Monday, March 31, 2008

BIDZ.com's Inventory Disclosures: More Questions

In two previous items in this blog (here and here), I examined BIDZ.com’s (NASDAQ:BIDZ) inventory disclosures and raised questions about the company’s compliance with GAAP in valuing inventories. In my latest blog post, I will examine some of BIDZ.com’s historical inventory disclosures. From fiscal year 2005 to 2007, it seems that while BIDZ.com’s piled on massive amounts of inventory and inventory turnover decreased (in other words merchandise stayed in BIDZ.com’s stockrooms for longer periods of time) the company switched to a less conservative method to value its inventory at the lower of cost or market. Both of the methods used by BIDZ.com to value its inventory at the lower of cost or market don't seem to be in compliance with GAAP and may violate Securities and Exchange Commission Staff Accounting Bulletin No. 99 which prohibits even immaterial departures from GAAP.

BIDZ.com’s Fiscal Year 2005 10-K inventory disclosures

In BIDZ.com’s 10-K for fiscal year 2005, the company made the following disclosure about the company’s inventory:

Inventories: Inventories consist of merchandise purchased for resale and are stated at the lower of first-in, first-out cost (FIFO) or market. We record reserves against our inventory for estimated obsolescence or damage equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. We record reserves of 50% of the value of inventory held for more than six months and 100% of the value of inventory held for more than one year. If actual market conditions are less favorable than those projected by us, specific reserves or additional inventory write-downs may be required.

Note: Bold print and italics added by me.

Like other inventory disclosures that I have examined in my previous blog items, BIDZ.com’s inventory disclosure for its fiscal year 2005 10-K does not seem to be compliance with GAAP. As detailed above, BIDZ.com recorded “reserves of 50% of the value of inventory held for more than six months and 100% of the value of inventory held for more than one year.” It does not appear that BIDZ.com in the company's 2005 10-K used any of the three allowable measures under GAAP to value its inventory at the lower of cost or market: current replacement cost, net realizable value, or net realizable value less normal profit margins.

Why did all inventory held for six months suddenly lose half its value in a single day (from day 182 to 183)? Why did all inventory held by the company beyond one year suddenly lose its entire value in a single day (from day 365 to 366)? Does BIDZ.com really claim that a blanket reduction in value of 50% for all inventory held more than six months represents either current replacement cost, net realizable value, or net realizable value less normal profit margin? Unless inventory held more than one year is worthless crap and can in effect be tossed away in the garbage, the lowest allowable measure for determining market under GAAP is net realizable value less normal profit margins.

Inventory at the lower of cost or market under GAAP

BIDZ.com’s automatic reduction of inventory values by a fixed percentage of its original cost based on the number of days such inventory is held seems contrary to the requirements of Accounting Research Bulletin (ARB) No. 43 for valuing inventory at the lower of cost or market as detailed below. As I described in a previous blog post:

According to Accounting Research Bulletin (ARB) No. 43, inventory must be valued at the lower of cost or market value. Market means the current replacement cost of inventory. If the current replacement cost of inventory is greater than its net realizable value (estimated selling price less cost of completion and disposal), net realizable value is considered market. If the current replacement cost of inventory is less than its net realizable value minus normal profit margins, than net realizable value minus normal profit margins is considered market. Therefore, the upper limit of market is net realizable value and the lower limit of market is net realizable value minus normal profit margins. Lower of cost or market may be applied to each individual inventory item, the total of each major category of inventory, or the aggregate total of inventory.

In the fiscal year 2005 10-K disclosure above, BIDZ.com’s automatic reduction of the value of inventory held more than six months to 50% of its original cost basis and automatic reduction of the value of inventory held for more than one year to zero does not appear to be any one of the three appropriate measures of market (current replacement cost, net realizable value, or net realizable value less normal profit margins) as defined by ARB No. 43.

Next, let’s examine a certain BIDZ.com inventory disclosure in a Form S-1 Registration Statement issued after the 2005 K-1

On June 29, 2006, BIDZ.com filed an amendment to its Form S-1 Registration Statement and included the following disclosure about inventory levels and inventory turnover:

We attempt to reduce inventory obsolescence by managing the product offerings available for auction at any given time. However, as our inventory balances increase and inventory turnover decreases, we anticipate that our reserves for inventory obsolescence may increase.

