<PAGE>
Exhibit 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Fogdog, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity, and of cash
flows present fairly, in all material respects, the financial position of
Fogdog, Inc. at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 31, 2000
<PAGE>
FOGDOG, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1998 1999 2000
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 1,694 $ 26,451 $ 41,587
Short-term investments...................... 423 46,450 987
Accounts receivable, net of allowances of
$35, $213 and $196, respectively........... 75 216 689
Merchandise inventory....................... -- 2,765 4,964
Prepaid expenses and other current assets... 132 1,963 3,044
------- -------- --------
Total current assets...................... 2,324 77,845 51,271
Property and equipment, net................... 470 2,427 3,352
Intangible assets, net........................ 46 2,212 1,217
Other assets, net............................. -- 25,708 15,717
------- -------- --------
Total assets.................................. $ 2,840 $108,192 $ 71,557
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 705 $ 5,638 $ 6,395
Current portion of long-term debt........... 606 473 418
Other current liabilities................... 423 3,283 2,952
------- -------- --------
Total current liabilities................. 1,734 9,394 9,765
------- -------- --------
Long-term debt, less current portion.......... 189 300 --
------- -------- --------
Commitments and contingencies (Note 5)
Stockholders' equity:
Convertible Preferred Stock, issuable in
series, $0.001 par value, 14,200, 5,000 and
5,000 shares authorized at December 31,
1998, 1999 and September 30, 2000
(unaudited), respectively; 8,239, 0 and 0
shares issued and outstanding at December
31, 1998, 1999 and September 30, 2000
(unaudited), respectively.................. 8 -- --
Common Stock, $0.001 par value, 50,000 and
100,000 shares authorized at December 31,
1998 and 1999 and 100,000 shares authorized
at September 30, 2000 (unaudited),
respectively; 4,886, 35,792 and 36,678
shares issued and outstanding at December
31, 1998, 1999 and September 30, 2000
(unaudited), respectively.................. 5 36 37
Additional paid-in capital.................. 7,664 145,441 147,510
Notes receivable............................ -- (50) (58)
Unearned stock-based compensation........... (978) (11,534) (4,848)
Accumulated deficit......................... (5,782) (35,395) (80,849)
------- -------- --------
Total stockholders' equity................ 917 98,498 61,792
------- -------- --------
Total liabilities and stockholders' equity.... $ 2,840 $108,192 $ 71,557
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FOGDOG, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Merchandise.................. $ -- $ 195 $ 6,988 $ 2,542 $ 16,443
Commission................... 11 123 35 35 --
Web development.............. 1,030 447 -- -- --
------- ------- -------- -------- --------
Total net revenues......... 1,041 765 7,023 2,577 16,443
------- ------- -------- -------- --------
Cost of revenues:
Merchandise.................. -- 157 6,374 2,551 14,786
Commission................... -- 19 -- -- --
Web development.............. 156 99 -- -- --
------- ------- -------- -------- --------
Total cost of revenues..... 156 275 6,374 2,551 14,786
------- ------- -------- -------- --------
Gross profit................... 885 490 649 26 1,657
------- ------- -------- -------- --------
Operating expenses:
Marketing and sales.......... 1,285 2,399 21,450 10,326 35,710
Technology and content....... 259 1,318 3,448 2,205 3,891
General and administrative... 378 705 2,052 1,181 4,598
Amortization of intangible
assets...................... -- -- 473 144 996
Amortization of stock-based
compensation................ -- 243 3,424 1,582 4,529
------- ------- -------- -------- --------
Total operating expenses... 1,922 4,665 30,847 15,438 49,724
------- ------- -------- -------- --------
Operating loss................. (1,037) (4,175) (30,198) (15,412) (48,067)
Interest income (expense),
net........................... (8) 29 585 276 2,613
Other income................... -- 26 -- -- --
------- ------- -------- -------- --------
Net loss....................... (1,045) (4,120) (29,613) (15,136) (45,454)
Deemed preferred stock
dividend...................... -- -- (12,918) (12,918) --
------- ------- -------- -------- --------
Net loss available to common
stockholders.................. $(1,045) $(4,120) $(42,531) $(28,054) $(45,454)
======= ======= ======== ======== ========
Basic and diluted net loss per
share available to common
stockholders.................. $ (0.23) $ (0.95) $ (5.95) $ (6.04) $ (1.26)
======= ======= ======== ======== ========
Basic and diluted weighted
average shares used in
computation of net loss
per share available to common
stockholders.................. 4,544 4,323 7,148 4,645 36,154
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FOGDOG, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible Total
Preferred Stock Common Stock Additional Unearned Stockholders'
------------------ -------------- Paid-In Notes Stock-Based Accumulated Equity
Shares Amount Shares Amount Capital Receivable Compensation Deficit (Deficit)
--------- ------- ------ ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 1,155 $ 1 4,542 $ 5 $ 1,093 $-- $ -- $ (617) $ 482
Issuance of Series A
Preferred Stock, net... 631 1 -- -- 527 -- -- -- 528
Issuance of warrants to
purchase Series A
Preferred Stock........ -- -- -- -- 21 -- -- -- 21
