sale of our retail business and additional equity or debt financings. Our Board of Directors continually discusses a variety of potential strategic and financial options and other ~~technologists that provide services~~changes to our business, but has not approved or made any determination to consummate any strategic transaction, and may choose not to do so in the ~~blockchain community on a contract basis as requested, including the companies in which we hold a minority interest.~~In 2018, tZERO acquired majority-ownership interests in a registered investment adviser entity and an accredited investor verification entity and further purchased minority interests in multiple financial services companies, including an equity interest in a joint venture with BOX Digital Markets LLC to pursue the development of the first U.S. security token exchange.foreseeable future or at all.

Our company, based near Salt Lake City, Utah, was founded in 1997. We launched our initial website in March 1999 and were re-incorporated in Delaware in 2002. As used herein, ~~"Overstock,"~~"Overstock", "Overstock.com", "O.co", "the Company", "we," "our" and similar terms include Overstock.com, Inc. and our majority-owned subsidiaries, unless the context indicates otherwise.

Our ~~Business~~

Retail Business

Our retail business, through June 30, 2019, generated nearly all of our net revenues. In our retail business, our goal is to provide goods to furnish and accessorize "dream homes" for our target customers—consumers who seek quality, stylish merchandise at bargain prices. At June 30, 2019, we ~~deal~~offered 3.4 million products (9.4 million SKUs), of which over 99% were in-line products (products in active production), including more than 30,000 private label products offered under twelve private label brands. We believe that the furniture and home goods market, which is highly fragmented and has traditionally been served by brick and mortar stores, will continue transitioning to online sales, particularly as Millennial consumers (defined as those aged 20-36), who are generally comfortable shopping online, start families and move into new homes. We regularly change our product assortment to meet the evolving preferences of our customers and current trends. Our products include, among others, furniture, home décor including rugs, bedding and bath, home improvement, and kitchen items. We compete primarily based on:

Quality customer experience with an emphasis on price, value, and a wide assortment of products delivered in ~~price-competitive, new~~a personalized format with the convenience of our mobile app, and ~~replenishable merchandise~~with the benefits of our award-winning customer care;

Proprietary technologies which we believe help us provide our customers with a quality shopping experience;

Logistics capabilities tailored to the furniture and home goods category and developed over our many years of e-commerce experience;

Long-term mutually beneficial relationships with our partners, which currently number approximately 4,000; and

Our Club O Loyalty Program, which we believe increases customer engagement and retention.

For the quarter ended June 30, 2019, nearly all our retail sales through our Website were from transactions in which we fulfilled orders through our network of approximately 4,000 third-party manufacturers, distributors and other suppliers ("partners") selling on our Website. Our use of the ~~Internet to aggregate both supply and demand to create an efficient marketplace for selling these products.~~term "partner" does not mean that we have formed any legal partnerships with any of our retail partners. We provide our customers an opportunity to conveniently shop for a broad range of price-competitive products. We continually add new, and sometimes limited, inventory to our Website in order to create an atmosphere that encourages customers to visit frequently and purchase products before our inventory sells out. We provide supplierspartners with access to a large customer base and convenient services for order fulfillment, customer service, returns handling, and other services. ~~The merchandise offered on~~Our supply chain allows us to ship directly to our customers from our suppliers or from our warehouses. Our retail sales also includes direct sales of our own inventory shipped from our warehouses, including some customer returns of partner products.

During the quarters ended June 30, 2019, 2018 our sales were almost entirely to customers located in the United States and no single customer accounted for more than 1% of our total net revenue.

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Additional Offerings

We offer additional products or services that may complement our primary retail offerings, but are not significant to our retail revenues. These include:

Our international business where we offer products to customers outside the United States using third-party logistics providers;

Worldstock Fair Trade, a store within our Website isthat offers handcrafted products made by artisans all over the world to help improve the lives of people in emerging economies;

Pet Adoptions, a free service and portal within our Website that leverages our technology to display pets available for adoption from shelters across the United States;

Overstock Hotels, a ~~variety~~free service and portal within our Website that enables customers to search and book hundreds of ~~sources~~thousands of properties worldwide, including ~~well-known, brand-name manufacturers. Consumers~~big box brands, modern boutiques, and ~~businesses are able to access~~more;

Supplier Oasis, a single integration point through which our partners can manage their products, inventory and ~~purchase~~sales channels, and also obtain multi-channel fulfillment services through our products 24 hours a day from the convenience of a computer, Internet-enabled mobile telephone or other Internet-enabled device. Our team of customer service representatives assists customers by telephone, instant online chatdistribution network; and ~~e-mail. We also derive revenue from other businesses~~

Businesses advertising products or services on our Website. ~~Our sales are primarily to customers located in the United States.~~

~~We have organized our retail business (sales of product offered through the Shopping Section of our Website) into two principal segments-a "direct" business and a "partner" business.~~ Our retail direct business includes sales made to individual consumers and businesses from our owned inventory and that are fulfilled primarily from our warehouses in Salt Lake City, Utah, Carlisle, Pennsylvania, and Kansas City, Kansas.

For our retail partner business, we sell merchandise from manufacturers, distributors and other suppliers ("partners") primarily through our Website. We are considered to be the principal and control the specific good or service before it is transferred to the customer for the majority of these sales transactions and we record revenue from the majority of these sales transactions on a gross basis. Our use of the term "partner" does not mean that we have formed any legal partnerships with any of our partners. These third-party partners generally perform the same fulfillment operations as our warehouses, such as order picking and shipping; however, we handle returns and customer service related to substantially all orders placed through our Website. Revenue generated from sales on our Shopping site from both the direct and partner businesses is recorded net of returns, coupons and other discounts.

~~Both direct and partner~~Retail revenues are seasonal, with revenues historically being the highest in the fourth quarter, which ends December 31, reflecting higher consumer holiday spending. WeWhile we had lower sales volume during Q4 2018, we anticipate ~~this will~~the trend of higher sales volume during our fourth quarter to continue for the foreseeable future. To the extent possible we maintain supplier relationships and seek new supplier relationships for ~~both~~ our direct and partner businesses, and also use our working capital, to ensure a continuous allotment of product offerings for our customers. Because a portion of our product offerings are closeout merchandise, some of our suppliers cannot supply products to us on a continuous basis.

~~Medici business~~retail businesses.

Our Medici ~~business initiatives seek~~Business

Medici Ventures

Medici Ventures' strategy is to develop and advance the concepts of "Government as a Service" and a "Technology Stack for Civilization" by creating or fostering a set of products and solutions that leverage ~~the~~blockchain technology to generate efficiencies and increase security ~~transparency~~ and ~~immutability of cryptographically protected, distributed ledgers, such as blockchains, and are focused on solving important problems, including financial transaction issues, particularly~~control in ~~the~~six areas of ~~securities settlement,~~civilizational necessity: identity management, property rights and management, central banking and currencies, capital markets, supply chains and commerce, and voting systems. A blockchain is a cryptographically secured, distributed infrastructure, or network, which may be accessed and, in some cases, maintained by each member of the network. Medici Ventures has a team of approximately 41 software engineers, developers and other technologists who work in blockchain development and deployment and enterprise level software development and deployment. Medici Ventures provides the services of its software engineers, developers, or other technologists to other blockchain companies. Medici Ventures also owns strategic minority equity interests in several blockchain-related companies, each of which focuses on at least one of the Government as a Service or Technology Stack for Civilization areas mentioned above. Medici Ventures takes an active interest in and holds seats on the boards of some of these companies. These companies include technology companies whose focuses include commercial blockchain applications ~~capital markets applications, digital currency,~~for identity and social media, property and land, money and banking, ~~applications, compliance, personal identity, voting,~~capital markets, supply chain, ~~social media,~~ and ~~property and land applications. Our wholly-owned subsidiary,~~voting. All of the companies in which Medici Ventures ~~conducts~~holds strategic equity interests are startup businesses, businesses in the development stage, or businesses with a short operating history. The majority of Medici Ventures' business is its ~~primary business through its majority-owned subsidiary~~80% interest in tZERO, which, ~~includes~~as described below, is a financial technology company ~~two related registered broker dealers, a registered investment advisor, and an accredited investor verification company. tZERO also holds minority interests~~pursuing potential financial applications for blockchain technologies.

~~in multiple~~tZERO

tZERO is a financial ~~services companies, including~~technology company pursuing financial applications utilizing blockchain technologies as well as non-blockchain technologies. tZERO’s primary focus at present is on its recent launch of a facility for the trading of digital security tokens on an ~~equity interest in a~~Alternative Trading System ("ATS") and on its joint venture with BOX Digital Markets LLC ("BOX Digital") intended to ~~pursue the development of the first U.S. security token exchange.~~

As described further in Item 1 of Part I, "Financial Statements (Unaudited)"—Note 10. Business Segments, we determined our segments based on how we manage our business, which, in our view, consists primarily of our Retail and Medici businesses. As described above, our Retail business consists of our Direct and Partner reportable segments. We use gross profit as the measure to determine our reportable segments because there is not discrete financial information available below gross profit for our Direct and Partner segments. As a result, our Medici business risk is not significant as compared to our Direct and Partner segments and is included in Other. Our Other segment consists of Medici Ventures and its subsidiaries, including tZERO.

~~Recent tZERO Business Developments~~

An important part of tZERO's strategy is to buy, build, or partner with other entities in order to aggregate all the necessary components to have end-to-end ownership of the first fully regulated security token trading, clearing and settlement platform. As previously announced in early 2018, tZERO purchased a 24% equity interest in StockCross Financial Services, Inc. ("StockCross"), which is an affiliate of Siebert Financial Corp. ("Siebert"), and an interest in Siebert, for $12 million. tZERO also purchased a 1% interest in Kennedy Cabot Acquisition, the majority stockholder of Siebert, and an interest in Siebert, for $1 million. Our equity interest in StockCross was a step toward achieving our strategy by adding a partner with the custodial and clearing functionality ofdevelop a U.S. ~~DTCC member firm. We also intended~~national securities exchange (the "Exchange") with regulatory approvals that would enable the Exchange to enter into definitive agreements with StockCross to act as an Introducing Broker and Clearing Broker for security token trading. tZERO has decided not to enter into a definitive agreement with StockCross for security token trading. tZERO anticipates that StockCross may license tZERO's Digital Locate Receipt software upon agreement of mutually acceptable terms. tZERO expects that the stock loan agreement currently in place between StockCross and tZERO's subsidiary SpeedRoute will remain in place.

In addition, as previously announced in early 2018, tZERO entered into a letter of intent contemplating that tZERO would acquire 81% of the outstanding membership interests of Weeden Prime Services, LLC ("WPS"), a U.S. registered broker-dealer, for $18 million through a series of transactions beginning in the third quarter of 2018. tZERO has also decided not to enter into a definitive agreement with WPS. Accordingly, in October 2018, tZERO notified these parties that it no longer intends to pursue such agreements.

During the third quarter of 2018, tZERO began evaluating alternative strategic relationships that may replace one or more roles tZERO expected StockCross to fulfill. tZERO believes it has identified suitable candidates to perform these roles but has not yet entered into definitive agreements with those parties. Management of tZERO will continue to devote time and resources to identify the necessary components for tZERO's trading ecosystem and enter into appropriate licensing and/or other contractual arrangements with one or more entities. Doing so will likely require capital and may cause delays to the development and launch of tZERO's planned trading platform.trade digital securities.

tZERO continues to identify, evaluate and ~~StockCross, including their affiliates,~~pursue various opportunities for strategic acquisitions or purchases of interests to add to the services and expertise it offers its customers. Subject to board approval, tZERO's management exercises substantial discretion in identifying appropriate strategic transactions and negotiating the terms of such transactions. Management's determinations are based on numerous financial, strategic and operational assumptions, and there can be no assurance that such assumptions will prove to be true. Moreover, such strategic transactions may fail to produce the benefits expected at the time of tZERO's acquisitions or purchases of interests.

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The businesses, products, and services that tZERO is pursuing or contemplating will require substantial additional funding, initially for technology development and regulatory compliance, as well as for working capital, marketing and sales, and other substantial costs of developing new products and businesses in emerging areas of technology. These costs have ~~a number of business relationships,~~been and ~~the resolution of some of those relationships~~ are ~~undetermined at this time but could include tZERO's sale of its equity interest in StockCross~~expected to continue to be material, both to tZERO and its affiliates, and/or the possibility of entering into new business relationships with StockCross under terms not previously considered. At present, tZERO expects that the stock loan agreement currently in place between StockCross and tZERO’s subsidiary SpeedRoute will remain in place through its expiration date of March 31, 2019. tZERO does not currently expect the foregoing matters to affect the December 31, 2017 agreement among tZERO, SpeedRoute and Muriel Siebert & Co. Inc. ("Muriel Siebert") pursuant to which Muriel Siebert is currently advertising discounted online trading of U.S. equity securities on Overstock's website; however, revenues associated with such services are currently immaterial to Overstock.

Executive Commentary

This executive commentary is intended to provide investors with a view of our business through the eyes of our management. As an executive commentary, it necessarily focuses on selected aspects of our business. This executive commentary is intended as a supplement to, but not a substitute for, the more detailed discussion of our business included elsewhere herein. Investors are cautioned to read our entire "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as our interim and audited financial statements, and the discussion of our business and risk factors and other information included elsewhere or incorporated in this report. This executive commentary includes forward-looking statements, and investors are cautioned to read "Special Cautionary Note Regarding Forward-Looking Statements."

