eBay 1998 Annual Report Download - page 28

28
period of such options. Of the total unearned compensation, approximately $25,000 was amortized in 1997 and $2.7
million was amortized in 1998. These amortization amounts were allocated among the operational expense
categories based upon the primary activity of the related employees. See Note 10 of Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
Since eBay’ s inception, the Company has financed its operations primarily from net cash generated from
operating activities. The Company has acquired additional financing from the sale of preferred stock and warrants,
proceeds from the exercise of those warrants, proceeds from the exercise of stock options, and in September 1998,
net proceeds of $66.1 million from its initial public offering.
Net cash provided by operating activities was $113,000 in 1996, $789,000 in 1997 and $6.3 million in 1998.
Net cash provided by operating activities resulted primarily from the Company’ s net income before non-cash
charges for amortization of unearned compensation, the provision for doubtful accounts and depreciation and
amortization, as well as increases in various liability categories, offset in part by increases in accounts receivable.
Net cash used in investing activities was $25,000 in 1996, $680,000 in 1997 and $49.3 million in 1998. Net
cash used in investing activities in each of 1996 and 1997 was the result of purchases of property and equipment,
primarily computer equipment and furniture and fixtures. During 1998, $8.9 million in cash was used to purchase
property and equipment and $40.4 million was used to purchase short-term investments.
Net cash provided by financing activities was $15,000 in 1996, $3.5 million in 1997 and $71.0 million in 1998.
Net cash provided by financing activities in 1996 resulted almost entirely from sales of common stock and preferred
stock. Net cash provided by financing activities in 1997 resulted primarily from the sale of $3.0 million of preferred
stock and warrants and borrowings of $545,000 against a bank line of credit. See Notes 5 and 8 of Notes to
Consolidated Financial Statements. Net cash provided by financing activities in 1998 resulted primarily from net
proceeds of $66.1 million from the Company’ s initial public offering in September 1998, the exercise of warrants
for $2.0 million and proceeds from sales of restricted common stock in the aggregate amount of $3.5 million. These
proceeds were offset in part by principal payments of $598,000 on a bank line of credit and equipment leases. At
December 31, 1998, the principal source of liquidity for the Company was $72.2 million of cash, cash equivalents
and short-term investments.
eBay had no material commitments for capital expenditures at December 31, 1998 but expects such
expenditures to be at least $14.0 million in 1999. Such expenditures will primarily be for computer equipment,
furniture and fixtures and leasehold improvements. eBay also has total minimum lease obligations of $25.1 million
through November 2004 under certain noncancellable operating leases. As a result of eBay’ s August 1998
marketing agreement with AOL, the Company is obligated to make aggregate payments to AOL of $12.0 million
over the three-year term of the agreement. Of this amount, $4.0 million was paid in 1998, and $1.7 million was
expensed, resulting in a prepaid balance of $2.3 million and remaining obligation of $8.0 million at December 31,
1998. In March 1999, eBay and AOL expanded the scope of their strategic relationship. Under this new agreement,
eBay will pay AOL $75 million over the four-year term of the contract. Under this agreement, the Company’ s
remaining payment obligations to AOL under the previous agreement were cancelled. See Notes 6 and 11 of Notes
to Consolidated Financial Statements.
The Company believes that its existing cash, cash equivalents and short-term investments and any cash
generated from operations together with the expected proceeds from its public offering filed with the Securities and
Exchange Commission on March 25, 1999 will be sufficient to fund its operating activities, capital expenditures and
other obligations for the foreseeable future. However, if during that period or thereafter the Company is not
successful in generating sufficient cash flow from operations or in raising additional capital when required in
sufficient amounts and on terms acceptable to the Company, the Company’ s business could suffer. If additional
funds are raised through the issuance of equity securities, the percentage ownership of the Company’ s then-current
stockholders would be reduced.