Issuance of Common
Stock.................. -- -- 5 -- 1 -- -- -- 1
Net loss................ -- -- -- -- -- -- -- (1,045) (1,045)
--------- ------ ------ --- -------- ---- -------- -------- --------
Balance at December 31,
1997................... 1,786 2 4,547 5 1,642 -- -- (1,662) (13)
Issuance of Series B
Preferred Stock, net... 6,453 6 -- -- 4,774 -- -- -- 4,780
Issuance of Common
Stock.................. -- -- 292 -- 23 -- -- -- 23
Unearned stock-based
compensation........... -- -- -- -- 1,221 -- (1,221) -- --
Amortization of stock-
based compensation..... -- -- -- -- -- -- 243 -- 243
Issuance of Common Stock
for services........... -- -- 47 -- 4 -- -- -- 4
Net loss................ -- -- -- -- -- -- -- (4,120) (4,120)
--------- ------ ------ --- -------- ---- -------- -------- --------
Balance at December 31,
1998................... 8,239 8 4,886 5 7,664 -- (978) (5,782) 917
Issuance of Series C
Preferred Stock, net... 11,657 12 -- -- 17,911 -- -- -- 17,923
Issuance of Series D
Preferred Stock, net... 3,529 4 -- -- 14,646 -- -- 14,650
Issuance of Common
Stock.................. -- -- 1,067 1 243 (50) -- -- 194
Common Stock issued for
acquired business...... -- -- 267 -- 2,132 -- -- -- 2,132
Unearned stock-based
compensation........... -- -- -- -- 13,882 -- (13,802) -- 80
Amortization of stock-
based compensation..... -- -- -- -- -- -- 3,246 -- 3,246
Issuance of warrants to
purchase Series C
Preferred Stock........ -- -- -- -- 28,840 -- -- -- 28,840
Issuance of warrants to
purchase shares of
Common Stock........... -- -- -- -- 184 -- -- -- 184
Issuance of Common Stock
upon exercise of
warrants............... -- -- 147 -- 110 -- -- -- 110
Issuance of stock
options for services... -- -- -- -- 99 -- -- -- 99
Conversion of Series A,
B, C and D Preferred
Stock to Common Stock
in conjunction with the
initial public
offering............... (23,425) (24) 23,425 24 -- -- -- -- --
Issuance of Common Stock
in conjunction with the
initial public
offering, net of
offering costs totaling
$6,264................. -- -- 6,000 6 59,730 -- -- -- 59,736
Allocation of discount
on Preferred Stock..... -- -- -- -- 12,918 -- -- -- 12,918
Deemed Preferred Stock
dividend............... -- -- -- -- (12,918) -- -- -- (12,918)
Net loss................ -- -- -- -- -- -- -- (29,613) (29,613)
--------- ------ ------ --- -------- ---- -------- -------- --------
Balance at December 31,
1999................... -- -- 35,792 36 145,441 (50) (11,534) (35,395) 98,498
Issuance of Common Stock
(unaudited)............ -- -- 358 1 728 (12) -- -- 717
Issuance of Common Stock
upon exercise of
warrants (unaudited)... -- -- 163 -- -- -- -- -- --
Issuance of Common Stock
in conjunction with the
exercise of the
underwriters over
allotment, net of
issuance costs
(unaudited)............ -- -- 425 -- 4,297 -- -- -- 4,297
Issuance of Common Stock
for employee stock
purchase plan
(unaudited)............ -- -- 46 -- 54 -- -- -- 54
Repurchase of Common
Stock (unaudited)...... -- -- (106) -- (43) -- -- -- (43)
Repayment of notes
receivable
(unaudited)............ -- -- -- -- -- 4 -- -- 4
Amortization of stock-
based compensation
(unaudited)............ -- -- -- -- (2,967) -- 6,686 -- 3,719
Net loss (unaudited).... -- -- -- -- -- -- -- (45,454) (45,454)
--------- ------ ------ --- -------- ---- -------- -------- --------
Balance at September 30,
2000 (unaudited)....... -- $ -- 36,678 $37 $147,510 $(58) $ (4,848) $(80,849) $ 61,792
========= ====== ====== === ======== ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FOGDOG, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $(1,045) $(4,120) $(29,613) $(15,136) $(45,454)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Allowances for bad debt and
sales returns................ -- 30 215 80 1,797
Depreciation and
amortization................. 105 122 428 242 965
Amortization of intangible
assets....................... -- -- 473 144 996
Amortization of stock-based
compensation................. -- 243 3,424 1,582 3,719
Non-employee stock-based
expense...................... -- 4 3,737 475 9,732
Changes in assets and
liabilities:
Accounts payable and other
current liabilities......... 27 945 7,311 3,476 426
Other assets................. 8 -- 1,738 (1,084) 259
Accounts receivable.......... (17) (12) (356) (210) (2,271)
Merchandise inventory........ -- -- (2,765) (722) (2,199)
Prepaid expenses and other
current assets.............. 7 (164) (1,881) (601) (1,081)
------- ------- -------- -------- --------
Net cash used in operating
activities................. (915) (2,952) (17,289) (11,754) (33,111)
------- ------- -------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment.................... (81) (269) (2,385) 423 (1,890)
Sale or maturity of short-term
investments.................. -- -- 9,600 -- 115,036
Purchase of short-term
investments.................. -- (423) (55,627) (1,393) (69,573)
------- ------- -------- -------- --------
Net cash provided by (used
in) investing activities... (81) (692) (48,412) (970) 43,573
------- ------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from the sale of
Common Stock................. -- 23 57,908 298 5,074
Proceeds from the sale of
Preferred Stock.............. 528 4,455 32,573 32,523 --
Proceeds from (payments under)
term loan.................... (70) 266 506 599 (355)
Payments under capital
leases....................... (21) (15) (3) (3) --
Proceeds from (payments under)
line of credit............... 237 186 (423) (423) --
Payments under software loan.. -- (58) (103) (84) --
Proceeds from (payments under)
notes payable to