Note: Bold print and italics added by me.

In BIDZ.com's S-1 Registration Statement disclosure above, the company warned investors that as the company’s “inventory balances increase and inventory turnover decreases,” future reserves against inventory may increase. However, as detailed below, BIDZ.com later changed its method of valuing inventory at the lower of cost or market to a less conservative method that resulted in the company recognizing less inventory reserves and higher gross profit margins in future accounting periods. In addition, both the prior method and new method of valuing inventory at the lower of cost or market used by BIDZ.com do not seem to be in compliance with GAAP.

BIDZ.com’s inventory disclosure for the second quarter of fiscal year 2006

According to BIDZ.com’s second quarter fiscal year 2006 10-Q, the company changed its method of valuing inventory at the lower of cost or market to a less conservative method which resulted in lower inventory reserves and higher gross margins as inventory levels piled up and inventory turnover was significantly decreasing:

Inventory Reserve

We record reserves against our inventory for lower of cost or market equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Beginning from the three months ended June 30, 2006 we will only record reserves of 100% of the value of inventory held for more than one year and will no longer record reserves for 50% of the value of inventory held for between six months and one year. If the previous method of estimating reserves had been used, the inventory reserves would have been higher by $138,000.

Note: Bold print and italics added by me.

As detailed above, beginning in the second quarter of fiscal year 2006, BIDZ.com “will only record reserves of 100% of the value of inventory held for more than one year and will no longer record reserves for 50% of the value of inventory held for between six months and one year.” Previously BIDZ.com recorded “reserves of 50% of the value of inventory held for more than six months” and up to one year. The company continued to write-down the value of all inventory held more than one year to zero value. According to BIDZ.com’s 10-Q disclosure above, the company claimed that its change of method in valuing inventory at the lower of cost or market resulted in an immediate reduction of inventory reserves and an increase in gross profits of $138,000.

How did BIDZ.com determine estimated market value for inventory held less than one year beginning in the second quarter of fiscal year 2006? For a clue, we need to examine the company’s 10-K inventory disclosure for fiscal year 2006:

Inventories:

Inventories consist mainly of merchandise purchased for resale and are stated at the lower of first-in, first-out cost (FIFO) or market. We record reserves against our inventory for lower of cost or market equal to the difference between the cost of inventory and the average selling price. In addition, for the year ended December 31, 2006 we recorded reserves for obsolete and slow moving inventory of 100% of the value of inventory held for more than one year. For the year ended December 31, 2005, we recorded reserves of 50% of the value of inventory held for more than six months and 100% of the value of inventory held for more than one year. If actual market conditions are less favorable than those projected by us, specific reserves or additional inventory write-downs may be taken.

Note: Bold print and italics added by me.

According to BIDZ.com’s fiscal year 2006 K-1, above, the company recorded reserves against its inventory “for lower of cost or market equal to the difference between the cost of inventory and the average selling price.” If BIDZ.com used such a measure to determine report market in the second, third, and fourth quarter of fiscal year 2006, the company’s reported inventory does not seem to be in compliance with GAAP.

As I pointed out in my previous blog items examining BIDZ.com’s inventory disclosures, “average selling price” is not net realizable value (estimated selling price less costs of completion and disposal). Net realizable value can only be used as market value for inventory if it is less than the estimated replacement cost of such inventory and net realizable value is less than the cost basis of such inventory, too.

If we assume that BIDZ.com’s average selling price used by the company to value inventory at the lower of cost or market is less than its estimated replacement cost, than BIDZ.com is understating its inventory reserves and overstating its gross profits by not deducting the estimated costs of completion and disposal from its inventory values. If the current replacement cost of BIDZ.com’s inventory was less than its net realizable value but higher than its net realizable value less normal profit margins, than inventory reserves would be understated and gross profits would be overstated by an even greater amount: the difference between the average selling price used by BIDZ.com to value inventory at the lower of cost or market and its lower current replacement cost. Furthermore, if the current replacement cost of BIDZ.com's inventory is less than its net realizable value less normal profit margins than the company's inventory reserves would have been understated and gross profits overstated by a still higher amount: the difference between the average selling price used by BIDZ.com and the even lower net realizable value less normal profit margins. Therefore, neither BIDZ.com’s fiscal year 2005 10-K inventory disclosures, second quarter fiscal year 2006 10-Q inventory disclosures, nor its fiscal year 2006 10-K inventory disclosures appear to be in compliance with GAAP.