Revenue decreased 23% in ~~Q3 2018 increased 4%~~Q2 2019 compared to ~~Q3 2017. The growth in revenue~~Q2 2018. This decrease was primarily ~~driven by increased~~due to decreased product sales that resulted from a significant reduction in sales and marketing ~~expenses as~~activities, which was part of our effort to return to retail profitability. In January 2018, we ~~continued~~shifted our retail strategy to ~~more~~ aggressively pursue revenue growth and new customers ~~early~~with a large increase in ~~the quarter. However, we shifted our~~sales and marketing expenses. We discontinued this strategy in ~~early~~ August ~~as we sought~~2018 and have returned to ~~minimize losses, which tapered our revenue growth throughout the quarter. We also saw~~ a ~~6% increase~~disciplined approach to marketing.

Gross profit in ~~average order size (excluding promotional activities)~~Q2 2019 decreased 19% compared to Q2 2018 primarily due to ~~a continued sales mix shift into home and garden products. These increases were~~the decrease in net revenue in the retail business, partially offset by an increase in gross margin. Gross margin increased to 19.8% in Q2 2019, compared to 19.0% in Q2 2018. The increase in gross margin was primarily due to decreased product costs and decreased promotional activities, including coupons and site sales, ~~(which we recognize as a reduction of revenue)~~ due to our driving a ~~higher~~lower proportion of our sales using such ~~promotions, and an increase~~promotions. These decreases in marketplace sales (for which we record only our commission as revenue). While our marketing spend efficiency has improved significantly during Q3 2018, we continue to face challenges in our natural search marketing.

~~Gross profit in Q3 2018 increased 4% compared to Q3 2017 primarily as a result of revenue growth. Gross~~gross margin ~~was 19.7% in Q3 2018, unchanged from Q3 2017. Gross margin was negatively impacted~~components were partially offset by increased promotional activities, but this was offset by a continued shift in sales mix into higher margin home and garden products and an increase in marketplace sales (for which we record only our commission as revenue).freight costs.

Sales and marketing expenses as a percentage of revenue ~~increased~~decreased from ~~10.6%~~19.5% to ~~12.6%~~9.2% in ~~Q3 2018~~Q2 2019 as compared to ~~Q3 2017,~~Q2 2018, primarily due to our return to our historical focus on operational efficiency as we have shifted away from our aggressive retail marketing strategy from early 2018. As part of this effort, ~~to aggressively pursue increased revenue and new customers early~~we significantly reduced spending in the ~~quarter. This included significantly increased spending in the~~sponsored search, display ads on social media, ~~sponsored search,~~ and ~~direct mail~~television marketing ~~channels, as well as increased staff-related costs.~~channels.

Technology expenses in ~~Q3 2018~~Q2 2019 increased ~~$5.1 million~~$730,000 compared to ~~Q3 2017,~~Q2 2018 primarily due to ~~an increase in staff-related costs of $3.4 million and an~~a $678,000 increase in technology licenses and maintenance ~~of $1.6 million.~~costs.

General and administrative expenses in ~~Q3 2018~~Q2 2019 increased ~~$23.7 million~~$524,000 compared to ~~Q3 2017~~Q2 2018, primarily due to ~~$10.8~~a $6.0 million decrease in ~~special legal costs~~cryptocurrency gains from our Q2 2018 sale of cryptocurrency received during the tZERO security token offering (which gains offset our overall General and administrative expenses in ~~Q3 2018 largely related to our gift card escheatment case~~Q2 2018), with no similar gains from such activity in ~~Delaware and capital raising efforts,~~Q2 2019. In addition, we had a ~~$5.1~~$1.0 million increase in staff-related ~~costs,~~expenses and a ~~$3.2 million~~$722,000 increase in corporate insurance costs. These increases were partially offset by a $3.6 million decrease in legal fees, a $2.7 million decrease in consulting expenses, and ~~outside services.~~a $1.2 million decrease in travel expenses.

Liquidity

~~In Q3 2018, our~~Our consolidated cash and cash equivalents balance ~~increased $29.8~~decreased from $141.5 million ~~from $152.2~~as of December 31, 2018 to $121.3 million, ~~to $182.0~~as of June 30, 2019, a decrease of $20.2 million, primarily as the result of cash ~~inflows~~outflows from operating activities of ~~$94.6~~$65.9 million ~~net of offering costs,~~for the six months ended June 30, 2019, which was partially offset by cash inflows from the sale of common stock under our "at the market" sales agreement with JonesTrading ~~and a $6.7~~of $52.1 million, ~~cash inflow from~~net of offering costs (including commissions) during the ~~capital contributions received by a consolidated subsidiary, Medici Land Governance, which was partially offset by cash outflows from operating activities~~first half of ~~$50.2 million for the quarter and $14.1 million in cash outflows related to acquisitions of equity interests in other entities and $7.9 million in expenditures for fixed assets.~~2019.

We continue to seek opportunities for growth in our retail business, through our Medici blockchain and financial technology initiatives, and through other means. As a result of these initiatives, we will continue to incur additional expenses and may purchase interests in, or make acquisitions of, other technologies or businesses. We anticipate that our initiatives may cause us to continue to incur losses in the foreseeable future. These losses, additional expenses, acquisitions or purchases may be material, and, coupled with existing marketing expense trends, and potential strategic changes in our retail business, may lead to increased consolidated losses in some periods, and to reduced liquidity. Additionally, we may recognize additional impairment charges from our ownership interests in other entities.

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The balance of our Management's Discussion and Analysis of Financial Condition and Results of Operations provides further information about the matters discussed above and other important matters affecting our business.

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Results of Operations

The following table sets forth our results of operations expressed as a percentage of total net revenue:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(as a percentage of total net revenue)				(as a percentage of total net revenue)				(as a percentage of total net revenue)				(as a percentage of total net revenue)
Revenue, net
Direct	3.5	%	4.6	%	3.4	%	5.0	%
Partner and other	96.5		95.4		96.6		95.0
Retail									98.3	%	98.9	%	98.5	%	98.8	%
Other									1.7		1.1		1.5		1.2
Total net revenue	100.0		100.0		100.0		100.0		100.0		100.0		100.0		100.0
Cost of goods sold
Direct	3.7		4.6		3.3		4.8
Partner and other	76.6		75.6		76.8		75.4
Retail									78.9		80.2		79.0		79.1
Other									1.3		0.9		1.2		0.9
Total cost of goods sold	80.3		80.3		80.1		80.2		80.2		81.0		80.2		80.0
Gross profit	19.7		19.7		19.9		19.8		19.8		19.0		19.8		20.0
Operating expenses:
Sales and marketing	12.6		10.6		16.6		9.8		9.2		19.5		9.2		18.5
Technology	7.7		6.8		7.1		6.7		8.9		6.7		9.3		6.9
General and administrative	10.3		5.1		8.5		5.2		8.6		6.5		9.7		7.7
Total operating expenses	30.5		22.5		32.2		21.6		26.7		32.8		28.2		33.0
Operating loss	(10.9	)	(2.8	)	(12.3	)	(1.9	)	(6.9	)	(13.8	)	(8.3	)	(13.0	)
Other income (expense), net	(0.4	)	1.3		(0.1	)	0.1
Interest and other income (expense), net									(0.7	)	0.1		(1.1	)	—
Loss before income taxes	(11.2	)	(1.5	)	(12.4	)	(1.8	)	(7.6	)	(13.6	)	(9.5	)	(13.0	)
Benefit from income taxes	—		(1.3	)	—		(0.6	)
Provision (benefit) from income taxes									(0.2	)	—		—		—
Consolidated net loss	(11.2	)%	(0.3	)%	(12.4	)%	(1.2	)%	(7.4	)%	(13.6	)%	(9.5	)%	(13.0	)%

Comparisons of Three Months Ended ~~September~~June 30, ~~2018~~2019 to Three Months Ended ~~September~~June 30, ~~2017,~~2018, and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018

Revenue

The following table reflects our net revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended September 30,									Nine months ended September 30,									Three months ended June 30,									Six months ended June 30,
	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
Revenue, net
Direct	$	15,424	$	19,645	$	(4,221	)	(21.5	)%	$	46,409	$	64,572	$	(18,163	)	(28.1	)%
Partner and other	425,156		404,362		20,794			5.1		1,322,635		1,223,894		98,741			8.1
Retail																			$	367,475	$	477,683	$	(110,208	)	(23.1	)%	$	730,100	$	917,679	$	(187,579	)	(20.4	)%
Other																			6,234		5,450		784			14.4	%	11,338		10,785		553			5.1	%
Total revenue, net	$	440,580	$	424,007	$	16,573		3.9	%	$	1,369,044	$	1,288,466	$	80,578		6.3	%	$	373,709	$	483,133	$	(109,424	)	(22.6	)%	$	741,438	$	928,464	$	(187,026	)	(20.1	)%

The ~~increased~~23% decrease in total net revenue for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily ~~driven by increased~~due to decreased product sales that resulted from a significant reduction in sales and marketing ~~expenses as~~activities, which was part of our effort to return to retail profitability. In January 2018, we ~~continued~~shifted our retail strategy to ~~more~~ aggressively pursue revenue growth and new customers ~~early~~with a large increase in ~~the quarter. However, we shifted our~~sales and marketing expenses. We discontinued this strategy in ~~early~~ August ~~as we sought to minimize losses, which tapered our revenue growth throughout the quarter. We also saw a 6% increase in average order size (excluding promotional activities) primarily due~~2018 and have returned to a ~~continued sales mix shift into home and garden products. These increases were partially offset by increased promotional activities, including coupons and site sales (which we recognize as a reduction~~disciplined approach to marketing.

Table of revenue) due to our driving a higher proportion of our sales using such promotions, and an increase in marketplace sales (for which we record only our commission as revenue). While our marketing spend efficiency has improved significantly during Q3, we continue to face challenges in our natural search marketing.Contents

The ~~increased~~20% decrease in total net revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in 2017, was primarily driven by increased marketing expenses as we more aggressively pursued revenue growth and new customers. Our increased marketing expenses resulted in a 5% increase in orders, and we also saw a 6% increase in average order size (excluding promotional activities) primarily due to a continued sales mix shift into home and garden products. These increases were partially offset by increased promotional activities, including coupons and site sales (which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such promotions, and an increase in marketplace sales (for which we record only our commission as revenue).

~~The decreased direct revenue for the three months ended September 30,~~ 2018, ~~as compared to the same period in 2017,~~ was primarily due to decreased product sales that resulted from a ~~decrease~~significant reduction in ~~direct~~ sales ~~of home~~ and ~~garden products.~~

~~The decreased direct revenue for the nine months ended September 30, 2018, as compared to the same period in 2017,~~marketing activities, which was ~~primarily due to a decrease in direct sales of home and garden and clothing products, and increased promotional activities.~~

The increase in partner revenue for the three months ended September 30, 2018, as compared to the same period in 2017, was primarily driven by increased marketing expenses and an increase in partner sales of home and garden products. This increase was partially offset by increased promotional activities, including coupons and site sales due to our driving a higher proportionpart of our ~~sales using such promotions and an increase in marketplace sales (for which we record only our commission~~effort to return to retail profitability, as ~~revenue).~~described above.

The increase in partner revenue for the nine months ended September 30, 2018, as compared to the same period in 2017, was primarily driven by increased marketing expenses and an increase in partner sales of home and garden products. This increase was partially offset by increased promotional activities, including coupons and site sales due to our driving a higher proportion of our sales using such promotions and an increase in marketplace sales (for which we record only our commission as revenue).

We continue to seek increased participation in our Club O loyalty program, including, in certain instances, by increasing Club O Rewards to our Club O members in lieu of coupons we offer to all customers. For additional information regarding our Club O loyalty program see Item 1 of Part I, "Financial Statements (Unaudited)"—Note 2. Accounting Policies, Club O loyalty program.

The shift of business from direct to partner (or vice versa) is an economic result based on the economics of each particular product offering at the time and we generally do not have particular goals for an "appropriate" mix or percentage for the size of either. Although we have experienced a trend from direct revenue to partner revenue in recent years, we believe that the mix of the business between direct and partner remains consistent with our strategic objectives for our business model and we do not currently foresee material shifts in this trend.

The products and product lines we offer, and their respective percentages of our revenue, are based on many factors including customer demand, our marketing efforts, promotional pricing, joint-marketing offered by our suppliers, the types of inventory we are able to obtain and the number of SKUs we offer. These factors change frequently and can affect the mix of the product lines we sell. We have experienced a trend toward our home and garden category in recent years and we have recently focused our marketing and branding efforts towards our home and garden product line. We are also working to increase the number of SKUs we offer. While we do not currently expect any material shifts in our product line mix, the relative amounts of the product lines we sell and the revenue we earn from those product lines are generally an economic result of the factors described above, which may change from time to time.

International net revenues were less than 3% of total net revenues for each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

Change in estimate of average transit times (days)

Revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times. We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates.

