Overstock.com 2002 Annual Report Download - page 11

our ability to successfully integrate operations and technologies from acquisitions or other business combinations;
the success of our warehouse store sales; and
the mix between direct revenue versus commission revenue.
If we fail to accurately forecast our expenses and revenues, our business, operating results and financial condition may suffer and the price of our
stock may decline.
Our limited operating history and the rapidly evolving nature of our industry make forecasting quarterly operating results difficult. We may not be able to
quickly reduce spending if our revenues are lower than we project. Therefore, any significant shortfall in revenues would likely harm our business, operating
results and financial condition and cause our results of operation to fall below the expectations of public market analysts and investors. If this occurs, the price
of our common stock may decline.
We have grown quickly and if we fail to manage our growth, our business will suffer.
We have rapidly and significantly expanded our operations, and anticipate that further significant expansion will be required to address potential growth
in our customer base and market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on our management,
operational and financial resources. Some of our officers have no prior senior management experience at public companies. Our new employees include a
number of key managerial, technical and operations personnel who have not yet been fully integrated into our operations, and we expect to add additional key
personnel in the near future. To manage the expected growth of our operations and personnel, we will be required to improve existing and implement new
transaction-processing, operational and financial systems, procedures and controls, and to expand, train and manage our already growing employee base. If we
are unable to manage growth effectively, our business, prospects, financial condition and results of operations will be seriously harmed.
In order to obtain future revenue growth and achieve and sustain profitability we will have to attract customers on cost-effective terms.
Our success depends on our ability to attract customers on cost-effective terms. We have relationships with online services, search engines, directories
and other Websites and e-commerce businesses to provide content, advertising banners and other links that direct customers to our Websites. We expect to
rely on these relationships as significant sources of traffic to our Websites and to generate new customers. If we are unable to develop or maintain these
relationships on acceptable terms, our ability to attract new customers and our financial condition could be harmed. In addition, certain of our existing online
marketing agreements require us to pay upfront fees and make other payments prior to the realization of the sales, if any, associated with those payments.
Accordingly, if these agreements or similar agreements that we may enter into in the future fail to produce the sales that we anticipate, our results of
operations will be adversely affected. We cannot assure you that we will be able to increase our revenues, if at all, in a cost-effective manner.
Further, many of the parties with which we may have online-advertising arrangements could provide advertising services for other online or traditional
retailers and merchandise liquidators. As a result, these parties may be reluctant to enter into or maintain relationships with us. Failure to achieve sufficient
traffic or generate sufficient revenue from purchases originating from third parties may result in termination of these relationships by these third parties.
Without these relationships, our revenues, business, financial condition and results of operations could suffer.
The loss of key personnel or any inability to attract and retain additional personnel could affect our ability to successfully grow our business.
Our performance is substantially dependent on the continued services and on the performance of our senior management and other key personnel,
particularly Patrick M. Byrne, our President, Chief Executive Officer and Chairman of the Board. Our performance also depends on our ability to retain and
motivate other officers and key employees. The loss of the services of any of our executive officers or other key employees for any unforeseen reason,
including without limitation, illness or call to military service, could harm our business, prospects, financial condition and results of operations. We do not
have long-term employment agreements with any of our key personnel and we do not maintain "key person" life insurance policies. Our future success also
depends on our ability to identify, attract, hire, train, retain and motivate other highly-skilled technical, managerial, editorial, merchandising, marketing and
customer service personnel. Competition for such personnel is intense, and we cannot assure you that we will be able to successfully attract, assimilate or
retain sufficiently qualified personnel. Our failure to retain and attract the necessary technical, managerial, editorial, merchandising, marketing and customer
service personnel could harm our business, prospects, financial condition and results of operations.
Our operating results may fluctuate depending on the season, and such fluctuations may affect our stock price.
We expect to experience fluctuations in our operating results because of seasonal fluctuations in traditional retail patterns. Sales in the retail and
wholesale industry tend to be significantly higher in the fourth calendar quarter of each year than in the preceding three quarters due primarily to increased
shopping activity during the holiday season. However, there can be no assurance that our sales in the fourth quarter will exceed those of the preceding quarters
or, if the fourth quarter sales do exceed those of the preceding quarters, that we will be able to manage the increased sales effectively. Further, we may
increase our inventories substantially in anticipation of holiday season shopping activity, which may have a negative effect on our cash flow. Securities
analysts and investors may inaccurately estimate the effects of seasonality on our results of operations in one or more future quarters and, consequently, our
operating results may fall below expectations, causing our stock price to decline.
We depend on our relationships with third parties for a large portion of the products that we offer for sale on our Websites. If we fail to maintain
these relationships, our business will suffer.
During 2002, we had commission-based relationships with approximately 150 third parties whose products we offer for sale on our Websites. At
December 31, 2002, these products accounted for approximately 67% of the products available on our Websites. We do not have any long-term agreements
with any of these third parties. Our agreements with third parties are terminable at will by either party immediately upon notice. In general, we agree to offer
the third parties' products on our Websites and these third parties agree to provide us with information about their products, honor our customer service
policies and ship the products directly to the customer. If we do not maintain our existing or build new relationships with third parties on acceptable
commercial terms, we may not be able to offer a broad selection of merchandise, and customers may refuse to shop at our Websites. In addition,
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