At a minimum, in the second quarter of fiscal year 2006, BIDZ.com chose a less conservative method to value its inventories at the lower of cost or market as inventory levels piled up and inventory turnover dramatically decreased. As detailed above, according to BIDZ.com’s inventory disclosure in its second quarter fiscal year 2006 10-Q, “If the previous method of estimating reserves had been used, the inventory reserves would have been higher by $138,000.” The key question is how much higher would inventory reserves have increased and gross profits decreased in the following quarters and fiscal years as BIDZ.com’s inventory levels substantially increased and inventory turns dramatically decreased, if the company had not changed its method of valuing inventories?

Selected data from BIDZ.com's financial statements

See the chart below:

Fiscal Year

2005

2006

2007

Cost of good sold (in thousands)

$71,257

$100,633

$132,683

Ending inventory, net of reserves (in thousands)

$15,921

$34,308

$56,686

Inventory turnover based on average inventory amount

5.35

4.00

2.92

Average days of inventory outstanding based on average inventory and cost of goods sold

68.26

91.09

125.16

Inventory reserves (in thousands)

$331

$461

$1,071

Inventory reserves as a percentage of gross inventory

2.04%

1.33%

1.85%

The average number of days that inventory remained in BIDZ.com’s stockrooms increased by about 23 days from 68.26 days at the end of 2005 (before the company’s change of method in estimating the market value of its inventory) to 91.09 days at the end of 2006 (after the company’s change of method in estimating the market value of its inventory) or about a 33% increase in the time it took the company to sell its inventory. However, the inventory reserves as a percentage of gross inventory dropped from 2.04% at the end of 2005 to 1.33% at the end of 2006 or a 34.8% reduction in relative inventory reserves. As detailed above, when BIDZ.com changed its method of valuing inventory at the lower of cost or market in the second quarter of fiscal year 2006, the company immediately recognized a $138,000 reduction in reserves and increase in gross profits. As BIDZ.com held on to its inventory about 33% longer at the end of 2006 compared to 2005, it is probable that inventory reserves would have been significantly higher had the company not changed its method of valuing inventory to a less conservative method in the second quarter of fiscal year 2006.

At the end of fiscal year 2007, the average number of days that inventory remained in BIDZ.com’s stockrooms was 125.16 days compared to 91.09 days at the end of fiscal year 2006 and 68.26 days at the end of fiscal year 2005. Therefore, at the end of fiscal year 2007 BIDZ.com held on to inventory almost twice as long as compared to fiscal year 2005 (125.16 days in 2007 versus only 68.26 days in 2005). However, at the end of fiscal year 2007 inventory reserves as a percentage of gross inventories was 1.85% compared to fiscal year 2005 at 2.04%. Therefore, while the average amount of time inventory remained in BIDZ.com’s stockrooms almost doubled from 68.26 days in 2005 to 125.16 days in 2007, the relative amount of inventory reserves declined by about 10% from 2.04% of gross inventory in 2005 to 1.85% of gross inventory in 2007.

As the number of average days (125.16 days) that inventory remained in BIDZ.com’s stockrooms in fiscal year 2007 got closer to more than six months (183 days), it is probable that a relatively larger portion of such inventory was held for more than six months compared to fiscal year 2005 when the average was only 68.26 days. Therefore, if BIDZ.com had continued to automatically write-down inventory held more than six months to 50% of its original cost basis, rather than use an amount “equal to the difference between the cost of inventory and the average selling price,” it is probable that the company’s inventory reserves would have been much higher at the end of fiscal year 2007. In any case, BIDZ.com's apparent use of “average selling price” rather than net realizable value for determining market resulted in lower reported inventory reserves and higher gross margins, too.