The following table shows the effect that hypothetical changes in the estimate of average shipping transit times would have had on the reported amount of revenue and pre-tax income for the three months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


	Three Months Ended September 30, 2018						Three Months Ended June 30, 2019
Change in the Estimate of Average Transit Times (Days)	Increase (Decrease) Revenue			Increase (Decrease) Pre-Tax Income			Increase (Decrease) Revenue			Increase (Decrease) Pre-Tax Income
2	$	(14,450	)	$	(1,532	)	$	(14,800	)	$	(2,550	)
1	$	(5,967	)	$	(624	)	$	(5,941	)	$	(1,006	)
As reported	As reported			As reported			As reported			As reported
-1	$	5,048		$	483		$	5,074		$	864
-2	$	9,361		$	905		$	9,834		$	1,682

Gross profit and gross margin

Our overall gross margins fluctuate based on ~~our sales volume mix between our direct business and partner business;~~ changes in supplier cost and / or sales ~~price;~~price, including competitive pricing; inventory management ~~decisions within the direct business;~~decisions; sales coupons and promotions; product mix of sales; and operational and fulfillment costs.

Table of Contents

The following table reflects our net revenues, cost of goods sold and gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended September 30,										Nine months ended September 30,									Three months ended June 30,									Six months ended June 30,
	2018			2017		$ Change			% Change		2018		2017		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
Revenue, net
Direct	$	15,424		$	19,645	$	(4,221	)	(21.5	)%	$	46,409	$	64,572	$	(18,163	)	(28.1	)%
Partner and other	425,156			404,362		20,794			5.1		1,322,635		1,223,894		98,741			8.1
Retail																				$	367,475	$	477,683	$	(110,208	)	(23.1	)%	$	730,100	$	917,679	$	(187,579	)	(20.4	)%
Other																				6,234		5,450		784			14.4	%	11,338		10,785		553			5.1	%
Total net revenue	$	440,580		$	424,007	$	16,573		3.9	%	$	1,369,044	$	1,288,466	$	80,578		6.3	%	$	373,709	$	483,133	$	(109,424	)	(22.6	)%	$	741,438	$	928,464	$	(187,026	)	(20.1	)%
Cost of goods sold
Direct	$	16,205		$	19,577	$	(3,372	)	(17.2	)%	$	45,649	$	61,687	$	(16,038	)	(26.0	)%
Partner and other	337,659			320,755		16,904			5.3		1,051,067		972,026		79,041			8.1
Retail																				$	294,984	$	387,252	$	(92,268	)	(23.8	)%	$	585,624	$	734,832	$	(149,208	)	(20.3	)%
Other																				4,826		4,138		688			16.6	%	8,791		8,020		771			9.6	%
Total cost of goods sold	$	353,864		$	340,332	$	13,532		4.0	%	$	1,096,716	$	1,033,713	$	63,003		6.1	%	$	299,810	$	391,390	$	(91,580	)	(23.4	)%	$	594,415	$	742,852	$	(148,437	)	(20.0	)%
Gross Profit
Direct	$	(781	)	$	68	$	(849	)	(1,249	)%	$	760	$	2,885	$	(2,125	)	(73.7	)%
Partner and other	87,497			83,607		3,890			4.7		271,568		251,868		19,700			7.8
Retail																				$	72,491	$	90,431	$	(17,940	)	(19.8	)%	$	144,476	$	182,847	$	(38,371	)	(21.0	)%
Other																				1,408		1,312		96			7.3	%	2,547		2,765		(218		)	(7.9	)%
Total gross profit	$	86,716		$	83,675	$	3,041		3.6	%	$	272,328	$	254,753	$	17,575		6.9	%	$	73,899	$	91,743	$	(17,844	)	(19.4	)%	$	147,023	$	185,612	$	(38,589	)	(20.8	)%

Gross margins for the past ~~seven~~six quarterly periods and fiscal year ending ~~2017~~2018 were:

Q1 2017 Q2 2017 Q3 2017 Q4 2017 FY 2017 Q1 2018 Q2 2018 Q3 2018
Direct 8.2 % 4.3 % 0.3 % (2.3 )% 3.0 % 9.2 % 0.3 % (5.1 )%
Partner and other 20.8 % 20.3 % 20.7 % 19.7 % 20.3 % 21.5 % 19.6 % 20.6 %
Combined 20.1 % 19.5 % 19.7 % 18.8 % 19.5 % 21.1 % 19.0 % 19.7 %



	Q1 2018		Q2 2018		Q3 2018		Q4 2018		FY 2018		Q1 2019		Q2 2019
Retail	21.0	%	18.9	%	19.5	%	17.9	%	19.3	%	19.9	%	19.7	%
Other	27.2	%	24.1	%	33.1	%	26.8	%	27.6	%	22.3	%	22.6	%
Combined	21.1	%	19.0	%	19.7	%	18.0	%	19.4	%	19.9	%	19.8	%

Gross profit for the three months ended ~~September~~June 30, ~~2018 increased 4%~~2019 decreased 19% compared to the same period in ~~2017~~2018 primarily ~~as a result of increased revenue. Gross margin was 19.7% for~~due to the ~~three months ended September 30, 2018, unchanged from~~decrease in net revenue in the ~~same period in 2017. Gross margin was negatively impacted by increased promotional activities, but this was~~retail business, partially offset by ~~a continued shift in sales mix into higher margin home and garden products and~~ an increase in ~~marketplace sales (for which we record only our commission as revenue).~~

~~Gross profit for the nine months ended September 30, 2018 increased 7% compared to the same period in 2017 as a result of increased revenue and increased~~ gross margin. Gross margin increased to ~~19.9%~~19.8% for the ~~nine~~three months ended ~~September~~

June 30, ~~2018~~2019, compared to ~~19.8%~~19.0% for the same period in ~~2017. This~~2018. The increase in gross margin was primarily due to decreased product costs and decreased promotional activities, including coupons and site sales, due to our driving a ~~continued shift~~lower proportion of our sales using such promotions. These decreases in ~~sales mix into higher~~gross margin ~~home and garden products and an increase in marketplace sales (for which we record only our commission as revenue),~~components were partially offset by increased ~~promotional activities.~~freight costs.

~~The 541 basis point decrease in direct gross margin~~Gross profit for the ~~three~~six months ended ~~September~~June 30, ~~2018, as~~2019 decreased 21% compared to the same period in ~~2017,~~2018 primarily due to the decrease in net revenue in the retail business, and a decrease in gross margin. Gross margin decreased to 19.8% for the six months ended June 30, 2019, compared to 20.0% for the same period in 2018. The decrease in gross margin was primarily due to increased ~~promotional activities.~~

~~The 283 basis point decrease in direct gross margin for the nine months ended September 30, 2018, as compared to the same period in 2017, was primarily due to increased promotional activities,~~freight costs, partially offset by ~~a shift in~~decreased promotional activities, including coupons and site sales, ~~mix into higher margin home and garden products.~~

~~The 10 basis point decrease in partner gross margin for the three months ended September 30, 2018, as compared to the same period in 2017, was primarily~~ due to ~~increased promotional activities, partially offset by~~our driving a ~~continued shift in~~lower proportion of our sales ~~mix into higher margin home and garden products and an increase in marketplace sales (which we recognize on a net basis).~~

The 5 basis point decrease in partner gross margin for the nine months ended September 30, 2018, as compared to the same period in 2017 was primarily due to increased promotional activities, partially offset by a continued shift in sales mix into higher margin home and garden products and an increase in marketplace sales (which we recognize on a net basis).

Cost of goods sold includes stock-based compensation expense of $41,000 and $46,000 for the three months ended September 30, 2018 and 2017, respectively, and $152,000 and $134,000 for the nine months ended September 30, 2018 and 2017, respectively.using such promotions.

Fulfillment costs

Fulfillment costs include all warehousing costs, including fixed overhead and variable handling costs (excluding packaging costs), as well as credit card fees and customer service costs, all of which we include as costs in calculating gross margin. We believe that some companies in our industry, including some of our competitors, account for fulfillment costs within operating expenses, and therefore exclude fulfillment costs from gross margin. As a result, our gross margin may not be directly comparable to others in our industry.

Table of Contents

The following table has been included to provide investors additional information regarding our classification of fulfillment costs, gross profit and margin, thus enabling investors to better compare our gross margin with others in our industry (in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Total revenue, net	$	440,580	100%	$	424,007	100%	$	1,369,044	100%	$	1,288,466	100%	$	373,709	100%	$	483,133	100%	$	741,438	100%	$	928,464	100%
Cost of goods sold
Product costs and other cost of goods sold	334,156		76%	321,678		76%	1,039,518		76%	977,827		76%	283,502		76%	371,841		77%	560,719		76%	705,361		76%
Fulfillment and related costs	19,708		4%	18,654		4%	57,198		4%	55,886		4%	16,308		4%	19,549		4%	33,696		5%	37,491		4%
Total cost of goods sold	353,864		80%	340,332		80%	1,096,716		80%	1,033,713		80%	299,810		80%	391,390		81%	594,415		80%	742,852		80%
Gross profit	$	86,716	20%	$	83,675	20%	$	272,328	20%	$	254,753	20%	$	73,899	20%	$	91,743	19%	$	147,023	20%	$	185,612	20%

Fulfillment costs as a percentage of sales may vary due to several factors, such as our ability to manage costs at our warehouses, significant changes in the number of units received and fulfilled, the extent to which we use third-party fulfillment services and warehouses, and our ability to effectively manage customer service costs and credit card fees. Fulfillment and related costs ~~remained flat~~increased slightly during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to the same ~~periods~~period in ~~2017.~~2018.

See "Gross profit" above for additional discussion.

Operating expenses

Sales and marketing expenses

We use a variety of methods to target our consumer audience, including online campaigns, such as advertising through keywords, product listing ads, display ads, search engines, affiliate marketing programs, social coupon websites, portals, banners, e-mail, direct mail and viral and social media campaigns. We also do brand advertising through television, radio, print ads, and event sponsorships.

Costs associated with our discounted shipping and other promotions, such as coupons, are not included in sales and marketing expense. Rather, they are accounted for as a reduction in revenue as they reduce the amount of consideration we expect to receive in exchange for goods or services and therefore affect net revenues and gross margin. We consider discounted shipping and other promotions, such as our policy of free shipping on orders over $45, as an effective marketing tool, and intend to continue to offer them as we deem appropriate as part of our overall marketing plan.

The following table reflects our sales and marketing expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended September 30,										Nine months ended September 30,										Three months ended June 30,											Six months ended June 30,
	2018			2017			$ Change		% Change		2018			2017			$ Change		% Change		2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Sales and marketing expenses	$	55,312		$	45,153		$	10,159	22.5	%	$	226,942		$	126,068		$	100,874	80.0	%	$	34,560		$	94,416		$	(59,856	)	(63.4	)%	$	68,037		$	171,630		$	(103,593	)	(60.4	)%
Sales and marketing expenses as a percent of net revenues	12.6		%	10.6		%					16.6		%	9.8		%					9.2		%	19.5		%						9.2		%	18.5		%

The ~~191 basis point increase~~63% decrease in sales and marketing expenses ~~as a percentage of revenue~~ for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily due to our effort to aggressively pursue increased revenue and new customers early in the quarter through significantly increased spending in the display ads on social media, sponsored search, and direct mail marketing channels, as well as increased staff-related costs.

~~The 679 basis point increase in sales and marketing expenses as a percentage of revenue for the nine months ended September 30, 2018, as compared to the same period in 2017, was primarily due~~return to our historical focus on operational efficiency as we have shifted away from our aggressive retail marketing strategy from early 2018. As part of this effort, ~~to aggressively pursue increased revenue and new customers. This effort consisted of~~we significantly ~~increased~~reduced spending in the sponsored search, display ads on social media, and television marketing ~~channels, and continued through early August when we shifted our retail strategy to reduce these expenses. We also had a $7.9 million increase~~channels.

Table of Contents

The 60% decrease in ~~staff-related costs, including $2.9 million at tZERO for employee severance and a special restricted stock grant which fully vested during Q1 2018.~~

~~Sales~~sales and marketing expenses ~~include stock-based compensation expense of $277,000 and $109,000~~ for the ~~three~~six months ended ~~September~~June 30, ~~2018 and 2017, respectively, and $1.5 million and $318,000 for~~2019, as compared to the ~~nine months ended September 30, 2018 and 2017, respectively. The increase during the nine months ended September 30,~~same period in 2018, was primarily due to ~~$600,000 of expense related to the tZERO equity awards granted, vested, and fully expensed~~our shift in ~~January 2018.~~retail marketing strategy, as described above.

Technology expenses

We seek to invest efficiently in technology, including web services, customer support solutions, website search, expansion of new and existing product categories, and in investments in technology to enhance the customer experience, improve our process efficiency and support and expand our logistics infrastructure. We expect to continue to increase our technology expenses to support these initiatives and these increases may be material.

The frequency and variety of cyberattacks on our Website, our corporate systems, and on third parties ~~that~~ we use to support our technology ~~continue~~continues to increase. The impact of such attacks, their costs, and the costs we incur to protect ourselves against future attacks have not been material. However, we consider the ~~threat from~~risk introduced by cyberattacks to be serious and will continue to incur costs related to efforts to protect ourselves against them.

