You can be sure of two things when looking at Overstock.com (NASDAQ:OSTK) financial statements:
- They’re wrong
- There are massive losses (which will be even bigger when #1 comes to light)
Since 2000, Overstock.com has never had a profitable year. The only two quarters which ended up in the black are suspect… And since 2000, the company has accumulated losses over $239 million.
So it comes as no surprise that today Overstock announced it would be restating its financial statments for 2003 through 2007, reducing revenue by $12.9 million and increasing losses by over $10 million for the period.
CEO Patrick Byrne uses the following non-explanation to explain the problem:
The short version is: when we upgraded our system, we didn’t hook up some of the accounting wiring; however, we thought we had manual fixes in place. We’ve since found that these manual fixes missed a few of the unhooked wires. It also turned out there were errors cutting both ways which partially obscured the problem because we relied on reasonability testing to verify certain balances rather than a ground-up reconciliation.
A reading of David Chidester’s explanation of the problem suggests that accounts receivable have been overstated because of a failure to record customer refunds. The company also overstated revenue related to the shipping charges on orders canceled by customers, and then didn’t bill partners back for some of this cost.
Some of the financial statements that are being restated have already been restated by Overstock.com once, making the new financial statements “re-restated.” Leave it to Ringmaster Byrne and his three ring circus. Mismanagement at its finest.