To be continued....

Written by,

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)

Wednesday, March 19, 2008

To BIDZ.com CFO Lawrence Kong: Is BIDZ reporting inventory in compliance with GAAP?

To Lawrence Kong (BIDZ.com CFO):

Hopefully you read my previous blog item that raised a question if BIDZ.com (NASDAQ: BIDZ) is complying with GAAP in reporting inventory. I listened to BIDZ.com's presentation at Citibank’s Small & Mid-Cap Conference. You explained BIDZ.com’s inventory reserve disclosures as follows:

We record a reserve equal to difference between the lower of cost of inventory and the average selling price. This means that if the average selling price for an item is less than our cost we will record a reserve. We also reserve 100% against any inventory that is over one year old. And this is fairly standard practice.

Note: Bold print and italics added by me.

Sorry Lawrence, you cannot write down inventory to the "average selling price" under GAAP. You can use net realizable value (estimated selling price less costs of completion and disposal) to determine the lower of cost or market in valuing inventory, if net realizable value is lower than cost. BIDZ.com may use net realizable value (not average selling price) only when the current replacement cost of such inventory exceeds net realizable value. Did BIDZ.com even consider current replacement cost when valuing inventory at the lower of cost or market? Why did BIDZ.com use "average selling price" instead of net realizable value?

In addition, you cannot arbitrarily take a 100% reserve against inventory just because BIDZ.com held it for more than one year, too. Are you claiming that all inventory held over one year suddenly becomes completely worthless in the matter of a single day (from day 365 to day 366)?

You claim that BIDZ.com uses “fairly standard practice” in valuing inventory held for more than one year. Take a look at Securities and Exchange Commission Staff Accounting Bulletin No. 99:

GAAP Precedence Over Industry Practice

Some have argued to the staff that registrants should be permitted to follow an industry accounting practice even though that practice is inconsistent with authoritative accounting literature. This situation might occur if a practice is developed when there are few transactions and the accounting results are clearly inconsequential, and that practice never changes despite a subsequent growth in the number or materiality of such transactions. The staff disagrees with this argument. Authoritative literature takes precedence over industry practice that is contrary to GAAP.

Note: Bold print and italics added by me.

So please don’t give me that "standard practice" nonsense. Public companies are required to follow GAAP – PERIOD.

By the way, I was reading BIDZ.com's SEC Form S-1 dated March 17, 2006 for the company's initial public offering. The prospectus contained the following inventory disclosure:

Inventories:

Inventories consist of merchandise purchased for resale and are stated at the lower of first-in, first-out cost (FIFO) or market. We record reserves against our inventory for estimated obsolescence or damage equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. We record reserves of 50% of the value of inventory held for more than six months and 100% of the value of inventory held for more than one year. If actual market conditions are less favorable than those projected by us, specific reserves or additional inventory write-downs may be required.

Note: Bold print and italics added by me.

BIDZ.com’s inventory disclosure for financial statements contained in the S-1 report (above) seems arbitrary and not in compliance with GAAP, too. Did the value of inventory held over six months suddenly drop 50% in a single day? Did BIDZ.com compute the market value (as required under GAAP) for inventory held less than six months? Did BIDZ.com actually compute the current replacement cost and net realizable value of inventories disclosed the the above S-1 report? What factors and computations did BIDZ.com use in reporting a 50% drop in value for inventory held more than six months? The same questions apply to inventory held for more than one year, too.

In addition, you should know that intentional departures from GAAP, even if they are immaterial, are not permitted by SAB No.99. As I detailed in my previous blog item, SAB No. 99 states:

Facts: A registrant's management intentionally has made adjustments to various financial statement items in a manner inconsistent with GAAP. In each accounting period in which such actions were taken, none of the individual adjustments is by itself material, nor is the aggregate effect on the financial statements taken as a whole material for the period. The registrant's earnings "management" has been effected at the direction or acquiescence of management in the belief that any deviations from GAAP have been immaterial and that accordingly the accounting is permissible.

Question: In the staff's view, may a registrant make intentional immaterial misstatements in its financial statements?