The following table reflects our technology expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended September 30,										Nine months ended September 30,										Three months ended June 30,										Six months ended June 30,
	2018			2017			$ Change		% Change		2018			2017			$ Change		% Change		2019			2018			$ Change		% Change		2019			2018			$ Change		% Change
Technology expenses	$	33,880		$	28,746		$	5,134	17.9	%	$	97,597		$	85,982		$	11,615	13.5	%	$	33,153		$	32,423		$	730	2.3	%	$	68,586		$	63,717		$	4,869	7.6	%
Technology expenses as a percent of net revenues	7.7		%	6.8		%					7.1		%	6.7		%					8.9		%	6.7		%					9.3		%	6.9		%

The ~~$5.1 million~~$730,000 increase in technology costs for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily due to ~~an increase in staff-related costs of $3.4 million and an~~a $678,000 increase in technology licenses and maintenance ~~of $1.6 million.~~costs.

The ~~$11.6~~$4.9 million increase in technology costs for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily due to ana $2.9 million increase in staff-related costs, ~~of $9.7~~a $1.4 million ~~and an~~ increase in technology licenses and maintenance costs, ~~of $4.9 million, partially offset by a decrease~~and an $834,000 increase in ~~depreciation expense of $2.8 million.~~

Technology expenses include stock-based compensation expense of $583,000 and $166,000 for the three months ended September 30, 2018 and 2017, respectively, and $1.7 million and $476,000 for the nine months ended September 30, 2018 and 2017, respectively.consulting expenses.

General and administrative expenses

The following table reflects our general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three months ended September 30,										Nine months ended September 30,										Three months ended June 30,										Six months ended June 30,
	2018			2017			$ Change		% Change		2018			2017			$ Change		% Change		2019			2018			$ Change		% Change		2019			2018			$ Change		% Change
General and administrative expenses	$	45,356		$	21,651		$	23,705	109.5	%	$	116,551		$	66,622		$	49,929	74.9	%	$	31,964		$	31,440		$	524	1.7	%	$	72,196		$	71,195		$	1,001	1.4	%
General and administrative expenses as a percent of net revenues	10.3		%	5.1		%					8.5		%	5.2		%					8.6		%	6.5		%					9.7		%	7.7		%

The ~~$23.7 million~~$524,000 increase in general and administrative expenses for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily due to ~~$10.8~~a $6.0 million decrease in ~~special legal costs in Q3 2018, related~~cryptocurrency gains due to our ~~gift card escheatment case~~Q2 2018 sale of cryptocurrency received during the tZERO security token offering, with no similar activity in ~~Delaware and capital raising efforts,~~Q2 2019. In addition, we had a ~~$5.1~~$1.0 million increase in staff-related ~~costs,~~expenses and a ~~$3.2 million~~$722,000 increase in corporate insurance costs. These increases were partially offset by a $3.6 million decrease in legal fees, a $2.7 million decrease in consulting expenses, and ~~outside services.~~a $1.2 million decrease in travel expenses.

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The ~~$49.9~~$1.0 million increase in general and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily due to ~~an $18.7 million increase in legal costs largely related to our gift card escheatment case in Delaware and costs related to the tZERO SEC investigation and capital raising efforts,~~ a ~~$15.3~~$2.2 million increase in staff-related costs, ~~and~~ a ~~$9.3~~$1.4 million increase in ~~consulting~~corporate insurance costs, and ~~outside services. In addition, we had~~ a ~~$2.5~~$1.0 million increase in audit and tax preparation fees. These increases were partially offset by a $1.6 million decrease in travel expenses, a ~~$1.5~~$1.1 million ~~increase~~decrease in ~~office and facilities expenses~~legal fees, and a ~~$1.2~~$1.0 million ~~increase~~decrease in ~~impairments on cryptocurrencies.~~

General and administrative expenses include stock-based compensation expense of approximately $1.3 million and $703,000 for the three months ended September 30, 2018 and 2017, respectively, and $8.3 million and $2.1 million for the nine months ended September 30, 2018 and 2017, respectively. The increase was primarily due to $3.4 million of expense related to the tZERO equity awards granted, vested, and fully expensed in January 2018.

cryptocurrency losses.

Depreciation and amortization expense

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,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Cost of goods sold - direct	$	85	$	72	$	252	$	230	$	171	$	83	$	346	$	167
Technology	5,330		5,940		16,103		18,802		4,892		5,296		10,067		10,772
General and administrative	1,038		974		3,082		2,863		1,277		1,023		2,501		2,044
Total depreciation, including internal-use software and website development	$	6,453	$	6,986	$	19,437	$	21,895
Total depreciation									$	6,340	$	6,402	$	12,914	$	12,983

Amortization of intangible assets other than goodwill 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,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019			2018
Technology	$	885	$	905	$	2,534	$	2,715	$	938	$	895	$	1,791		$	1,650
Sales and marketing	119		22		442		62		16		204		32			323
General and administrative	542		21		620		62		170		34		(659		)	78
Total amortization of intangible assets other than goodwill	$	1,546	$	948	$	3,596	$	2,839	$	1,124	$	1,133	$	1,164		$	2,051

Stock-based compensation expense

Stock-based compensation expense is classified within the corresponding operating expense categories on our consolidated statements of operations as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Cost of goods sold — direct	$	54	$	41	$	101	$	111
Sales and marketing	533		315		974		1,188
Technology	1,670		621		2,897		1,142
General and administrative	2,914		1,996		5,184		6,967
Total stock-based compensation	$	5,171	$	2,973	$	9,156	$	9,408

Other income (expense), net

Other income (expense), net for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~($1.8 million)~~$(3.0) million as compared to ~~$5.9 million in 2017.~~$368,000 for the three months ended June 30, 2018. The decrease iswas primarily due to ~~$5.5 million from gains on the sale of cryptocurrencies and precious metals in Q3 2017 that was not repeated in Q3 2018,~~ a ~~$1.0~~$3.7 million increase in equity method loss, a $692,000 decrease in Club O and gift card breakage which we began recognizing as a component of revenue in 2018 following the adoption of ASC 606, and a $584,000 increase in unrealizednon-cash losses ~~including impairments,~~ on equity ~~securities that were recognized in Q3 2018.~~holdings and other assets.

Other income (expense), net for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~($1.5 million)~~$(9.3) million as compared to ~~$2.8 million~~$359,000 for the ~~same period in 2017.~~six months ended June 30, 2018. The decrease iswas primarily due to ~~$5.5 million from gains on the sale of cryptocurrencies and precious metals in Q3 2017 that was not repeated in Q3 2018,~~ a ~~$1.9 million decrease in Club O and gift card breakage which we began recognizing as a component of revenue in 2018 following the adoption of ASC 606, and a $2.4~~$10.1 million increase in non-cash losses on equity ~~method investments. These were partially offset by a $4.5 million decrease in impairment charges on equity securities,~~holdings and ~~a $1.3 million increase in unrealized gains, net~~other assets.

Table of ~~impairments, on equity securities.~~Contents

Income taxes

Our quarterly tax provision and our quarterly estimate of our annual effective tax rate are subject to significant variations due to several factors including variability in predicting our pre-tax and taxable income and the mix of jurisdictions to which those items relate, relative changes in expenses or losses for which tax benefits are not recognized, how we do business, fluctuations in our stock price, and changes in ~~law,~~laws, regulations, and administrative practices. Our effective tax rate can be volatile based on the amount of pre-tax income. For example, the impact of discrete items on our effective tax rate is greater when pre-tax income is lower.

Our ~~benefit from~~expense/(benefit) for income taxes for the ~~nine~~three and six months ended ~~September~~June 30, 2019 and 2018 was $(622,000) and ~~2017 was $445,000~~$(27,000) and ~~$7.7 million.~~$256,000 and $(304,000), respectively. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 was (0.4)% and ~~2017 was~~ 0.3% ~~and 33.8%~~, respectively. ~~The decrease in the~~Our low effective tax rate is primarily attributable to the valuation allowance we are maintaining on our net deferred tax

~~assets and a decrease in pre-tax income during the nine months ended September 30, 2018 as compared to the same period in 2017.~~ assets.

We have indefinitely reinvested foreign earnings of ~~$1.3~~$1.6 million at ~~September~~June 30, ~~2018.~~2019. We would need to accrue and pay various taxes on this amount if repatriated. We do not intend to repatriate these earnings.

~~Each quarter we assess the recoverability~~2019 with no assessment. For additional information see Item 1 of our deferred tax assets under ASC 740. We assess the available positive and negative evidence to estimate whether we will generate sufficient future taxable income to use our existing deferred tax assets. We have limited carryback ability and do not have significant taxable temporary differences to recover our existing deferred tax assets, therefore we must rely on future taxable income, including tax planning strategies, to support their realizability. We have established a valuation allowance for our deferred tax assets not supported by carryback ability or taxable temporary differences, primarily due to uncertainty regarding our future taxable income. We have considered, among other things, the cumulative loss incurred over the three-year period ended September 30, 2018 as a significant piece of objective negative evidence. We intend to continue maintaining a valuation allowance on our net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The amount of the deferred tax asset considered realizable could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as long-term projections for growth. We will continue to monitor the need for a valuation allowance against our remaining deferred tax assets on a quarterly basis.Part I, "Financial Statements (Unaudited)"—Note 2. Accounting Policies, Income taxes.

Seasonality

Based upon our historical experience, revenue typically increases during the fourth quarter because of the holiday retail season and gross margin decreases due to increased sales of certain lower margin products, such as electronics. While we had lower sales volume during the fourth quarter of 2018 compared to the comparable period in 2017, we anticipate the trend of higher sales volume during our fourth quarter to continue for the foreseeable future. Revenue typically decreases in the following quarter(s), as shown in the table below. The actual quarterly results for each quarter could differ materially depending upon consumer preferences, availability of product and competition, among other risks and uncertainties. Accordingly, there can be no assurances that seasonal variations will not materially affect our results of operations in the future.

The following table reflects our total net revenues for each of the quarters in 2019, 2018 ~~2017~~ and ~~2016~~2017 (in thousands):


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2019									$	367,729	$	373,709	$	N/A	$	N/A
2018	$	445,331	$	483,134	$	440,580	$	N/A		445,331		483,133		440,580		452,548
2017		432,435		432,024		424,007		456,290		432,435		432,024		424,007		456,290
2016		413,677		418,540		441,564		526,182

Liquidity and Capital Resources

Overview

~~Although~~We are proactively seeking opportunities to improve the efficiency of our operations and are considering a comprehensive set of actions to do so. During the latter end of 2018 we began taking and continue to take significant steps to realize internal cost savings, including staff reductions and process streamlining. Additionally, we intend to further reduce costs in future periods. We believe that our cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve ~~months, we~~months. We also believe that we may need to raise additional capital and/or obtain ~~significant~~ additional debt financing to be able to fully pursue some or all of our ~~plans discussed below,~~strategies, including plans for our retail business while also funding our Medici initiatives, beyond the next twelve months.

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We ~~continue to seek opportunities for growth in~~have developed and implemented initiatives within our retail business through our Medici blockchain and financial technology initiatives, and through other means. We also want to invest in additional distribution facilities to speed shipping and improve our customer service; in additional automation, technology and engineering resources because we believe they can improve our customers' shopping experience and increase our sales; inaround improving our Club O rewards program primarily to increase member benefits and to develop additional personalization programs; improving our organic search engine rankings; additional distribution facilities to speed shipping and ~~in expansion of~~improve our customer service; additional automation, technology and engineering resources to improve our customers' shopping experience; and improving our private label initiative ~~because we believe that private label brands can~~to generate significant brand equity and customer loyalty. We believe these initiatives will have significant long-term positive results; however, the expenditures will likely adversely affect our short-term results. See "Our Retail Business" above.

Our Medici initiatives also require substantial funding. Medici Ventures and its majority-owned subsidiary, tZERO, continue to identify, evaluate and pursue various opportunities for strategic acquisitions or purchases of interests to ~~expand~~add to the services and expertise they offer their customers. ~~As a result~~See "Our Medici Business—Medici Ventures" and "Our Medici Business—tZERO" above.

Our ability to pursue some or all of these ~~initiatives,~~plans, and the extent to which we would be able to pursue some or all of them, will ~~continue to incur additional expenses~~depend on the resources we have available, and ~~expect to purchase interests in, or make acquisitions of, other technologies and businesses.~~

~~We anticipate that our initiatives~~ will cause us to incur additional losses in the foreseeable future. These losses, additional expenses, acquisitions or purchases may be material, and, coupled with existing marketing expense trends, and potential strategic changes in our retail business, may lead to increased consolidated losses in some periods, and to reduced liquidity.require significantly more capital than we currently have.

Current sources of liquidity

~~We believe that our~~Our principal sources of liquidity are existing cash and cash equivalents. At June 30, 2019, we had cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. However, our failure to generate sufficient revenues or profits or to obtain additional financing or raise additional capital could have a material adverse effect on our operations and on ourof $121.3 million. Our ability to ~~achieve~~access the liquidity of our ~~business objectives,~~subsidiaries may be limited by tax and ~~could require us to decrease or cease funding initiatives we consider important in our retail business, our Medici business or both. Any projections of future cash needs~~legal considerations and ~~cash flows are subject to substantial uncertainty.~~other factors.