Stockholders................. 162 170 -- -- --
Repurchase of Common Stock.... -- -- -- -- (45)
------- ------- -------- -------- --------
Net cash provided by
financing activities....... 836 5,027 90,458 32,910 4,674
------- ------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... (160) 1,383 24,757 20,186 15,136
Cash and cash equivalents at
the beginning of the period... 471 311 1,694 1,694 26,451
------- ------- -------- -------- --------
Cash and cash equivalents at
the end of the period......... $ 311 $ 1,694 $ 26,451 $ 21,880 $ 41,587
======= ======= ======== ======== ========
Supplemental disclosure of cash
flow information:
Interest paid................. $ 14 $ 57 $ 89 $ 67 $ 64
======= ======= ======== ======== ========
Supplemental disclosure of
noncash transactions:
Conversion of note to Series B
Preferred Stock.............. $ -- $ 325 $ -- $ -- $ --
======= ======= ======== ======== ========
Conversion of Preferred Stock
to Common Stock.............. $ -- $ -- $ 24 $ -- $ --
======= ======= ======== ======== ========
Issuance of warrants.......... $ 21 $ -- $ 29,024 $ -- $ --
======= ======= ======== ======== ========
Software purchased under loan
agreement.................... $ -- $ 161 $ -- $ -- $ --
======= ======= ======== ======== ========
Issuance of stock in exchange
for notes.................... $ -- $ -- $ 50 $ 94 $ 12
======= ======= ======== ======== ========
Issuance of common stock in
acquisition.................. $ -- $ -- $ 2,132 $ -- $ --
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
Note 1--The Company and Summary of Significant Accounting Policies:
The Company
Fogdog, Inc. (the "Company") is an online retailer of sporting goods. The
Company's online retail store, "fogdog.com," offers products, detailed product
information and personalized shopping services. During 1998 and 1997, the
Company also provided web development services to sporting goods manufacturers,
trade associations and retailers. The Company was incorporated in California in
October 1994 as Cedro Group, Inc. and in November 1998, changed its name to
Fogdog, Inc. The Company was reincorporated in the state of Delaware as Fogdog,
Inc in September 1999.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Sports Universe, Inc. All intercompany
accounts have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
classifies all short-term investments as available-for-sale. At December 31,
1999, the fair value of these short-term investments approximated amortized
cost and primarily mature within the next 12 months. Unrealized and realized
gains and losses have been insignificant for all periods presented. Short-term
investments at December 31, 1999 and September 30, 2000 consist primarily of
municipal bonds.
Merchandise inventory
Inventory is stated at the lower of cost or market, determined on a weighted
average basis.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful lives of the
assets, generally three years, or the remaining lease term.
Intangible assets
Purchased intangible assets are presented at cost, net of accumulated
amortization, and are amortized using the straight line method over the
estimated useful life of the assets. At each balance sheet date, the Company
assesses the value of recorded intangible assets for possible impairment in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," ("SFAS 121"), based upon a number of factors including
turnover of the acquired workforce and the undiscounted value of expected
future operating cash flows. Since inception, the
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
Company has not recorded any provisions for possible impairment of intangible
assets. In September 1999, the Company acquired Sports Universe, Inc. in a
purchase transaction which included recording goodwill of $2.7 million which is
being amortized over its two year life. In October 1998, the Company purchased
the mailing list, Internet domain name and client database from Sportscape.com
for $55,000. The Company amortized the balance over a twelve month period.
Revenue recognition
Merchandise revenue is earned by the Company from the sale of sporting goods
through its online retail store. Merchandise revenue is recognized upon the
shipment of the merchandise, which occurs only after credit card authorization
is obtained. For sales of merchandise, the Company is responsible for
establishing prices, processing the orders, and forwarding the information to
the manufacturer, distributor or third-party warehouse for shipment. For these
transactions, the Company assumes credit risk and is responsible for processing
returns. The Company provides for estimated returns at the time of shipment
based on historical data.
Commission revenue was earned by the Company from catalog partners for
transactions processed through the Company's online retail store. Revenue was
recognized when the order was transmitted to the catalog partner. In commission
sales, the Company processed orders in exchange for a commission on the sale of
the vendor's merchandise. At the conclusion of the sale, the Company forwarded
the order information to the vendor, which then charged the customer's credit
card and shipped the merchandise directly to the customer. In a commission sale
transaction, the Company did not take title or possession of the merchandise,
and the vendor assumed all the risk of credit card chargebacks. The Company
also earned commission revenue from transactions processed on several client
sites. Commission revenue from these transactions has been immaterial to date.