Interpretive Response: No. In certain circumstances, intentional immaterial misstatements are unlawful.

Note: Bold print and italics added by me.

One more thing. During the conference you said that BIDZ.com had "a clean accounting opinion." Please don't hide behind your accounting firm. As a crook, I ran circles around my auditors. Therefore, you, your audit committee, and your auditors are respectfully requested to carefully review all of BIDZ.com's accounting disclosures from day one in light of the questions I have raised.

Kindest regards,

Sam E. Antar (I am not the Sith Lord but I am a criminal mastermind from the 1980s and a convicted felon)

PS: To the analysts attending investment conferences. Grow a pair of balls and ask smart questions. Softballing is a career hazard. You have been warned by a convicted stock swindler.

Monday, March 17, 2008

Overstock.com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures - New Lies

It seems that Overstock.com (NASDAQ: OSTK), company CEO Patrick Byrne, and its unprincipled management team is a bottomless pit of lies, distortions, inconsistencies, and false and misleading disclosures. Today, after the market close, Overstock.com released its 10-K report for fiscal year 2007, on the very last day the report was due.

In my previous blog item entitled, “Overstock.com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures - Revenues,” I detailed how Overstock.com intentionally departed from GAAP and its own disclosures in reporting revenues in violation of Securities and Exchange Commission Staff Accounting Bulletin No. 99. Not only did Overstock.com intentionally depart from GAAP in reporting revenues, it seems that the company, at the very least, can't get its numbers straight and CEO Patrick Byrne is an outright liar (no surprise).

On January 30, 2008, Overstock.com reported in a press release:

Note regarding our Q4 and 2007 financial results:

From the company's inception through the third quarter of 2007, we have recorded revenue based on product ship date. In the fourth quarter of 2007, in response to an accounting comment from the staff of the SEC, we retrospectively changed our policy to recognize revenue based on estimated product delivery date. We have recorded the cumulative effect of this change in the fourth quarter of 2007.

We performed a detailed analysis of the impact of this change through the fourth quarter of 2007, and we have preliminarily determined that the impact of this change is immaterial to prior periods. As a result, for the full year 2007, we have recorded revenue of $768.8 million, which comprises of $777.5 million of revenue under the revised revenue recognition policy, less $8.7 million, the cumulative effect of revenue that would have been deferred as of the end of 2006. Our consolidated balance sheet at December 31, 2007 reflects $5.0 million of deferred revenue related to shipments in transit as of that date; we also reduced gross profit and net income in Q4 related to the revenue deferral by approximately $800K. Going forward, each quarter, we will make a similar deferral based on estimated product delivery date.

Note: Bold print and italics added by me.

Now let's compare Overstock.com's press release to Overstock.com's latest 10-K disclosure:

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").

Note: Bold print and italics added by me.

Therefore, Overstock.com now claims that deferred revenues resulting from company's intentional noncompliance with GAAP is $13.7 million as reported in the recent 10-K compared to $5.0 million as previously reported in its press release, or about $8.7 million higher. As detailed below, Overstock.com's disclosure problems are compounded by Patrick Byrne's lie on an internet message board.

On March 1, 2008, on the Motely Fool message board for Overstock.com, Patrick Byrne was asked the following question by a blogger known as UnusuallyReasonable:

...why is Overstock.com being told to do its revenue recognition in a manner that differs from other companies similarly situated? Amazon does theirs at shipment. The SEC rules that I can find online and have posted a few times now(*) seem to back up that method. Why is Overstock being told to change? Is it because of the large role partner fulfillment plays in your business?

Note: Bold print and italics added by me.

Later that day, Patrick Byrne, using the alias Hannibal100, posted a response:

3) "Is it because of the large role partner fulfillment plays in your business?" No, there is no connection between this issue and partner business.

Note: Bold print and italics added by me.

As detailed above, Patrick Byrne claimed that "...there is no connection between this issue" or rather Overstock.com's deliberate noncompliance with GAAP and its fulfillment "partner business." However, Overstock.com's 10-K report issued today, contradicts Byrne's claims on the Motley Fool message board. The company's fulfillment partner sales were not reported in compliance with GAAP. See below:

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.

