Overstock.com 2007 Annual Report Download - page 48

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following Management's Discussion and Analysis of Financial Condition and Results of Operation should be read in conjunction with our
Consolidated Financial Statements and the related Notes thereto. This discussion contains forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations and intentions, as set forth under "Special Note Regarding Forward-Looking
Statements." Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of
several factors, including those set forth in the following discussion and under "Risk Factors" and elsewhere in this Form 10-K.
Recent Developments
From our inception through the third quarter of 2007, we recorded revenue based on product ship date. In the fourth quarter of 2007, we determined that
we should not have recorded revenue until the delivery date. We performed a detailed analysis of this error and the impact of recording the cumulative effect
of the error in the fourth quarter of 2007, and have determined that the impact of the correction is immaterial to the full year and fourth quarter of 2007 and to
all prior periods.
As a result, we recorded the cumulative effect of this correction in the fourth quarter of 2007. This change resulted in a deferral of $13.7 million of
revenue (including $3.7 million of direct revenue and $10.0 million of fulfillment partner revenue), and a decrease in cost of goods sold of $11.6 million
($3.1 million direct and $8.5 million fulfillment partner), which reduced gross profit and increased net loss by $2.1 million (see Item 15 of Part IV, "Financial
Statements"—Note 2—"Summary of Significant Accounting Policies"—"Revenue Recognition").
Please see the "Executive Commentary" below as well as the rest of Management's Discussion and Analysis for discussion of other recent developments.
Overview
We are an online "closeout" retailer offering discount brand name merchandise, including bed-and-bath goods, home décor, kitchenware, watches,
jewelry, electronics and computers, sporting goods, apparel, and designer accessories, among other products. We also sell books, magazines, CDs, DVDs,
videocassettes and video games ("BMMG"). We also operate as part of our Website an online auctions business—a marketplace for the buying and selling of
goods and services—as well as an online site for listing cars for sale.
Our Company, based in Salt Lake City, Utah, was founded in 1997, and we launched our first Website through which customers could purchase products
in March 1999. Our Website offers our customers an opportunity to shop for bargains conveniently, while offering our suppliers an alternative inventory
liquidation distribution channel. We continually add new, limited inventory products to our Website in order to create an atmosphere that encourages
customers to visit frequently and purchase products before our inventory sells out. We offer approximately 63,000 products under multiple departments under
the shopping tab on our Website, and offer almost 724,000 media products in the Books etc. department on our Website.
Closeout merchandise is typically available in inconsistent quantities and often is only available to consumers after it has been purchased and resold by
disparate liquidation wholesalers. We believe that the traditional liquidation market is therefore characterized by fragmented supply and fragmented demand.
We utilize the Internet to aggregate both supply and demand and create a more efficient market for liquidation merchandise. Our objective is to provide a one-
stop destination for discount shopping for products and services sold through the Internet.
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