Revenue from web development services was recognized when the client's site
had either been placed on-line or completed to the client's satisfaction, the
Company had the right to invoice the customer, collection of the receivable was
probable and there were no significant obligations remaining.
Advertising costs
Advertising costs are expensed as in accordance with Statement of Position
93-7, "Reporting on Advertising Costs." Advertising expenses for the years
ended December 31, 1997, 1998, and 1999 and the nine months ended September 30,
1999 and 2000 were $64,000, $541,000, $9.2 million, $3.9 million, and
$11.6 million, respectively.
Development Costs
Technology and content expenses primarily consist of payroll and related
costs for web site maintenance and information technology personnel, Internet
access, hosting charges and logistics engineering, and web content and design
costs. Effective January 1, 1999, the Company adopted Statement of Position 98-
1 ("SOP 98-1"), "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use". In accordance with SOP 98-1, the Company classifies
technology and content costs into one of three categories (I) preliminary
project stage (II) application development stage and (III) operational stage.
During 1999 and for the nine months ended September 30, 2000, costs associated
with the preliminary project stage were insignificant and charged to technology
and content expense as incurred. Costs associated with the application
development stage primarily consist of external software purchased and internal
costs to develop software with a life in excess of three months. During 1999
and for the nine months ended September 30, 2000, the Company
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
capitalized approximately $411,000 and $682,000, respectively, of costs
associated with the application development stage and is amortizing such
amounts to technology and content expense over the estimated useful life of one
to three years. Costs associated with the operational stage primarily consist
of internal costs to maintain and enhance the Company's web site and internal
costs to develop software with an expected life of three months or less. During
1999 and for the nine months ended September 30, 2000 the Company expensed
approximately $3.4 and $3.9 million, respectively, to technology and content
expense associated with the operational stage.
Net loss per share
Basic net loss per share available to common stockholders is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the
period. Diluted net loss per share available to common stockholders is computed
by dividing the net loss available to common stockholders for the period by the
weighted average number of common and potential common equivalent shares
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are composed of Common Stock subject to repurchase rights,
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and incremental shares of Common Stock issuable upon conversion of
Preferred Stock. For the year ended December 31, 1999 and the nine months ended
September 30, 1999, net loss per share available to common stockholders
includes a charge of $12.9 million to reflect the deemed preferred stock
dividend recorded in connection with the Series D Preferred Stock financing.
The following table sets forth the computation of basic and diluted net loss
per share available to common stockholders for the periods indicated (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss................. $(1,045) $(4,120) $(29,613) $(15,136) $(45,454)
Deemed preferred stock
dividend................ -- -- (12,918) (12,918) --
------- ------- -------- -------- --------
Net loss available to
common stockholders..... $(1,045) $(4,120) $(42,531) $(28,054) $(45,454)
======= ======= ======== ======== ========
Denominator:
Weighted average shares.. 4,544 4,728 7,291 5,117 36,390
Weighted average Common
Stock subject to
repurchase Agreements... -- (405) (143) (472) (236)
------- ------- -------- -------- --------
Denominator for basic and
diluted calculation..... 4,544 4,323 7,148 4,645 36,154
======= ======= ======== ======== ========
Basic and diluted net
loss per share available
to common Stockholders.. $ (0.23) $ (0.95) $ (5.95) $ (6.04) $ (1.26)
======= ======= ======== ======== ========
</TABLE>
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net loss per share available
to common stockholders calculation above because to do so would be antidilutive
for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 2000
------------------ --------------
1997 1998 1999 1999 2000
----- ----- ------ ------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of dilutive
securities:
Preferred Stock........................ 777 5,299 18,208 16,413 --
Warrants to purchase Series A Preferred
Stock................................. 1 78 89 89 --
Warrants to purchase Series C Preferred
Stock................................. -- -- 1,200 196 --
Warrants to purchase Common Stock...... -- -- 71 54 4,137
Employee stock options................. 524 810 3,714 1,601 4,828
Common Stock subject to repurchase
agreements............................ -- 405 143 472 236
----- ----- ------ ------- ------
1,302 6,592 23,425 18,825 9,201
===== ===== ====== ======= ======
</TABLE>
Income taxes
A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the current year. A deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any benefits
that, based on available evidence, are not expected to be realized.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. During each of the three years ended
December 31, 1999, and the nine months ended September 30, 1999 and 2000, the
Company has not had any significant adjustments to net loss that are required
to be reported in comprehensive income (loss).
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of Enterprise and Related Information." During
each of the three years ended December 31, 1999 and the nine months ended
September 30, 1999 and 2000, the Company's management focused its business
activities on the marketing and sale of sporting goods over the Internet. Since
management's primary form of internal reporting is aligned with the marketing
and sale of sporting goods, the Company believes it operates in one segment.
Revenue from shipments to customers outside of the United States was 0%, 6%,
6%, 10.3% and 3.3% for the years ended December 31, 1997, 1998 and 1999 and the
nine months ended September 30, 1999 and 2000, respectively.