	Six months ended June 30,
	2019			2018
Cash provided by (used in):
Operating activities	$	(65,852	)	$	(70,579	)
Investing activities	(3,115		)	(64,650		)
Financing activities	49,760			84,255

In December 2017, tZERO launched an offering (the "security token offering") of the right to acquire tZERO Preferred Equity Tokens (the "tZERO Security Token") through a Simple Agreement for Future Equity ("SAFE"). The security token offering closed on August 6, 2018. As of September 30, 2018, tZERO has received $104.8 million in cumulative proceeds, net of withdrawals, and incurred $21.3 million of offering costs. On October 12, 2018, tZERO issued the tZERO Security Tokens in settlement of the SAFEs. The tZERO Security Tokens are subject to a 90 day trading lock-up period.

In August 2018, we entered into a sales agreement with JonesTrading Institutional Services LLC ("JonesTrading"), under which we conducted "at the market" public offerings of our common stock during the quarter ended September 30, 2018 and may conduct additional "at the market" public offerings of our common stock from time to time. Under the sales agreement, JonesTrading, acting as our agent, may offer our common stock in the market on a daily basis or otherwise as we request from time to time. We have no obligation to sell additional shares under the sales agreement, but expect to do so from time to time. We will pay JonesTrading up to a 2.0% sales commission on all sales. The sales agreement contemplates sales of up to $150 million of our common ~~stock over a period of up to three years.~~stock. As of ~~September~~June 30, ~~2018,~~2019, we had sold ~~2,883,344~~5,843,147 shares of our common stock pursuant to the sales agreement and have received ~~$94.6~~$146.7 million in proceeds, net of ~~$2.6~~$3.3 million of offering costs, including commissions paid to JonesTrading. During the six months ended June 30, 2019, we sold shares of common stock for $52.1 million, net of offering expenses (including commissions). The average gross price per share of stock sold pursuant to the sales agreement during the ~~quarter~~six months ended ~~September~~June 30, ~~2018, excluding offering costs,~~2019 was ~~$33.71.~~

~~In August 2018, we also entered into a standby equity underwriting agreement with JonesTrading. We did not sell any~~$17.84. No additional shares are currently available under the ~~standby equity underwriting agreement, and the agreement terminated in accordance with its~~sales agreement. We cannot assure you that we will be able to replace, extend, or modify this facility on acceptable terms during the quarter ended September 30, 2018. Under the standby underwriting agreement, we had the right, but no obligation, to sell up to $50 million of our common stock to JonesTrading, as underwriter, for sale to the public in a ~~firm commitment public offering. We paid a 1% commitment fee to JonesTrading for entering into the underwriting agreement.~~timely manner or at all.

At September 30, 2018, our principal sources of liquidity are cash flows generated from operations, our existing cash and cash equivalents, and proceeds from the warrants, shares sold under the at the market offering, and tZERO's security token offering. At September 30, 2018, we had cash and cash equivalents of $182.0 million. The intramonthly balance of our cash and cash equivalents on hand fluctuates significantly, generally reaching the highest balance at the end of month and the lowest balances after the first and sixteenth of the month when we make our regular partner and supplier payments.

Contemplated Financing Transactions

~~As previously announced, in~~In August 2018, Overstock signed a Token Purchase Agreement with GSR Capital Ltd., a Cayman Islands exempted company ("GSR"), and a term sheet contemplating a sale of Overstock common stock to GSR. ~~Concurrently, tZERO signed a term sheet contemplating a sale of tZERO common stock to GSR.~~

The Token Purchase Agreement sets forth the terms on which GSR had agreed to purchase, for $30 million, on May 6, 2019 or such other date as ~~may be~~ agreed by the parties, security tokens at a price of $6.67 per security token. ~~These security tokens were~~On May 8, 2019, the parties executed an Investment Agreement to replace the Token Purchase Agreement under which GSR agreed to purchases 508,710 shares of tZERO common stock, representing approximately 0.5% of the issued and outstanding Common Stock of tZERO. In exchange, GSR agreed to transfer to tZERO a total $5.0 million in consideration, consisting of $1.0 million U.S. dollars, $1.0 million U.S. dollars' worth of Chinese Renminbi, and securities traded on the Hong Kong Stock Exchange with a market value on the date of the Investment Agreement of $3.0 million U.S. dollars. As of June 30, 2019, GSR had not fully completed the funding outlined by ~~tZERO to Overstock~~the anticipated close date as outlined in ~~satisfaction~~the Investment Agreement. As of ~~$30~~June 30, 2019, GSR had provided $1.0 million of ~~tZERO's indebtedness~~USD, and such amount is included in Accrued liabilities at June 30, 2019. Subsequent to ~~Overstock. We may be required to obtain~~June 30, 2019, GSR provided an additional ~~tokens~~$1.0 million of USD, and the parties remain in ~~order to fulfill our obligations~~discussion regarding the delivery of the $3.0 million of securities consideration.

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Upon full payment under the ~~agreement. The agreement states that~~Investment Agreement, tZERO expects to issue the ~~obligations~~shares of ~~GSR to complete the transaction described will be subject to conditions, some of which are unidentified.~~

~~Overstock, tZERO and GSR are currently negotiating definitive agreements for GSR's purchase of Overstock~~its common stock and the amounts included in Accrued liabilities will be reflected as Noncontrolling interest.

The previously-announced memorandum of understanding (“MOU”) in which GSR and Makara Capital ("Makara") would co-lead an investment of up to $100 million in tZERO common ~~stock. Although~~stock did not close in April as previously expected. However, we ~~continue to negotiate the terms,~~remain in discussions with Makara and GSR ~~has proposed purchasing fewer shares~~ and ~~at a lower price per share than those described in the Overstock term sheet. We believe that~~ if a definitive agreement is reached, ~~regarding the purchase of tZERO shares,~~ the terms, including the amount purchased, number of shares, and/or post money valuation of tZERO, may be less favorable than ~~those described in the tZERO term sheet. Both the Overstock and tZERO term sheets constitute binding agreements for the parties to negotiate in good faith~~ the terms ofcontemplated under the transaction documents; however, the obligation to negotiate in good faith terminates on December 15, 2018, if any of the closing conditions, one of which is the negotiation, execution and delivery of mutually acceptable transaction documents, have not been satisfied. While we expect to complete these transactions, thereMOU. There can be no assurance that ~~Overstock,~~ tZERO, GSR, or ~~GSR~~Makara will enter into a definitive ~~agreements~~agreement regarding ~~either~~the proposed transaction in the near-term, or at all, or that it will be on terms set forth in the MOU, including the amount of the ~~proposed transactions.~~

~~Cash flow information is as follows (in thousands):~~

Nine months ended
September 30, Twelve months ended
September 30,
2018 2017 2018 2017
Cash provided by (used in):

Operating activities $ (120,300 ) $ (62,448 ) $ (93,073 ) $ (7,445 )
Investing activities (89,508 ) (14,368 ) (93,100 ) (28,649 )
Financing activities 189,575
(13,884 ) 276,782
4,021
investment or post-money valuation.

Cash flows from operating activities

Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for employee compensation (less amounts capitalized related to internal-use software that are reflected as cash used in investing activities), and changes in working capital and other related activities. Working capital at any specific point in time is subject to many variables, including seasonality, inventory management, expansion efforts, the timing of cash receipts and payments, and vendor payment terms. Cash received from customers generally corresponds to our net revenues as our customers primarily use credit cards to buy from us causing our receivables from these sales transactions to settle quickly. We have payment terms with our partners that generally extend beyond the amount of time necessary to collect proceeds from our customers. As a result, following our typically seasonally strong fourth quarter sales, at December 31 of each year, our cash, cash equivalents, accounts payable and accrued liability balances normally reach their highest level (other than as a result of cash flows provided by or used in investing and financing activities).

The ~~$120.3~~$65.9 million of net cash used in operating activities during the ~~nine~~six months ended ~~September~~June 30, 2019 was primarily due to consolidated net loss of $70.5 million and cash used by operating assets and liabilities of $31.6 million, which were partially offset by certain non-cash items including depreciation and amortization expense, including amortization of right-of-use assets, of $18.5 million, stock-based compensation of $9.2 million, and impairments recognized on equity securities of $4.2 million.

The $70.6 million of net cash used in operating activities during the six months ended June 30, 2018 was primarily due to consolidated net loss of ~~$169.6~~$120.4 million, partially offset by cash provided by operating assets and liabilities of ~~$12.3~~$24.8 million, and certain non-cash items including depreciation and amortization expense of ~~$23.0~~$15.0 million, stock-based compensation of ~~$11.7~~$9.4 million, and impairment losses, net of realized gains, recognized on cryptocurrency holdings of ~~$1.2~~$1.1 million.

The $62.4 million of net cash used in operating activities during the nine months ended September 30, 2017 was primarily due to consolidated net loss of $15.1 million, cash used in operating assets and liabilities of $68.5 million, and certain non-cash items including deferred income taxes of $8.7 million and other non-cash items of $1.5 million, partially offset by certain non-cash items including depreciation and amortization expense of $24.7 million, stock-based compensation of $3.0

~~million, impairments recognized on cost method investments of $4.5 million, and net of realized gains recognized on cryptocurrency holdings of $845,000.~~

Notwithstanding our current negative cash flows from operating activities, we believe that our cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. However, we also believe that we may need to raise additional capital and/or obtain significant additional debt financing to be able to fully pursue some or all of our plans, including plans for our retail business while also funding our Medici initiatives, beyond the next twelve months.

Cash flows from investing activities

For the ~~nine~~six months ended ~~September~~June 30, 2019, investing activities resulted in net cash outflows of $3.1 million primarily due to $10.6 million of expenditures for property and equipment, $2.5 million purchase of equity securities, and $2.0 million disbursement of notes receivable, partially offset by $7.1 million for the sale of equity securities and $4.9 million of cash acquired through a business combination that was funded at the end of the fourth quarter of 2018 but closed in the first quarter of 2019.

For the six months ended June 30, 2018, investing activities resulted in net cash outflows of ~~$89.5~~$64.7 million primarily due to ~~$43.7~~$29.6 million investment in equity securities, $12.9 million acquisition of ~~businesses,~~business, net of cash acquired, ~~$20.7~~$12.7 million of expenditures for ~~fixed assets,~~property and ~~$9.6~~equipment, and $9.2 million purchase of intangible assets.

For the nine months ended September 30, 2017, investing activities resulted in net cash outflows of $14.4 million primarily due to $20.9 million of expenditures for fixed assets and $4.2 million investment in equity securities, partially offset by $11.6 million in proceeds from the sale of precious metals.

Cash flows from financing activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, financing activities resulted in net cash inflows of ~~$189.6~~$49.8 million primarily due to ~~$94.6~~$52.1 million of net proceeds from the sale of common stock under the at the market offering, ~~$82.6~~partially offset by $1.3 million of taxes withheld upon vesting of restricted stock.

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For the six months ended June 30, 2018, financing activities resulted in net cash inflows of $84.3 million primarily due to $78.4 million net proceeds from ~~the~~our security token offering, $50.6 million of proceeds from the ~~sale and~~ exercise of stock warrants, ~~and $6.7 million of proceeds from capital contributions received by a consolidated subsidiary,~~ partially offset by a $40.0 million repayment of long-term debt and ~~$4.6~~$4.5 million of taxes withheld upon vesting of restricted stock.

For the nine months ended September 30, 2017, financing activities resulted in net cash outflows of $13.9 million primarily due to the purchase of treasury stock for $10.0 million, $2.4 million of payments on finance obligations, and $1.1 million of taxes withheld upon vesting of restricted stock.

~~Free cash flow~~

"Free Cash Flow" (a non-GAAP measure) for the nine months ended September 30, 2018 and 2017, was $(141.0) million and $(83.3) million, respectively, and $(116.5) million and $(41.2) million for the twelve months ended September 30, 2018 and 2017, respectively. See ~~Non-GAAP Financial Measures~~ ~~below for a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities.~~

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of ~~September~~June 30, ~~2018~~2019 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods (in thousands):


	Payments Due by Period
Contractual Obligations	Remainder of 2018		2019		2020		2021		2022		Thereafter		Total		Remainder of 2019		2020		2021		2022		2023		Thereafter		Total
Operating leases	1,757		7,446		5,648		6,038		6,156		17,515		44,560		$	4,732	$	9,385	$	9,833	$	9,826	$	8,985	$	22,774	$	65,535
Purchase obligations	2,927		—		—		—		—		—		2,927		104		—		—		—		—		—		104
Technology services	508		2,031		1,693		—		—		—		4,232		1,019		1,699		—		—		—		—		2,718
High Bench Senior Credit Agreement	—		—		3,069		—		—		—		3,069		3,108		—		—		—		—		—		3,108
Total contractual cash obligations	$	5,192	$	9,477	$	10,410	$	6,038	$	6,156	$	17,515	$	54,788	$	8,963	$	11,084	$	9,833	$	9,826	$	8,985	$	22,774	$	71,465

Operating leases

From time to time we enter into operating leases for facilities and equipment for use in our operations. ~~In August 2018,~~During the three months ended June 30, 2019, we renewed a lease for one of our warehouses and entered into a new ~~agreement to~~office lease ~~a warehouse located in Kansas City, Kansas. The term of the~~that increased our future operating lease ~~is for a period of 61 months, beginning August 2018 and ending August 2023.~~payments by $11.9 million.

Purchase obligations

The amount of purchase obligations shown above is based on assumptions regarding the legal enforceability against us of inventory purchase orders we had outstanding at ~~September~~June 30, ~~2018.~~2019. Under different assumptions regarding our rights to cancel our purchase orders or different assumptions regarding the enforceability of the purchase orders under applicable law, the amount of purchase obligations shown in the table above would be less.

