Yesterday Sam Antar printed a very interesting piece on his blog that sharply criticized the 2008 first quarter earnings release of Overstock.com (NASDAQ:OSTK). I picked up the most damaging part of it, which related to Overstock claiming a 27% increase in revenue over 2007. The problem was that 2008 was calculated in a different way than 2007, so the numbers are not comparable. First quarter 2008 numbers got a “bump” that made the quarter’s increase over the prior year look bigger than it should.

But leave it to Overstock to make matters worse. An article today on Wired.com says the following:

“In its earnings release, Overstock.com failed to disclose that it compared first-quarter 2008 revenues reported on a GAAP basis to first-quarter 2007 revenues that were reported on a non-GAAP basis,” Antar wrote on his White Collar Fraud blog.

For those who don’t speak accountantese, “non-GAAP” basically refers to non-standard accounting practices, and the difference between GAAP and non-GAAP numbers is often substantial.

“Sam is just wrong,” says Jonathan Johnson, senior vice president of legal at Overstock. “They’re both GAAP numbers . . . I can’t read his blog because it’s so full of lies.”

First… if you can’t or don’t read the blog, how would you know it’s full of lies? *snicker*

But back to business…

Jonathon Johnson is making the situation worse by adding lies to the lies. The 2007 first quarter numbers weren’t correct under GAAP, according to Overstock’s own disclosures in its 10-k:

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”).

“We should not have recorded…”

Well where does the “should” come from? It comes from Generally Accepted Accounting Principles, GAAP.

Overstock makes it very clear in this filing: The earlier 2007 numbers were not reported in accordance with GAAP. So unless the first quarter 2007 numbers were restated, they are still not GAAP numbers. And the numbers weren’t restated. They were cited exactly as they were reported early last year.

This means that Sam is still right: Patrick Byrne and Overstock.com reported and compared first quarter 2008 and first quarter 2007 in a phony comparison, because one is on a GAAP basis and one is not.