Stock-based compensation
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). Under APB 25, unearned compensation is
based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price. Unearned compensation is
amortized and expensed in accordance with Financial Accounting Standards Board
Interpretation No. 28 using the multiple-option approach. The Company accounts
for stock-based compensation issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
Concentration of risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash, short-term investments and accounts
receivable. Cash equivalents are primarily composed of investments in money
market funds and certificates of deposits and are maintained with two
institutions and the composition and maturities are regularly monitored by
management. The Company's short-term investments are managed by a single
financial institution.
The Company maintains an allowance for uncollectible accounts based upon the
expected collectibility of all accounts receivable. At December 31, 1997,
approximately 47% of web development accounts receivable represented amounts
due from three different customers. Sales to these web development customers
accounted for approximately 25% of the related revenues in 1997. At December
31, 1998, two customers accounted for 21% and 15% of commission-related
accounts receivable. At December 31, 1999, no customer represented more than
10% of outstanding accounts receivable. At September 30, 2000, one account
represented 45% of outstanding accounts receivable.
Due to their short-term nature, the carrying value of all financial
instruments approximate their respective fair value.
Approximately 10% and 19% of the Company's revenue is derived from purchases
from one manufacturer for the year ended December 31, 1999 and for the nine
months ended September 30, 2000, respectively. The Company relies on a limited
number of product manufacturers and third-party distributors to fulfill a large
percentage of products offered on the online retail store. While management
believes that alternate suppliers could provide product at comparable terms,
the loss of any one manufacturer or distributor could delay shipments and have
a material adverse effect on the Company's business, financial position and
results of operations.
Reclassifications
Freight, coupons and promotional discounts totaling $481,000 were
reclassified in the first three quarters of 1999 from operating expense to cost
of revenues, to conform to the fiscal 1999 presentation in accordance with
applicable accounting requirements.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101
summarizes certain interpretations and practices followed by the SEC in
applying generally acceptable accounting principles to revenue recognition. SAB
101 is effective for all periods beginning with the fourth fiscal quarter of
fiscal years beginning after December 15,
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
1999. The Company has evaluated its current revenue recognition policies and
believes that they are in compliance with guidance provided under SAB 101.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 44, "Accounting for Certain Transaction Involving Stock
Compensation: an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
establishes guidance for the accounting for stock option grants and
modifications to existing stock option awards and is effective for option
grants made after June 30, 2000. FIN 44 also establishes guidance for the
repricing of stock options and determining whether a grantee is an employee,
for which the guidance was effective after December 15, 1998, and modifying a
fixed option to add a reload feature, for which the guidance was effective
after January 12, 2000. The adoption of FIN 44 did not have a material effect
on the financial statements of the Company.
In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-02,
"Accounting for Web Site Development Costs." EITF 00-02 establishes guidance
for how companies should account for costs incurred to develop a web site
including costs incurred in the web site application and infrastructure
development stage, costs incurred to develop graphics, costs incurred to
develop content and costs incurred in the operating stage. EITF 00-02 is
effective for web site development costs incurred for fiscal quarters beginning
after June 30, 2000. The adoption of EITF 00-02 did not have a material effect
on the financial statements of the Company.
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
Note 2--Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1998 1999 2000
----- ------- -------------
(unaudited)
<S> <C> <C> <C>
Prepaid expenses and other current assets:
Prepaid advertising......................... $ -- $ 1,024 $ 1,897
Strategic agreements........................ -- 268 245
Insurance................................... -- 414 92
Other....................................... 132 257 810
----- ------- -------
$ 132 $ 1,963 $ 3,044
===== ======= =======
Property and equipment:
Computer equipment and software............. $ 627 $ 2,201 $ 3,951
Office furniture and fixtures............... 134 945 1,085
----- ------- -------
761 3,146 5,036
Less: accumulated depreciation................ (291) (719) (1,684)
----- ------- -------
$ 470 $ 2,427 $ 3,352
===== ======= =======
Other assets:
Deferred alliance costs, net (Note 7)....... $ -- $25,288 $15,555
Deposits.................................... -- 244 152
Other....................................... -- 176 10
----- ------- -------
$ -- $25,708 $15,717
===== ======= =======
Other current liabilties:
Accrued professional fees................... $ -- $ 410 $ 438
Strategic agreements........................ -- 1,274 --
Deferred revenue............................ -- 386 404
Accrued compensation........................ 375 1,028 1,555
Other....................................... 48 185 555
----- ------- -------
$ 423 $ 3,283 $ 2,952
===== ======= =======
</TABLE>
Note 3--Long-Term Debt (in thousands):
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1998 1999 2000
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Equipment term loan (a)........................ $ 134 $ 700 $ 400
Line of credit (b)............................. 423 -- --
Equipment term loan (b)........................ 132 73 18
Software loan (c).............................. 103 -- --
Capital leases................................. 3 -- --
------ ------ -----
795 773 418
Current portion of long-term debt.............. (606) (473) (418)
------ ------ -----
$ 189 $ 300 $ --
====== ====== =====
</TABLE>
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
(a) In September 1998, the Company entered into a loan agreement with a bank
which provided borrowings up to $800,000. Borrowings under the agreement
bear interest at the prime rate plus one-half percent at December 31, 1998
and 1999 (8.25% and 9.0%, respectively) and at the prime rate plus one
percent at September 30, 2000 (10.5%) and are payable in equal monthly
installments over a twenty-four month period beginning in October 1999.
