Overstock.com 2008 Annual Report Download - page 59

Table of Contents
Liquidity and Capital Resources
Historical sources of liquidity
Prior to the second quarter of 2002, we financed our activities primarily through a series of private sales of equity securities,
warrants to purchase our common stock and promissory notes. During the second quarter of 2002, we completed our initial public
offering pursuant to which we received approximately $26.1 million in cash, net of underwriting discounts, commissions, and other
related expenses. Additionally, we completed follow-on offerings in February 2003, May 2004 and November 2004, pursuant to
which we received approximately $24.0 million, $37.9 million and $75.2 million, respectively, in cash, net of underwriting discounts,
commissions, and other related expenses. In November 2004, we also received $116.2 million in proceeds from the issuance of our
convertible senior notes in a transaction event exempt from registration under the Securities Act. During 2006, we received
$64.4 million from two stock offerings in May and December.
Current sources of liquidity
While we believe that the cash and marketable securities currently on hand, amounts available under our credit facility and
expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months, we may
require additional financing. However, there can be no assurance that if additional financing is necessary it will be available, or, if
available, that such financing can be obtained on satisfactory terms. Failure to generate sufficient revenues, profits or to raise
additional capital could have a material adverse effect on our ability to continue as a going concern and to achieve our intended
business objectives. Any projections of future cash needs and cash flows are subject to substantial uncertainty.
Our principal sources of liquidity are cash flows generated from operations and our existing cash, cash equivalents, and sale or
maturity of marketable securities. At December 31, 2008, our cash and cash equivalents balance was $100.6 million and we had
$9.0 million in marketable securities, for a total of $109.6 million of cash, cash equivalents and marketable securities.
Cash flow information is as follows:
Year Ended December 31,
2006 2007 2008
(in thousands)
Cash provided by (used in):
Operating activities $ (26,293) $ 9,977 $ 1,960
Investing activities 33,367 (33,514) 19,550
Financing activities 63,983 (2,031) (22,327)
Free Cash Flow. "Free Cash Flow" (a non-GAAP measure) for the years ended December 31, 2007 and 2008, was $7.3 million
and $(16.7) million. See "Non-GAAP Financial Measures" below for a reconciliation of Free Cash Flow to net cash provided by
operating activities.
Cash provided by (used in) operating activities. For the years ended December 31, 2007 and 2008, our operating activities
resulted in net cash inflows of $10.0 million and net cash inflows of $2.0 million, respectively.
Cash received from customers generally corresponds to our net sales as our customers primarily use credit cards to buy from us
causing our receivables from these sales transactions to settle quickly. We have payment terms with our fulfillment partners that
generally extend beyond the amount of time necessary to collect proceeds from our customers. As a result, following our seasonally
strong fourth quarter sales, at December 31 of each year, our cash, cash equivalents, marketable securities and accounts payable
balances typically reach their highest level (other than as a result of cash flows provided by or used in investing and financing
activities). However, our accounts payable balance normally declines during the first three months following year-end, which
normally results in a decline in our cash, cash equivalents, and marketable securities balances from the year-end balance. The
seasonality of our business causes payables and accruals to grow significantly in the fourth quarter, and then decrease in the first
quarter when they are paid.
The primary operating use of cash and cash equivalents during the year ended December 31, 2008 was to fund our net losses of
$12.7 million (which includes $27.3 million of net non-cash activity, including $3.9 million related to the loss on settlement of notes
receivable (see Item 15 of Part IV, "Financial Statements"—Note 4—"Acquisition and Subsequent Discontinued Operations") and
$2.8 million related to the gain from early extinguishment of debt (see Item 15 of Part IV, "Financial Statements"—Note 17—"Stock
and Debt Repurchase Program"), as well as changes in prepaid expenses, other long term assets, accounts payable, accrued liabilities,
deferred revenue and other long-term liabilities of $2.1 million, $516,000, $8.2 million, $12.3 million, $3.9 million and $462,000,
respectively. This was offset by the cash provided from changes in accounts receivable, inventories, net, and prepaid inventory of $4.8
million, $7.9 million and $2.2 million, respectively.
In late December 2008, our credit card processor began withholding approximately 1% of our daily credit card remittances as a
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