Overstock.com 2005 Annual Report Download - page 22

Our operating results depend on our Websites, network infrastructure and transaction-processing systems. Capacity
constraints or system failures would harm our business, prospects, results of operations and financial condition.
Any system interruptions that result in the unavailability of our Websites or reduced performance of our transaction systems
would reduce our transaction volume and the attractiveness of the services that we provide to suppliers and third parties and would
harm our business, prospects, operating results and financial condition.
We use internally developed systems for our Websites and certain aspects of transaction processing, including customer profiling
and order verifications. We have experienced periodic systems interruptions due to server failure, which we believe will continue to
occur from time to time. If the volume of traffic on our Websites or the number of purchases made by customers substantially
increases, we will need to further expand and upgrade our technology, transaction processing systems and network infrastructure. We
have experienced and expect to continue to experience temporary capacity constraints due to sharply increased traffic during sales or
other promotions and during the holiday shopping season. Capacity constraints can cause unanticipated system disruptions, slower
response times, and degradation in levels of customer service, impaired quality and delays in reporting accurate financial information.
Our transaction processing systems and network infrastructure may be unable to accommodate increases in traffic in the future.
We may be unable to project accurately the rate or timing of traffic increases or successfully upgrade our systems and infrastructure to
accommodate future traffic levels on our Websites. In addition, we may be unable to upgrade and expand our transaction processing
systems in an effective and timely manner or to integrate any newly developed or purchased functionality with our existing systems.
For example, in the third quarter 2005 we experienced difficulties with our implementation of infrastructure upgrades, which resulted
in our inability to upload new products to our website for a period of approximately five weeks. Any such difficulties with our
transaction processing systems or other difficulties upgrading, expanding or integrating various aspects of our systems may cause
unanticipated system disruptions, slower response times, and degradation in levels of customer service, additional expense, impaired
quality and speed of order fulfillment or delays in reporting accurate financial information.
If the facilities where substantially all of our computer and communications hardware is located fail, our business, results of
operations and financial condition will be harmed.
Our success, and, in particular, our ability to successfully receive and fulfill orders and provide high-quality customer service,
largely depends on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of our
computer and communications hardware is located at a single co-location facility in Salt Lake City, Utah, with a partially redundant
back-up system located at our corporate headquarters in Salt Lake City. Although we have designed our back-up system in an effort to
avoid or minimize service interruptions in the event of a failure of our main facility, our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, earthquake
and similar events. We do not have a formal disaster recovery plan and our business interruption insurance may be insufficient to
compensate us for losses that may occur. Despite the implementation of network security measures, our servers are vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of critical
data or the inability to accept and fulfill customer orders. The occurrence of any of the foregoing risks could harm our business,
prospects, financial condition and results of operations.
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