Overstock.com 2002 Annual Report Download - page 46

16. EMPLOYEE STOCK PURCHASE PLAN
Effective January 24, 2001, the Company adopted an Employee Stock Purchase Plan (the "ESPP") to provide certain employees, directors and
consultants an opportunity to purchase shares of its common stock annually, up to 5% of eligible compensation. During a specified open period as determined
the Board of Directors, participants can purchase shares of stock at a value determined by the Company's board of directors which approximates the deemed
fair market value of the stock. The ESPP expires in May 2011. A total of 353 shares were available for purchase under the ESPP. There were 14 and 6 shares
issued under the ESPP during 2001 and 2002, respectively. The Company recognized approximately $63 and $51 of stock-based compensation for the excess
of the fair value of the shares of common stock over the purchase price during 2001 and 2002, respectively.
17. EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) defined contribution plan which permits participating employees to defer up to a maximum of 15% of their compensation,
subject to limitations established by the Internal Revenue Code. Employees who have completed a half-year of service and are 21 years of age or older are
qualified to participate in the plan. The Company matches 50% of the first 6% of each participant's contributions to the plan. Participant contributions are
immediately vested. Company contributions vest based on the participant's years of service at 20% per year over five years. The Company's cash contribution
totaled $32, $68 and $88 during 2000, 2001 and 2002, respectively.
18. INCOME TAXES
The components of the Company's deferred tax assets and liabilities as of December 31, 2001 and 2002 are as follows:
December 31,
2001 2002
Deferred tax assets:
Net operating loss carryforwards $ 20,996 $ 19,771
Accrued expenses 312 1,193
Reserves and other 575 768
21,883 21,732
Deferred tax liabilities:
Depreciation (121) (163)
Valuation allowance (21,762) (21,569)
Net asset $ — $ —
As a result of the Company's history of losses, a valuation allowance has been provided for the full amount of the Company's net deferred tax assets.
Based on the weight of available evidence, it is more likely than not that such benefits will not be realized.
At December 31, 2002, the Company had net operating loss carryforwards of approximately $36,869 which may be used to offset future taxable income.
An additional $14,386 of net operating losses are limited under Section 382 to $799 a year. These carryforwards begin to expire in 2019.
The income tax benefit differs from the amount computed by applying the U.S. federal income tax rate of 35% to loss before income taxes for the
following reasons:
Year ended December 31,
2000 2001 2002
U.S. federal income tax benefit at statutory rate $ 7,459 $ 4,832 $ 1,596
State income tax benefit, net of federal expense 769 338 38
Nondeductible goodwill amortization (86) (1,070) —
Stock compensation expense — (119) (1,216)
Other (9) (336) (611)
Unrecognized benefit due to valuation allowance (8,133) (3,645) 193
Income tax benefit $ — $ — $ —
19. RELATED PARTY TRANSACTIONS
In March 2001, the Company entered into a credit agreement with a related party, High Meadows Finance L.C. Under the terms of the agreement, High
Meadows Finance L.C. was allowed to purchase 197 shares of common stock for $1,000. The fair value of this common stock was deemed to be $1,425. The
excess of the fair value of the common stock over the price paid for the common stock of $425 was recorded as a debt discount, and was amortized over the
term of the agreement. The Company recorded interest expense of $255 and $170 in 2001 and 2002, respectively, related to the debt discount.
In September 2001, the Company entered into a credit agreement with another related party, Norwich Associates L.C. Under the terms of the agreement,
Norwich Associates L.C. was given 11 shares of common stock. The fair value of the common stock issued in conjunction with this agreement was deemed to
be $108 and was recorded as a debt discount, and was amortized over the term of the agreement. The Company recorded interest expense of $36 and $72 in
2001 and 2002, respectively, related to the debt discount.