Technology services

From time to time we enter into long-term contractual agreements for technology services and ~~capital~~finance leases for equipment included in such service agreements.

High Bench Senior Credit Agreement

We are party to a financing agreement acquired in connection with our acquisition of Mac Warehouse, LLC which, at the time of the acquisition, was due on April 18, 2020 (see Borrowings below). The amounts presented reflect our related principal payments. During July 2019, we repaid the entire outstanding balance of the High Bench Loan.

Tax contingencies

We are involved in various tax matters, the outcomes of which are uncertain. As of ~~September~~June 30, ~~2018,~~2019, accrued tax contingencies were ~~$1.4~~$1.6 million. Changes in state, federal, and foreign tax laws may increase our tax contingencies. The timing of the resolution of income tax contingencies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities. These assessments may or may not result in changes to our contingencies related to positions on prior years' tax filings.

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Borrowings

High Bench Senior Credit Agreement

On June 25, 2018, we became party to a senior credit agreement, as amended, with High Bench-Mac Warehouse-Senior Debt, LLC ~~("High~~(the "High Bench Loan"), in connection with our acquisition of Mac Warehouse, LLC. Under the amended agreement, at the time of the acquisition, the loan ~~carries~~carried an annual interest rate of 11.0% and a default rate of 18.0%~~. The High Bench Loan is~~, and was subject to monthly interest only payments with the remaining principal amount and any then unpaid interest due and payable on April 18, 2020. ~~The~~At the time of the acquisition, the High Bench Loan iswas subject to mandatory prepayment under certain circumstances, and iswas prepayable at our election at any time without penalty or premium. There ~~are~~were no financial covenants associated with the High Bench Loan. At ~~September~~June 30, ~~2018,~~2019, our outstanding balance on the High Bench Loan was $3.1 million. During July 2019, we repaid the entire outstanding balance of the High Bench Loan.

Letters of credit

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, letters of credit totaling ~~$280,000~~$205,000 and ~~$355,000,~~$280,000, were issued on our behalf collateralized by compensating cash balances held at a bank, which are included in Restricted cash in the accompanying consolidated balance sheets.

Commercial purchasing card agreement

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that would be material to investors.

Transactions with Related Parties

Our related party Transactions ~~are~~include our recent acquisition of Bitsy, Inc. as discussed in Item 1 of Part I, "Financial Statements (Unaudited)"—Note ~~12. Related Party Transactions,~~3. Business Combinations, contained in the "Notes to Unaudited Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable. Our critical accounting policies are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018, and our accounting policies and use of estimates are further discussed in Item 1 of Part I, "Financial Statements (Unaudited)"—Note 2. Accounting Policies, contained in the "Notes to Unaudited Consolidated Financial Statements" of this Quarterly Report on Form 10-Q and elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

~~During Q1 2018, we implemented ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ on a modified retrospective basis and recognized $5.0 million of additional breakage income related to the unredeemed portion of our gift cards and loyalty program rewards through a cumulative effect adjustment in retained earnings as of January 1, 2018. In addition, we now recognize estimated breakage on our gift cards and loyalty program rewards in Partner and other revenue in our consolidated statement of operations rather as a component of Other expense, net. The adoption of these new accounting standards is discussed further in Item 1 of Part I, "Financial Statements (Unaudited)"—Note 2. Accounting Policies, contained in the "Notes to Unaudited Consolidated Financial Statements" of this Quarterly Report on Form 10-Q. There have been no other material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

For information about recently ~~issued~~adopted accounting standards, ~~not yet adopted,~~ see Recently ~~issued~~adopted accounting standards ~~not yet adopted~~, included in Item 1 of Part I, "Financial Statements (Unaudited)"—Note 2. Accounting Policies, contained in the "Notes to Unaudited Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.

~~Non-GAAP Financial Measures~~

~~Regulation G,~~ ~~Conditions for Use of Non-GAAP Financial Measures,~~ ~~and other SEC regulations regulate the disclosure of certain non-GAAP financial information.~~

~~Retail and Medici pre-tax income or loss~~

~~Retail and Medici pre-tax income or loss (non-GAAP financial measures - which we reconcile to Consolidated pre-tax income or loss) consists~~Table of income or loss before taxes of our Retail (which consists of Direct and Partner) and Medici (which is included in Other) businesses, excluding intercompany transactions eliminated in consolidation. We believe these measures provide management and users of the financial statements useful information because they provide financial results for our separate businesses which are distinct in nature. The material limitation associated with these measures is that they are an incomplete measure of our consolidated operations. These measures should be used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. For additional information regarding our segment reporting, and a reconciliation of Retail and Medici pre-tax income or loss, please see Item 1 of Part I, "Financial Statements (Unaudited)"—Note 10. Business Segments, contained in the "Notes to Unaudited Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.Contents

~~Free cash flow~~

Free cash flow (a non-GAAP financial measure) reflects an additional way of viewing our cash flows and liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and liquidity. Free cash flow, which we reconcile below to "Net cash used in operating activities," the nearest GAAP financial measure, is net cash provided by operating activities reduced by "Expenditures for fixed assets, including internal-use software and website development." We believe that net cash provided by operating activities is an important measure, since it includes both the cash impact of the continuing operations of the business and changes in the balance sheet that impact cash. We believe free cash flow is a useful measure to evaluate our business since purchases of fixed assets are a necessary component of ongoing operations and free cash flow measures the amount of cash we have available for mandatory debt service and financing obligations, changes in our capital structure, and future investments after purchases of fixed assets. Free cash flow measures have limitations as they omit certain components of the overall consolidated statement of cash flows and do not represent the residual cash flow available for discretionary expenditures. Free cash flow should not be considered a substitute for net income (loss) or cash flow data prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows as reconciled below (in thousands):

Nine months ended
September 30, Twelve months ended
September 30,
2018 2017 2018 2017
Net cash used in operating activities $ (120,300 ) $ (62,448 ) $ (93,073 ) $ (7,445 )
Expenditures for fixed assets, including internal-use software and website development (20,677 ) (20,873 ) (23,390 ) (33,772 )
Free cash flow $ (140,977 ) $ (83,321 ) $ (116,463 ) $ (41,217 )

Government Regulation

We are subject to a wide variety of laws, rules and regulations, some of which apply or may apply to us as a result of our retail business, some of which apply or may apply to us as a result of our Medici business, and others of which apply to us for other reasons, such as our status as a publicly held company or the places in which we sell certain types or amounts of products. Our ~~e-commerce~~retail business is subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, e-commerce, and other ~~services.~~services we offer. Existing and future laws and regulations may result in increasing expense and may impede our growth. ~~These~~Applicable and potentially applicable regulations and laws ~~cover~~include regulations and laws regarding taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other communications, competition, consumer protection, employment, import and export matters, information reporting requirements, access to our services and facilities, the design and operation of websites, health and sanitation standards, the characteristics and quality of products and ~~services. On June 21, 2018, the U.S. Supreme Court issued an opinion in our South Dakota sales tax case~~services, product labeling and ~~overruled the 1992~~ ~~Quill Corp v. North Dakota~~ case, and states may now require remote sellers to withhold sales tax under certain circumstances. In June 2018, we began withholding sales tax in all 45 states that have sales tax. If any state were to assert that we have any liability for sales tax for prior periods, it could have an adverse effect on us. New legislation or regulations, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet and commercial online services could result in significant additional taxes on our business. These taxes or tax collection obligations could have an adverse effect on us. Further, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements. In addition, it is not clear how existing laws governing issues such as property ownership, libel, and personal privacy apply to the Internet, e-commerce and digital content. Laws and regulations may diminish the demand for our products and services and increase our cost of doing business. Certain of our services are subject to federal and state consumer protection laws, including laws protecting the privacy of consumer information and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide notice to consumers of our policies on sharing non-public information with third parties, advance notice of any changes to our policies and, with limited exceptions, we must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Further, the growth and demand for online commerce could result in more stringent consumer protection laws that could impose additional compliance burdens on us. These consumer protection laws could result in substantial compliance costs.

In addition, our broker dealers are subject to additional extensive regulatory requirements under federal and state laws and regulations and self-regulatory organization ("SRO") rules. Broker dealers are subject to regulation, examination and disciplinary action by the SEC, FINRA and state securities regulators, as well as other governmental authorities and SROs with which they are registered or licensed or of which they are members. See our Annual Report on Form 10-K for the year ended December 31, 2017, Part I - Item 1A - "Risk Factors - PRO Securities and SpeedRoute, two subsidiaries of tZERO that currently generate substantially all of tZERO's revenues, are registered broker-dealers and are subject to extensive regulation."

Further, some of the business opportunities that the companies in which Medici Ventures holds an interest are pursuing may be subject to approvals by the SEC and/or other governmental authorities, and we have no ability to ensure that they can obtain any such approvals on a timely basis or at all.

Our efforts to expand our ~~sales~~retail business outside of the U.S. expose us to foreign and additional U.S. ~~and foreign~~ laws and regulations, including but not limited to, laws and regulations relating to taxation, business licensing or certification requirements, advertising practices, online services, the use of cryptocurrency, the importation of specified or proscribed items, importation quotas, consumer protection, intellectual property rights, consumer and data protection, privacy, encryption, restrictions on pricing or discounts, and the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties.

Our ~~ownership interests in Bitt Inc.~~Medici and ~~Bitsy, Inc.~~tZERO businesses are subject to general business regulations and laws, including some of those described above, but are also ~~may expose us~~affected by a number of other laws and regulations, including but not limited to, ~~additional~~ laws and regulations relating to money transmitters and money services ~~businesses. See~~businesses, including the requirements of the Financial Crimes Enforcement Network of the U.S. Department of the Treasury ("FinCEN"), cryptocurrencies, public benefit corporations, provisions of various securities laws and other laws and regulations governing broker dealers, alternative trading systems and national securities exchanges, anti-money laundering requirements, know-your-customer requirements, record-keeping, reporting and capital and bonding requirements, and a variety of other matters. Blockchain and distributed ledger platforms are recent technological innovations, and the regulation of securities tokens and other digital assets is developing. In the U.S., the businesses that we are working to develop are or may be subject to a wide variety of complex statutes and rules, most of which were implemented prior to the development of these technologies, and it is sometimes unclear whether or how various statutes or regulations apply.

The Token Trading System launched in January 2019 is subject to or affected by numerous laws and regulations. The Token Trading System relies on the PRO Securities ATS, which is subject to Regulation ATS as well as other regulations, and which utilizes the tZERO Platform, partnering with broker-dealers that are also subject to regulation by the SEC and FINRA, in order to facilitate private resales of tZERO Security Tokens to accredited investors in reliance upon an exemption from registration under Section 4(a)(7) of the Securities Act and current trading of our ~~Annual Report~~outstanding Series A-1 Preferred. Secondary resales of our Series A-1 Preferred to be issued in connection with the Dividend will need to be conducted in compliance with federal and state securities laws. The joint venture that tZERO and BOX Digital announced in June 2018 is seeking regulatory approvals that would enable the parties to operate a national securities exchange to trade security tokens. A national securities exchange, which will require approval from the U.S. Securities and Exchange Commission prior to beginning operations, will be subject to provisions of the Securities Exchange Act of 1934 and regulation substantially greater than that applicable to tZERO's current operations. In addition, depending on ~~Form 10-K for~~ the ~~year ended December 31, 2017, Part I - Item 1A - "Risk Factors - Our ownership interest in Bitt Inc.~~digital assets traded, the U.S. Commodity Futures Trading Commission may ~~expose us~~consider the assets to be commodities or derivatives and subject to additional ~~risks."~~regulation. Certain aspects of our Medici business, including Bitsy's operations which were subsequently acquired by tZERO, are or may be subject to the state and federal laws and regulations applicable to money service businesses, including the requirements of FinCEN.

Other Factors that May Affect Future Results

We believe that our cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. Any projections of future cash needs and cash flows are subject to substantial uncertainty, including those set forth under Item 1A of Part II, "Risk Factors" of this report and in our Annual Report on Form 10-K for the year ended December 31, 2017, Part I - Item 1A - "Risk Factors."

We periodically evaluate opportunities to repurchase our equity securities, obtain credit facilities, or issue additional debt or equity securities. In addition, we may, from time to time, consider ~~purchases of equity interests~~the investment in, or acquisition of, complementary businesses, products, services, or technologies, ~~whether related to our retail business, our Medici initiatives or otherwise,~~ any of which might affect our liquidity requirements or cause us to issue additional debt or equity securities. There can be no assurance that financing arrangements will be available in amounts or on terms acceptable to us, orif at all. Our future results may be significantly different from our historical results for several other reasons as well, including the possibility discussed in our Annual Report on Form 10-K that we may sell our retail business, which would have a dramatic effect on our future results.

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Other reasons that our future results may be significantly different from our historical results include the potential effects on us of the accounting and tax changes discussed in our Annual Report on Form 10-K, and other reasons described in Item 1. "Business" under "Our Retail Business" and "Our Medici Business", as well as the risk factors described in Item 1A. "Risk Factors" of Part II, "Risk Factors" of this report.

