Overstock.com 2004 Annual Report Download - page 77

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The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods indicated:
Year ended December 31,
2002 2003 2004
Net loss attributable to common shares $(11,573) $(12,149) $ (5,190)
Weighted average common shares outstanding—basic 13,108 16,198 17,846
Effective of dilutive securities:
Warrants — — —
Employee stock options — — —
Convertible senior notes — — —
Weighted average common shares outstanding—diluted 13,108 16,198 17,846
Earnings (loss) per common share—basic: $ (0.88) $ (0.75) $ (0.29)
Earnings (loss) per common share—diluted: $ (0.88) $ (0.75) $ (0.29)
The stock options, warrants and convertible senior notes outstanding were not included in the computation of diluted earnings per share because to do so
would have been antidilutive. The number of shares of stock options and warrants outstanding at each year-end was 2,535 shares, 2,849 shares and 2,399
shares for 2002, 2003 and 2004, respectively. As of December 31, 2004, the Company had $120,000 of convertible senior notes outstanding (Note 10), which
could potentially convert into 1,574 shares of common stock in the aggregate.
Internal use software
The Company expenses all costs incurred for the development of internal use software that relate to the planning and post implementation phases of the
development. Direct costs incurred in the development phase are capitalized and recognized over the software's estimated useful life of 3 years. Research and
development costs and other computer software maintenance costs related to software development are expensed as incurred.
Advertising expense
The Company recognizes advertising expenses in accordance with SOP 93-7 Reporting on Advertising Costs. As such, the Company expenses the costs
of producing advertisements at the time production occurs, and expenses the cost of communicating advertising in the period during which the advertising
space or airtime is used. Internet advertising expenses are recognized based on the terms of the individual agreements, which is generally: 1) during the period
customers are acquired; or 2) based on the number of clicks generated during a given period over the term of the contract. Advertising expenses totaled
$7,043, $18,552 and $39,180 during the years ended December 31, 2002, 2003 and 2004, respectively.
Foreign currency translation
For the Company's subsidiary located in Mexico, the subsidiary's local currency is considered its functional currency. As a result, all of the subsidiary's
assets and liabilities are translated into U.S.
F-14