Borrowings for software, furniture, fixtures or telephone equipment are
limited to 75% of the invoice amount. The Company must meet certain
financial covenants in connection with the loan agreement with which it
was in compliance at September 30, 2000.
(b) In December 1997, the Company entered into a loan agreement with a bank
which provided for a line of credit and an equipment term loan. Under the
line of credit, the Company was permitted to borrow up to $500,000 and was
required to keep cash on hand to cover the balance outstanding. At
December 31, 1998, the Company had short-term investments of $423,000
collateralized under the agreement. The line of credit bore interest at
8.75% at December 31, 1998. Interest on the line was payable monthly. The
line was paid off and terminated by the Company in September 1999. The
company entered into a new line of credit in December 1999. Under the new
credit line, the Company is permitted to borrow up to $3,000,000. The line
of credit bears interest at the prime rate plus one half percent (10.0% at
September 30, 2000) and there was no outstanding balance at September 30,
2000.
As of September 30, 2000 the Company had $18,000 outstanding under an
existing term loan used to purchase capital equipment, furniture, software
or other equipment. The term loan bears interest at the prime rate plus
one-half percent at December 31, 1998 and 1999 (8.25% and 9.0%,
respectively) and at the prime rate plus one percent at September 30, 2000
(10.5%) and is payable in twenty-four equal installments, including
interest, commencing on January 28, 1999. In December of 1999 the Company
entered into a new equipment term loan. Under the equipment term loan, the
Company can borrow up to $2,000,000 to be used to purchase capital
equipment, furniture, software or other equipment. The term loan bears
interest at the prime rate plus one percent (10.5% at September 30, 2000),
and interest on the unpaid principal is due monthly. The term loan is
subject to two semi-annual term out and principal payments. Borrowings
made after July 1, 2000 through December 2000 will be paid back in 33
monthly payments of interest and principal beginning on January 15, 2001.
The Company must meet certain financial covenants in connection with the
loan agreement with which it was in compliance at September 30, 2000.
(c) In October 1998, the Company entered into a loan agreement with a software
company to purchase software. Borrowings under the agreement bear interest
at 7.5% and were repaid in 1999.
Under the terms of the loan agreements, the Company is prohibited from
paying dividends without approval from the bank.
Note 4--Acquisition:
Effective September 3, 1999, the Company merged with Sports Universe, Inc.
("Sports Universe"). Sports Universe sells equipment and apparel for
wakeboarding, waterskiing, inline skating, surfing and skateboarding on the
Internet. The merger was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
values as of the acquisition date. The total purchase price of approximately
$2.1 million consisted of 266,665 shares of Company Common Stock with an
estimated fair value of approximately $8.00 per share and other acquisition
related expenses of approximately $30,000 primarily consisting of payments for
professional fees. The purchase price was allocated to net tangible liabilities
assumed of $538,000 and goodwill
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
of $2.7 million. The acquired goodwill will be amortized over its estimated
useful life of two years. The results of operations for Sports Universe have
been included in the Company's operations as of September 3, 1999.
The following table summarizes unaudited consolidated information for the
Company and Sports Universe (in thousands except per share amounts), giving
effect to this merger as if it had occurred on February 9, 1998 ("inception")
by consolidating the results of operations of Sports Universe from inception
through the year ended December 31, 1999.
<TABLE>
<CAPTION>
Pro Forma
-------------------------
Year ended Year ended
December 31, December 31,
1998 1999
------------ ------------
(unaudited)
<S> <C> <C>
Net revenues..................................... $ 944 $ 7,508
Net loss available to common stockholders........ (5,790) (43,569)
Basic and diluted net loss per share available to
common stockholders............................. $ (1.27) $ (6.10)
</TABLE>
Note 5--Commitments and contingencies:
Operating leases
The Company leases office space under noncancelable operating leases at
three locations, expiring in April 2001, April 2002 and July 2004. Rent expense
totaled $51,000, $157,000, $556,000, $299,000 and $897,000 for the years ended
December 31, 1997, 1998 and 1999, and the nine months ended September 30, 1999
and 2000, respectively. The Company sublets one of the spaces for a total of
$140,000 through April 2001.
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
2000............................................................... $ 310
2001............................................................... 1,088
2002............................................................... 1,038
2003............................................................... 1,066
2004............................................................... 635
------
$4,137
======
</TABLE>
Distributor and Strategic Agreements
The Company maintains agreements with independent distributors to provide
merchandise. Annual minimum payments under these agreements are $60,000. The
Company is also obligated under the strategic agreement signed with Nike USA,
Inc. ("Nike") (Note 7) to make two installment payments of $250,000, one of
which was paid upon entering the agreement and the second of which was due upon
the earlier of seven days after the closing of the Company's initial public
offering or January 15, 2000. The second payment was accrued at December 31,
1999 and the related expense is being amortized over the life of the strategic
agreement. The second installment was paid in January 2000.
Advertising
As of September 30, 2000, the Company had commitments for online and
traditional offline advertising of approximately $2.5 million.
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.