Any investment in our securities involves a high degree of risk. Investors should consider carefully the risks and uncertainties described in this Form 10-Q, including the risks described in Item 1A of Part II, "Risk Factors" of this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, Part I - Item 1A - "Risk Factors," and all other information in this Form 10-Q and in our other filings with the SEC including those we file after we file this Form 10-Q, before deciding whether to purchase or hold our securities. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business. The occurrence of any of the risks described under "Risk Factors" in this report or in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 could harm our business. The trading price of our securities could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments consist of cash and cash equivalents, trade accounts and contracts receivable, accounts payable, and long-term obligations. We consider highly-liquid instruments with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. We currently do not hold any derivative financial instruments or foreign exchange contracts.

Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. However, the fair values of our investments may be subject to fluctuations due to volatility of the stock market in general, investment-specific circumstances, and changes in general economic conditions.

At ~~September~~June 30, ~~2018,~~2019, we had ~~$182.0~~$121.3 million in cash and cash equivalents. Hypothetically, an increase or decrease in interest rates of one hundred basis points would have an estimated impact of ~~$1.8~~$1.2 million on our earnings or loss, or the cash flows of these instruments.

At ~~September~~June 30, ~~2018,~~2019, letters of credit totaling ~~$280,000~~$205,000 were outstanding under collateralized compensating cash balances held at our ~~credit facilities.~~bank. Hypothetically, an increase or decrease in interest rates of one hundred basis points would have an estimated impact of ~~$2,800~~$2,000 on our earnings or loss if the letters of credit were fully drawn.

At ~~September~~June 30, ~~2018,~~2019, we had cryptocurrency-denominated assets totaling ~~$3.1~~$2.3 million. Hypothetically, aan increase or decrease in the market value of one hundred basis points would have an estimated impact of ~~$31,000~~$23,000 on our earnings or loss, ~~and~~or the recorded value of these instruments. ~~Reported earnings resulting from increases~~It is generally not our policy to hold material amounts of cryptocurrency because of volatility and market risk.

At June 30, 2019, our recorded value in equity securities in public and private companies was $43.8 million. Our equity securities in publicly traded companies represent $1.5 million of our equity securities as of June 30, 2019, and are recorded at fair value, which is subject to market price volatility. We perform a qualitative assessment for our equity securities in private companies to identify impairment. If this assessment indicates that an impairment exists, we estimate the ~~market~~fair value of ~~cryptocurrency would be limited~~the equity security and, if the fair value is less than carrying value, we write down the equity security to ~~realized gains.~~fair value. Our assessment includes a review of recent operating results and trends, recent sales/acquisitions of the equity securities, and other publicly available data. Valuations of private companies are inherently more complex due to the lack of readily available market data. As such, we believe that market sensitivities are not practicable.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.

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Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation required by the Exchange Act under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Beginning January 1, ~~2018,~~2019, we implemented ASU ~~2014-09, Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606)~~842). In connection with its adoption, we implemented changes to our processes and internal control activities over financial reporting to ensure compliance with the new accounting and disclosure rules.

Except for the preceding changes, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under Item 1 of Part I, "Financial Statements "—Note 6—7—"Commitments and Contingencies," subheading "Legal Proceedings and Contingencies," contained in the "Notes to Unaudited Consolidated Financial Statements" of this Quarterly Report on Form 10-Q is incorporated by reference in answer to this Item.

ITEM 1A. RISK FACTORS

Any investment in our securities involves a high degree of risk. Please consider the following risk factors carefully. If any one or more of the following risks were to occur, it could have a material adverse effect on our business, prospects, financial condition and results of operations, and the market price of our securities could decrease significantly. Statements below to the effect that an event could or would harm our business (or have an adverse effect on our business or similar statements) mean that the event could or would have a material adverse effect on our business, prospects, financial condition and results of operations, which in turn could or would have a material adverse effect on the market price of our securities. Many of the risks we face involve more than one type of risk. Consequently, you should read all of the risk factors below carefully, as well as the risk factors described in our Form 10-K for the year ended December 31, ~~2017, the risk factors described in our Form 10-Q for the quarters ended March 31, 2018 and June 30,~~ 2018, and in any reports we file with the SEC after we file this Form 10-Q, before deciding whether to purchase or hold our securities. The occurrence of any of these risks could harm our business, the trading price of our securities could decline, and investors could lose part or all of their investment.

Other than the risk factors set forth below, there are no material changes from the risk factors previously disclosed in Part I - Item 1A - "Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018.

If we fail to comply with ongoing Nasdaq listing standards and ~~disclosed~~corporate governance requirements, we could be subject to de-listing.

Our common stock is currently listed on the Nasdaq Global Market. In order to maintain this listing, we are required to comply with various continued listing standards, including corporate governance requirements, set forth in ~~Part II - Other Information - Item 1A - "Risk Factors,"~~the Nasdaq Listing Rules. These standards and requirements include an obligation to maintain a Board of Directors, a majority of whom are deemed to be independent and that we maintain an Audit Committee consisting of at least three independent Board Members. Our Board of Directors currently has five members, three of whom are deemed independent, and our Audit Committee consists of these three independent directors. If one of our ~~Quarterly Report~~independent directors should cease to be on ~~Form 10-Q for~~ the ~~quarters ended March 31, 2018~~Board, we would no longer have a majority of independent Directors on our Board and ~~June 30, 2018.~~our Audit Committee would no longer have at least three independent directors. If such a scenario was not rectified in accordance with applicable Nasdaq Listing Rules, we could become subject to Nasdaq delisting procedures.

Future sales of our common or preferred stock may depress our stock price.

Sales of a substantial number of shares of our common stock or our preferred stock in the public market or otherwise, by us or by a significant stockholder, could depress the trading price of our common or preferred stock and impair our ability to raise capital through the sale of additional equity securities.

In addition, we may issue additional shares of our common or preferred stock from time to time in the future in amounts that may be significant. The sale of substantial amounts of our common or preferred stock, or the perception that these sales may occur, could adversely affect the trading prices of either or both of these securities.

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Additional Risks Relating to Our tZERO Initiatives

Our ownership ~~interest~~ in ~~Bitsy Inc. may expose~~tZERO is below the threshold required to permit us to ~~additional risks.~~use its losses to offset taxable income generated by the rest of our U.S. business and is below the threshold required to effect a tax-free spin-off.

InDue to our ownership percentages of both tZERO common stock and tZERO Security Tokens, we own less than the ~~third quarter~~required percentage to file a federal consolidated income tax return. tZERO therefore files a separate federal tax return from the rest of ~~2018, Medici Ventures increased its~~our U.S. domestic operations, and as a result, certain tax attributes, such as federal net operating losses and tax credits, generated by tZERO are not available to offset taxable income generated by the rest of our U.S. domestic operations, and vice versa. Additionally, among other gating factors, our ownership ~~interest~~percentage is also currently below the level required to effect a tax-free spin-off of tZERO, and therefore, at this time we do not believe that a tax-free spin-off of the tZERO business is a viable option.

tZERO Crypto’s business may be limited in certain jurisdictions if it is unable to timely receive certain licenses it is in process of obtaining or due to the regulations applicable to it.

tZERO’s subsidiary Bitsy, Inc., which does business as, and which we refer to in this discussion as tZERO Crypto, is applying for licenses to operate as a ~~U.S.-based company founded~~money transmitter (or its equivalent) in most states and ~~partially owned by Medici Ventures' chief operating officer~~has, as of July 31, 2019, obtained such licenses in a majority of states. tZERO Crypto has also registered with FinCEN. There can be no assurance that tZERO Crypto will be able to obtain money transmitter licenses on a timely basis in states where they have not already been obtained, or that they will be obtained at all, which may limit the services tZERO Crypto is able to offer in certain jurisdictions or require potential product changes.

Additionally, as a licensed money transmitter and ~~general counsel,~~due to ~~approximately 33%. In September 2018, Bitsy announced that it had begun a limited beta launch of a digital wallet service intended~~its registration with FinCEN, tZERO Crypto is subject to ~~create a bridge between traditional fiat currencies~~obligations and cryptocurrencies. Various aspects of the business that Bitsy is engaging in are heavily regulated. Virtually every state in the U.S. regulates money transmitters and money services businesses. In some states the licensing requirements and regulations expressly cover companies engaged in digital currency activities; in other states it is not clear whether or how the existing laws and regulations apply to digital currency activities. These licenses and registrations subject companiesrestrictions with respect to various anti-money laundering, know-your-customer, record-keeping, reporting and capital and bonding requirements, limitations on the investment of customer funds, and inspection by state and federal regulatory agencies. ~~Bitsy has registered with FinCEN and has confirmed~~In the future, as a result of the regulations applicable to ~~us that~~tZERO Crypto’s business, it intends to obtain all licenses it is required to obtain. Under U.S. federal law, it is a crime for a person, entity or business that is required to be registered with FinCEN or licensed in any state to fail to do so. Further, under U.S. federal law, anyone who owns all or part of an unlicensed money transmitting business may be subject to ~~civil~~additional liability, including governmental fines, restrictions on its business, or other sanctions, and ~~criminal penalties.~~

~~Our discussions~~it could be forced to cease conducting certain aspects of its business with ~~potential bidders for our e-commerce~~residents of certain jurisdictions, be forced to otherwise change it business ~~could result~~practices in ~~the compromise of our intellectual property.~~

Although we enter into confidentiality agreements with potential bidders for our e-commerce business prior to disclosing confidential information to them, it may be possible for potential bidders to misappropriate intellectual property and other confidential information from us.

~~We may have additional exposure to claims under Delaware's Abandoned Property Law.~~

~~In September 2018 we lost a jury trial in Delaware brought on Delaware's behalf alleging that we had violated Delaware's unclaimed property laws by failing to report and turn over to Delaware~~ certain ~~unused gift card balances. The time period covered by the lawsuit was 2004 through 2007. The jury returned a verdict, which we expect to result in a judgment~~

~~against us of approximately $7.3 million plus attorneys' fees and costs. We may have additional exposure for the time period 2008 through 2014.~~

~~We may~~jurisdictions, or be required to ~~write off amounts relating to our interests in startup businesses.~~obtain additional licenses or regulatory approvals.

~~At September 30, 2018, Overstock and its subsidiaries held minority interests totaling approximately $57.4 million in several companies that are in~~The occurrence of any of the startup or development stages and may acquire additional minority interests in other entities in the future. These interests are inherently risky because the markets for the technologies or products these companies are developing are typically in the early stages and may never materialize. Additionally, since these interests are in companies that are in the early startup or development stages, even if their technology or products are viable, they may not be able to obtain the capital or resources necessary to successfully bring their technology or products to market. Furthermore, we have no assurance that the technology or products of companies we have funded would be successful, even if they were brought to market. We have written off amounts related to these interests in the past and may in the future write off additional amounts related to these interests. Any such write-offs could be material, andforegoing could have a material adverse effect on tZERO’s operations and financial condition and a material adverse effect on us.

tZERO Crypto operates a digital wallet and exchange services application which subjects it to a variety of risks.

tZERO Crypto’s primary business is a mobile application that allows consumers to buy, sell and hold various supported cryptocurrencies. Certain aspects of this business are heavily regulated and may require tZERO Crypto to register or obtain licenses in order to conduct its business. Additionally, regulations related to digital assets such as cryptocurrencies vary significantly among jurisdictions and are subject to significant uncertainty. Any failure by tZERO Crypto to satisfy applicable licensing requirements, adequately comply with applicable regulation or account for a regulatory change may subject it to a variety of adverse consequences including an increase in costs related to compliance or operational changes, reputational harm and regulatory penalties.

Security breaches, computer malware and other computer hacking attacks are of concern to businesses that interact with cryptocurrencies. While tZERO Crypto wallet users hold their cryptocurrency directly on their mobile devices (as opposed to being held in custody by tZERO Crypto), tZERO Crypto holds a limited cryptocurrency inventory on hand to facilitate its exchange services and has access to customer information. As a result, tZERO Crypto is subject to risk of cyber-attacks, which involve efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, the inadvertent transmission of computer viruses or other malware, other forms of malicious attacks, or via other means, including phishing attacks, or malfeasance or negligent acts of our personnel any of which could result in loss of cryptocurrency, unauthorized access to customer information and the resulting legal or financial ~~results~~exposures or the unexpected unavailability of tZERO Crypto’s services.

Additionally, the prices of cryptocurrencies and other digital assets tZERO Crypto may hold in limited amounts for operational purposes have historically been subject to dramatic fluctuations and are highly volatile. This may subject tZERO Crypto to significant cryptocurrency price volatility risk.

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The occurrence of any of the foregoing could have a material adverse effect on tZERO’s operations and financial condition and a material adverse effect on us.

tZERO Markets may not receive the regulatory approval it requires to operate its anticipated business.

~~tZERO's recent decision~~In May 2019, tZERO formed a new subsidiary, Zoro Securities, LLC, dba tZERO Markets ("tZERO Markets"), in order to offer certain brokerage and investment banking services for traditional equities and digital securities. tZERO Markets has applied for regulatory approval to permit it to offer such services, including by filing a Form BD and New Member Application with FINRA.