Note: Bold print and italics added by me.

As I said, Patrick Byrne is a bottomless pit of lies.

To be continued....

Written by,

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)

Friday, March 14, 2008

Is BIDZ.com Reporting Inventory in Compliance with GAAP?

A close study of BIDZ.com's (NASDAQ: BIDZ) inventory disclosures in its recent 10-K report for fiscal year 2007 raises a question if company is in compliance with GAAP in valuing inventories. Let's carefully review BIDZ.com inventory disclosure:
Inventories:
Inventories consist mainly of merchandise purchased for resale and are stated at the lower of first-in, first-out cost (FIFO) or market. We record reserves against our inventory equal to the difference between the cost of inventory and the average selling price that is lower than cost of inventory that is held for less than one year. In addition, for the years ended December 31, 2006 and 2007 we recorded reserves for obsolete and slow moving inventory of 100% of the value of inventory held for more than one year. If actual market conditions are less favorable than those projected by us, specific reserves or additional inventory write-downs may be taken.
Note: Bold print and italics added by me.
According to Accounting Research Bulletin (ARB) No. 43, inventory must be valued at the lower of cost or market value. Market means the current replacement cost of inventory. If the current replacement cost of inventory is greater than its net realizable value (estimated selling price less cost of completion and disposal), net realizable value is considered market. If the current replacement cost of inventory is less than its net realizable value minus normal profit margins, than net realizable value minus normal profit margins is considered market. Therefore, the upper limit of market is net realizable value and the lower limit of market is net realizable value minus normal profit margins. Lower of cost or market may be applied to each individual inventory item, the total of each major category of inventory, or the aggregate total of inventory.

Inventory held less than one year

In the case of BIDZ.com, as detailed above, the company discloses that "We record reserves against our inventory equal to the difference between the cost of inventory and the average selling price that is lower than cost for inventory that is held for less than one year." The company's inventory disclosure for inventory held less than one year does not seem to be in compliance with GAAP. BIDZ.com cannot use the "difference between the cost of inventory and the average selling price" in valuing its inventory. Average selling price is not net realizable value, since it does not deduct the cost of completion and disposal of inventory. Therefore, in this specific case, inventory may be overstated. Even if BIDZ.com were to use net realizable value, the company could only use such a measure if the current replacement cost of inventory is greater than its net realizable value.

Inventory held more than one year

As detailed above, BIDZ.com discloses that "In addition, for the years ended December 31, 2006 and 2007 we recorded reserves for obsolete and slow moving inventory of 100% of the value of inventory held for more than one year." Here too, the company's inventory disclosure does not seem to be in compliance with GAAP. The lowest amount that inventory can be valued at is net realizable value (estimated selling price less cost of completion and disposal) minus normal profit margins. It seems that BIDZ.com's method of valuing inventory over one year old is arbitrarily based on the amount of time that the inventory is held, rather than the application of GAAP. Unless such inventory cannot be sold under any and all circumstances, BIDZ.com cannot "record reserves of 100% of the cost of inventory held more than one year." Therefore, in this specific case, inventory may be understated.

Securities and Exchange Commission Staff Accounting Bulletin No. 99

According to Securities and Exchange Commission Staff Accounting Bulletin No. 99, a public company cannot make "adjustments to various financial statement items in a manner inconsistent with GAAP." See below:
Facts: A registrant's management intentionally has made adjustments to various financial statement items in a manner inconsistent with GAAP. In each accounting period in which such actions were taken, none of the individual adjustments is by itself material, nor is the aggregate effect on the financial statements taken as a whole material for the period. The registrant's earnings "management" has been effected at the direction or acquiescence of management in the belief that any deviations from GAAP have been immaterial and that accordingly the accounting is permissible.
Question: In the staff's view, may a registrant make intentional immaterial misstatements in its financial statements?
Interpretive Response: No. In certain circumstances, intentional immaterial misstatements are unlawful.
Note: Bold print and italics added by me.
Therefore, BIDZ.com cannot depart from GAAP in its financial reports even if the effect of non-compliance with GAAP is immaterial.

Written by:

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)