Note 6--Income Taxes:
The Company incurred net operating losses for each of the three years ended
December 31, 1999 and accordingly, no provision for income taxes has been
recorded. The tax benefit is reconciled to the amount computed using the
federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- -------- ---------
<S> <C> <C> <C>
Federal statutory benefit...................... $ (355) $ (1,400) $ (10,023)
State taxes, net of federal benefit............ (63) (247) (905)
Future benefits not currently recognized....... 418 1,550 8,238
Nondeductible compensation..................... -- 97 1,164
Other.......................................... -- -- 1,526
------ -------- ---------
$ -- $ -- $ --
====== ======== =========
</TABLE>
At December 31, 1999, the Company had approximately $25.4 million of federal
and $12.8 million of state net operating loss carryforwards available to offset
future taxable income which expire at various dates through 2019. Under the Tax
Reform Act of 1986, the amount of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events which
cause limitations in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three year period.
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,843 $ 9,383
Accruals and allowances................................. 354 714
------- --------
Net deferred tax assets............................... 2,197 10,097
Valuation allowance....................................... (2,197) (10,097)
------- --------
$ -- $ --
======= ========
</TABLE>
The Company has incurred losses for the three years ended December 31, 1999.
Management believes that based on the history of such losses and other factors,
the weight of available evidence indicates that it is more likely than not that
the Company will not be able to realize its deferred tax assets and thus a full
valuation allowance has been recorded at December 31, 1998 and 1999.
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
Note 7--Common Stock:
In December 1999, the Company completed an initial public offering of
6,000,000 shares of Common Stock at $11.00 per share, proceeds were
approximately $59.7 million, net of issuance costs. The Company's Certificate
of Incorporation, as amended in the State of Delaware in September 1999,
authorizes the Company to issue 100,000,000 shares of Common Stock with a par
value of $0.001. In January 2000, the Company sold an additional 425,000 shares
at $11.00 per share which generated proceeds of approximately $4.2 million, net
of issuance costs in connection with the exercise of the underwriters over-
allotment.
In November 1999, the Company's Board of Directors approved a two for three
reverse stock split of the outstanding shares of common, convertible redeemable
preferred stock and stock options. In September 1997, the Board of Directors
approved a two-for-one stock split of the Company's Common Stock and Preferred
Stock with a corresponding adjustment to outstanding stock options. All common
and preferred share and per share data in the accompanying financial statements
have been adjusted retroactively to give effect to both of the stock splits.
A portion of the shares owned by the employees prior to the initial public
offering are subject to a right of repurchase by the Company subject to
vesting. At December 31, 1998 and 1999 and the nine months ended September 30,
2000, there were approximately 870,000, 351,000 and 128,000 shares,
respectively, subject to repurchase.
During the years ended December 31, 1998, the Company issued 47,413 shares
of Common Stock to consultants in exchange for services. In connection with
these issuances, the Company recorded expenses of $4,000, respectively, based
on the fair value of the Common Stock on the date of grant as determined by the
Board of Directors. The Board in determining the fair value of the common stock
considered, among other things, the relative level of revenues and other
operating results, the absence of a public trading market for the Company's
securities and the competitive nature of the Company's market.
Warrants for Common Stock
In connection with the loan agreement entered into in December 1997, the
Company issued to the bank a warrant to purchase 29,630 shares of Series A
Preferred Stock. The warrant may be exercised at any time between May 1, 1998
and December 24, 2002 at an exercise price of $0.84 per share. The warrant was
recorded as a debt discount at its estimated fair value of $8,000. Amortization
of the discount was recognized as interest expense over the term of the loan
agreement. The warrant automatically converted to a warrant to purchase Common
Stock upon the effective date of the initial public offering, December 9, 1999.
The warrant was fully exercised in February 2000.
In connection with the issuance of convertible promissory notes to certain
holders of the Series A Preferred Stock in May 1998 and December 1997, the
Company issued warrants to purchase 35,556 shares of Series A Preferred Stock.
The warrants may be exercised at any time prior to December 26, 2002 at an
exercise price of $0.84 per share. The warrants were recorded as a debt
discount at its estimated fair value of $13,000. Amortization of the discount
recognized as interest expense over the term of the promissory notes. The
warrants were fully exercised in November 1999.
In May 1998 and December 1997, the Company issued warrants to purchase
24,000 shares of Series A Preferred Stock to certain members of the Board of
Directors for services. The warrants may be exercised at any time prior to May
22, 2003 and December 26, 2002 at an exercise price of $0.84 per share. The
warrants automatically converted to warrants to purchase Common Stock upon the
effective date of the initial public
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
offering, December 9, 1999. The warrants were fully exercised in December 1999.
The estimated fair value of the warrants was $8,000. The Company has not
recorded any expense for the estimated fair value of the warrants because such
amounts were insignificant.
In November 1998, the Company issued fully-vested warrants to purchase
146,667 shares of Common Stock to certain investors for services provided. The
warrants were exercisable at the option of the holder at any time prior to
March 7, 1999 at an exercise price of $0.75 per share. The estimated fair value
of the warrants was $2,000. The Company has not recorded any expense for the
estimated fair value of the warrants because such amount was insignificant. The
warrants were fully exercised in May 1999.