The application of federal securities law, FINRA rules and other bodies of law to digital assets is subject to significant uncertainty and likely to rapidly evolve as government agencies take greater interest in them. As a result, there may be delay in the receipt of the regulatory approvals tZERO Markets requires to operate, if they are received at all. In the event tZERO Markets is not able to ~~use StockCross as~~receive the ~~introducing broker for~~regulatory approvals it requires to provide the ~~trading~~services it intends or there is significant delay in tZERO Markets’ receipt of such approvals it may be forced to revise its ~~security tokens may result in additional expense~~business plan. Any such revision could have a material adverse effect on tZERO’s operations and ~~may delay the trading of tZERO's security tokens.~~financial condition and a material adverse effect on us.

~~Management~~tZERO Markets intends to be registered as a broker-dealer and would be subject to extensive regulation.

tZERO Markets has applied for regulatory approvals to allow it to conduct certain brokerage and investment banking activities. If these approvals are received, tZERO Markets will become a registered broker-dealer under the Exchange Act and a member of FINRA and will be subject to regulation, examination, investigation and disciplinary action by the SEC, FINRA and other governmental authorities and self-regulatory organizations with which it becomes registered or licensed or of which it becomes a member. In addition, as tZERO Markets intends to provide broker-dealer services that tZERO’s other broker-dealer subsidiaries have not historically provided, certain of these legal and regulatory requirements will be new to tZERO.

Any failure of tZERO Markets to comply with all applicable rules and regulations or satisfy FINRA, the SEC, or any other regulatory authority with which it must comply could have a material adverse effect on tZERO's operations and financial condition and a material adverse effect on us.

Additional Risks Related Primarily to our Series A-1 Preferred Stock

Our Series A-1 Preferred shares are substantially different from other securities traded in the U.S. public markets and are subject to a variety of unusual restrictions and material risks.

Our Series A-1 Preferred can trade only on the PRO Securities ATS utilizing the tZERO Platform. Trades of the Series A-1 Preferred settle on the trade date. The Series A-1 Preferred is not and will ~~need~~not be listed on any securities exchange or any other market of any kind. The Series A-1 Preferred may at times be illiquid, and it may at times be very difficult to ~~devote significant time~~sell any shares of the Series A-1 Preferred.

The technology on which the tZERO Platform depends has been developed by our majority-owned subsidiary, tZERO, and is licensed by its subsidiary, PRO Securities, and the Series A-1 Preferred depends on both tZERO and PRO Securities, neither of which has substantial resources.

tZERO is a majority-owned subsidiary of ours and owns 100% of the equity interest in PRO Securities. tZERO licenses the tZERO Platform to PRO Securities, and PRO Securities operates the PRO Securities ATS. Neither tZERO nor PRO Securities has substantial resources or any commitment from any person, including the Company, to ~~identify a suitable broker dealer and~~contribute additional capital or to ~~enter into an appropriate licensing and/or other contractual arrangements with~~make any loan to either of them. If any one or more ~~options,~~of the Company, tZERO or PRO Securities were unable to fund its operations in the future, or if any one or more of them were to become the subject of a bankruptcy or other insolvency proceeding, PRO Securities might be unable to continue to operate the tZERO Platform, and the Series A-1 Preferred could be materially adversely affected. In any such event, or if the PRO Securities ATS or the tZERO Platform were to be unable to operate as a result of intellectual property issues or fail to operate as intended for any other reason, holders of our capital stock, including the Series A-1 Preferred, could lose their entire investment in our capital stock, including all amounts invested in the Series A-1 Preferred.

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Transactions involving the Series A-1 Preferred could result in errors, which may ~~divert management's time~~be impossible to correct.

Some transactions in the Series A-1 Preferred could require manual intervention, which could result in errors, and ~~attention from other matters.~~because trades on in the Series A-1 Preferred settle on the trade date, it may be impossible to correct any error, regardless of the source of the error, which could have a material adverse effect on holders of Series A-1 Preferred.

The Series A-1 Preferred depends on Computershare as the transfer agent for the Series A-1 Preferred.

Computershare serves as the transfer agent for the Series A-1 Preferred. If Computershare were unable or unwilling for any reason to serve as such, trading in the Series A-1 Preferred would be impossible unless we were able to substitute another transfer agent, which would have a material adverse effect on the holders of the Series A-1 Preferred.

The potential application of U.S. laws regarding traditional investment securities to the Series A-1 Preferred is unclear.

Because of the differences between the Series A-1 Preferred and traditional investment securities, there is a risk that issues that might easily be resolved by existing law if traditional securities were involved may not be easily resolved for the Series A-1 Preferred. The occurrence of any such issue or dispute could have a material adverse effect on the holders of Series A-1 Preferred.

The potential application of U.S. laws regarding virtual currencies and money transmission to PRO Securities' use of the Ethereum blockchain is unclear.

The tZERO Platform uses the Ethereum blockchain for certain purposes. None of the parties involved in the operation of the tZERO Platform is ~~unable~~licensed under the virtual currency or money transmission regulations of any state in the United States or registered with FinCEN. If any regulatory authority were to ~~enter into~~assert that the ~~necessary contractual arrangements with an appropriate broker dealer promptly~~operation of the tZERO Platform requires such licensing or ~~at a reasonable cost,~~registration, it could have a material adverse effect on ~~tZERO's plans~~the holders of the Series A-1 Preferred.

We have the right to ~~begin~~convert the ~~trading~~outstanding shares of ~~its security tokens in January 2019. Although tZERO believes it has identified suitable candidates~~Series A-1 Preferred into shares of Series B Preferred at any time.

We have the right to ~~perform these roles~~convert the Series A-1 Preferred into Series B Preferred at any time, and ~~intends to identify additional candidates, tZERO does not~~the terms of the Series B Preferred may be amended at any time without the consent of the holders of the Series A-1 Preferred. Any such conversion and any such amendment of the Series B Preferred could have a ~~licensing~~material adverse effect on holders of Series A-1 Preferred.

The restrictions on the tax reporting of holder's cost basis in shares of Series A-1 Preferred will not allow normal tax planning in the sale of shares of Series A-1 Preferred and may result in disadvantageous tax consequences to a seller of Series A-1 Preferred.

Only one method of cost basis reporting (the first-in, first-out, or FIFO, method) is available for the Series A-1 Preferred. As a result, sellers of Series A-1 Preferred may be required to pay more tax on their sales or to pay taxes earlier than if other ~~contractual arrangement~~normal methods of cost basis reporting had been available, which could have a material adverse effect on the holders of Series A-1 Preferred.

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We could encounter a variety of challenges in connection with the issuance of our Series A-1 Preferred Shares as a dividend.

We recently announced that our Board of Directors has declared a dividend (the "Dividend"), payable on November 15, 2019, in shares of our Series A-1 Preferred Shares. The Dividend will be payable at a ratio of 1:10, meaning that one share of Series A-1 will be issued for every ten shares of common stock, Series A-1 or Voting Series B Preferred Stock held by all holders of such shares as of September 23, 2019, the record date for the Dividend. The Series A-1 Shares received pursuant to the Dividend will initially be subject to trading restrictions. Subject to compliance with applicable securities laws, recipients of the Series A-1 shares received in the Dividend are expected to be able to trade those securities on the PRO Securities ATS operated by our subsidiary PRO Securities, LLC, through a brokerage account established with Dinosaur Financial Group, LLC ("Dino") or any other broker dealer that serves as an introducing broker on that platform. Currently, Dino is the only broker dealer that operates on the PRO Securities ATS. Unless we designate one or more other such broker dealers, Dino will be required to ~~perform~~open tens of thousands of new accounts in a short period of time. Dino may be unable to get all such accounts opened in a timely manner. Further, the ~~roles~~issuance of ~~introducing broker.~~the Series A-1 Shares pursuant to the Dividend will significantly increase the number of outstanding Series A-1 Preferred Shares from approximately 125,000 to approximately 3.8 million. This could result in a substantial increase in trading volume on the PRO Securities ATS once the Dividend Series A-1 Preferred Shares become eligible for trading in accordance with applicable securities laws. This increased volume could cause unforeseen issues with PRO Securities ATS, which has not yet handled such volume levels. Furthermore, since we have not previously issued Series A-1 Preferred Shares on such a wide scale, we could encounter challenges related to dealing with shares held in retirement plans or individual retirement accounts, complying with any applicable foreign law legal requirements or other unforeseen legal and compliance issues.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered issuance of equity securities

On June 28, 2018, we issued 100,000 shares of our common stock in a private placement to the stockholders of SiteHelix, Inc., including Saum Noursalehi, who owned approximately 62% of the SiteHelix common stock, as part of the acquisition price for our acquisition of all of the common stock of SiteHelix. Mr. Noursalehi is a member of our Board of Directors and served as President, Retail, of Overstock until May 8, 2018, when he became Chief Executive Officer of tZERO. The issuance was exempt from the registration requirements of the Securities Act of 1933, as amended, as a private placement under Rule 506(b) of Regulation D.

On September 20, 2018, we issued 47,378 shares of our common stock in a private placement to Bitsy, Inc. ("Bitsy"), as part of the acquisition price for our equity interest in Bitsy. Subsequent to the purchase, we hold, through our wholly-owned subsidiary, Medici Ventures, a 33% interest in Bitsy. Bitsy is a U.S.-based startup company founded and 25% owned by Medici Ventures' chief operating officer and general counsel. The issuance was exempt from the registration requirements of the Securities Act of 1933, as amended, as a private placement under section 4(a)(1) thereof.None.

Issuer purchases of equity securities

None.

Limitations upon the payment of dividends

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any earnings for future growth and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual and legal restrictions and other factors the board of directors deems relevant.

In December 2016, we issued a total of 695,898 shares of our preferred stock (the "Preferred Stock"), of which ~~681,259~~481,259 shares remained outstanding at ~~September~~June 30, ~~2018.~~2019. The Preferred Stock ranks senior to our common stock with respect to dividends. Holders of the Preferred Stock are entitled to an annual cash dividend of $0.16 per share, in preference to any dividend payment to the holders of the common stock, out of funds legally available for payment of dividends and subject

to declaration by our Board of Directors. Holders of the Preferred Stock are also entitled to participate in any cash dividends we pay to the holders of the common stock and are also entitled to participate in non-cash dividends we pay to holders of the common stock, subject to potentially different treatment if we effect a stock dividend, stock split or combination of the common stock. There are no arrearages in cumulative preferred dividends. We declared and paid a cash dividend of $0.16 per share on our preferred stock during ~~2017.~~2017 and 2018.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



(a)	Exhibits
	~~10.1~~3.1	~~Capital on DemandTM Sales Agreement with JonesTrading Institutional Services LLC, as agent, dated August 9, 2018 (incorporated~~Certificate of Designation of Digital Voting Series A-1 Preferred Stock of Overstock.com, Inc., incorporated by reference to exhibit ~~1.1~~3.1 to our Form ~~S-3~~8-K filed on ~~August 9, 2018, File No. 333-226729)~~June 27, 2019.
	~~10.2~~10.1	~~Standby Equity Underwriting Agreement with JonesTrading Institutional Services LLC, as underwriter, dated August 9, 2018 (incorporated by reference~~Amendment No. 1 to ~~exhibit 1.2 to our Form S-3 filed on August 9, 2018, File No. 333-226729)~~
	~~10.3~~	~~Stockholders Agreement dated September 21, 2018 by and among Medici Land Governance, Inc.,~~the Medici Ventures, Inc. ~~and Patrick M. Byrne (incorporated~~2017 Stock Option Plan, incorporated by reference to exhibit 10.1 to our Form 8-K filed on ~~September 26, 2018, File No. 000-49799~~April 22, 2019.
	10.2	Medici Land Governance, Inc. 2019 Stock Option Plan, incorporated by reference to exhibit 10.1 to our Form 8-K filed on May 6, 2019.
	10.3	tZERO Group, Inc. 2017 Equity Incentive Plan, adopted December 24, 2017, as amended through May 13, 2019, incorporated by reference to exhibit 10.1 to our Form 8-K filed on May 17, 2019.
	*31.1	Exhibit 31.1 Certification of Chief Executive Officer
	*31.2	Exhibit 31.2 Certification of Chief Financial Officer
	**32.1	Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
	**32.2	Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
	101	Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders' Equity, and (vi) Notes to Consolidated Financial Statements.

* Filed herewith.

** Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	~~November 9, 2018~~August 8, 2019	OVERSTOCK.COM, INC.

		/s/ GREGORY J. IVERSON
		Gregory J. Iverson
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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Intangible Assets	Fair Value		Estimated Useful Life (in years)
Technology and developed software	$	6,300	10
Trade name	700		10
Customer relationships	400		0.5
Total acquired intangible assets at the acquisition date	7,400
Less: accumulated amortization of acquired intangible assets	904
Total acquired intangible assets, net	$	8,304



Payments due by period
2018 (Remainder)	$	1,757
2019	7,446
2020	5,648
2021	6,038
2022	6,156
Thereafter	17,515
	$	44,560



	Q1 2017		Q2 2017		Q3 2017		Q4 2017		FY 2017		Q1 2018		Q2 2018		Q3 2018
Direct	8.2	%	4.3	%	0.3	%	(2.3	)%	3.0	%	9.2	%	0.3	%	(5.1	)%
Partner and other	20.8	%	20.3	%	20.7	%	19.7	%	20.3	%	21.5	%	19.6	%	20.6	%
Combined	20.1	%	19.5	%	19.7	%	18.8	%	19.5	%	21.1	%	19.0	%	19.7	%