Overstock.com 2003 Annual Report Download - page 63

Net operating loss carryforwards $ 19,771 $ 24,072
Accrued expenses 1,193 1,371
Reserves and other 768 1,208
21,732 26,651
Deferred tax liabilities:
Depreciation (163) (986)
Valuation allowance (21,569) (25,665)
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 and 2003, the Company had net operating loss carryforwards of approximately $36,869 and $48,018, respectively, which may be
used to offset future taxable income. An additional $14,386 of net operating losses are limited under Internal Revenue Code 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,
2001 2002 2003
U.S. federal income tax benefit at statutory rate $ 4,832 $ 1,596 $ 4,166
State income tax benefit, net of federal expense 338 38 385
Nondeductible goodwill amortization (1,070) — —
Stock compensation expense (119) (1,216) (384)
Other (336) (611) (71)
Unrecognized benefit due to valuation allowance (3,645) 193 (4,096)
Income tax benefit $ — $ — $ —
18. RELATED PARTY TRANSACTIONS
In July 2001, the Company's Chief Executive Officer, who is also a significant shareholder in the Company, agreed to personally guarantee the
Company's merchant account with a bank. The bank agreed to accept this personal guarantee in lieu of a demand deposit of $1,000 with the bank. In exchange
for his personal guarantee, the Company compensated the Chief Executive Officer with options to purchase 35 shares of the Company's common stock at an
exercise price of $5.07 per share.
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These options vested over a three-year period based on the renewal of the guarantee. The Company recognized $151 and $39 of expense in 2001 and 2002,
respectively, related to this arrangement. In 2003, the bank no longer required the guarantee. As a result, the Company cancelled the associated unvested
options and reversed $52 of expense which it had previously recorded.
As indicated in Note 12, the Company sold shares of mandatorily redeemable convertible preferred stock in March 2002, for which a deemed dividend
was recorded as a result of the beneficial conversion feature. The total deemed dividend recorded for the year ended December 31, 2002 was $6,607, of which
$1,000 is attributable to preferred shares purchased by Haverford Internet, $1,200 is attributable to preferred shares purchased by members of the board of
directors, and $1,500 is attributable to preferred shares purchased by family members of management.
On occasion, Haverford-Valley, L.C. (an entity owned by the Company's president) and certain affiliated entities make travel arrangements for our
executives and pay the travel related expenses incurred by our executives on Company business. In 2001, 2002, and 2003 we reimbursed Haverford-Valley
L.C. $251, $273, and $236, respectively, for these expenses.
19. LEASE TERMINATION SETTLEMENT
In February 2002, the Company relocated its corporate headquarters. At the time the Company relocated, it had 23 months remaining under the facilities
lease for the former headquarters location. In March 2002, the Company settled its remaining obligation under the lease by paying the former landlord $340
and relinquishing the right to sublease the facilities. The settlement payment is recorded in the statement of operations for the year ended December 31, 2002
under general and administrative expenses.
20. BUSINESS SEGMENTS
Segment information has been prepared in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.
Segments were determined based on products and services provided by each segment. Accounting policies of the segments are the same as those described in
Note 2. There were no intersegment sales or transfers during 2001, 2002 or 2003. The Company
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