In March 1999, the Company issued a fully-vested warrant to purchase 64,762
shares of Common Stock to a distributor in exchange for exclusivity rights. The
warrant is exercisable at the option of the holder at any time prior to March
31, 2000 at an exercise price of $1.54 per share. The warrant is recorded as a
marketing and sales expense at its estimated fair value of $26,000 over the
term of the distribution agreement. The warrant was fully exercised in January
2000.
In May 1999, the Company issued a fully-vested warrant to purchase 4,166
shares of Common Stock to a distributor in exchange for exclusivity rights. The
warrant is exercisable at the option of the holder at any time prior to May 31,
2000, at an exercise price of $4.50 per share. The estimated fair value of the
warrant was $3,000. The Company has not recorded any expense for the estimated
fair value of the warrants because such amount was insignificant. The warrant
was fully exercised in March 2000.
In September 1999, the Company entered into a two-year strategic agreement
with Nike to distribute Nike products over the Company's web site. In exchange
for certain online exclusivity rights, the Company granted Nike a fully-vested
warrant to purchase 4,114,349 shares of Series C Preferred Stock at $1.54 per
share. The warrant automatically converted to a warrant to purchase Common
Stock upon the closing of the initial public offering on December 9, 1999. The
Company is expensing the estimated fair value of the warrant of approximately
$28.8 million over the term of the distribution agreement as marketing and
sales expense. The Company estimated the fair value using the Black-Scholes
option model with a per share value of $8.00 for the Series C Preferred Stock.
The unamortized balance at September 30, 2000 is included in other assets, net
as deferred alliance costs.
In September 1999, the Company issued fully-vested warrants to purchase
46,667 shares of Common Stock to distributors in exchange for exclusivity
rights. The warrants are exercisable at the option of the holders at any time
prior to March 31, 2000 at an exercise price of $4.50 per share. The warrants
are recorded as marketing and sales expenses at their estimated fair values of
$184,000 over the term of their respective distribution agreements. The
warrants were fully exercised in March 2000.
The Company estimated the fair value of each warrant using the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
---- ----------
<S> <C> <C>
Risk-free interest rate.................................... 5.46% 4.88%-5.11%
Expected life (in years)................................... Term Term
Dividend yield............................................. 0% 0%
Expected volatility........................................ 50% 90%
</TABLE>
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
Note 8--Preferred Stock:
The Company is authorized, subject to limitations prescribed by Delaware
law, to provide for the issuance of Preferred Stock in one or more series, to
establish from time to time the number of shares included within each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any qualifications, limitations or restrictions thereon,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding) without any further
vote or action by the stockholders. At December 31, 1999, there were 5,000,000
shares of Preferred Stock authorized for issuance, and no shares issued or
outstanding.
Convertible Preferred Stock ("Preferred Stock") prior to the initial public
offering on December 9, 1999 consisted of the following (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Proceeds
Net of
Shares Per Share Liquidation Issuance
Series Authorized Outstanding Amount Amount Costs
------ ---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
A..................... 2,813 1,786 $0.84 $ 1,502 $ 1,473
B..................... 9,679 6,453 0.75 4,839 4,780
C..................... 23,804 11,657 1.54 18,000 17,923
D..................... 5,500 3,529 4.34 15,300 14,650
------ ------ ------- -------
41,796 23,425 $39,641 $38,826
====== ====== ======= =======
</TABLE>
The Preferred Stock converted to Common Stock upon consummation of the
initial public offering. The Company recorded a deemed preferred stock dividend
of $12.9 million to reflect the difference between the issuance price of $4.34
and estimated fair value of the Series D Preferred Stock of $8.00.
Note 9--Employee Benefits:
Stock Option Plans
In November 1996, the Board of Directors adopted the 1996 Stock Option Plan
providing for the issuance of incentive and nonstatutory stock options to
employees, consultants and outside directors of the Company. In September 1999,
the Company's Board of Directors approved the 1999 Stock Incentive Plan (the
"Plan"), which will serve as the successor plan to the 1996 Plan. The Plan
provides for the issuance of incentive and nonstatutory stock options to
employees, consultants and outside directors of the Company. The Plan became
effective immediately prior to the completion of the initial public offering.
The common stock reserved under the plan is 6,296,631. The share reserve will
automatically increase on the first trading day in January each year, beginning
with calendar year 2001 through 2005, equal to 3% of the total number of shares
of common stock outstanding on the last trading day in December in the
immediately preceding year, but in no event will any such annual increase
exceed 2,000,000 shares.
Options may be granted at an exercise price at the date of grant of not less
than the fair market value per share for incentive stock options and not less
than 85% of the fair market value per share for nonstatutory stock options,
except for options granted to a person owning greater than 10% of the total
combined voting power of all classes of stock of the Company, for which the
exercise price of the option must be not less than 110% of the fair market
value. Prior to the initial public offering, the fair market value of the
Company's Common Stock was determined by the Board of Directors or a committee
thereof.
Options granted under the Plan generally become exercisable at a rate of 25%
after the first year and ratable each month over the next three years and
expire no later than ten years after the grant date.
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
The following table summarizes information about stock option activity under
the Plan (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
-------------------------------------------------- September 20,
1997 1998 1999 2000
---------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ -------- ------ --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 1,199 $0.083 2,404 $0.083 4,999 $1.64
Granted below fair
value.................. -- -- 1,931 0.083 4,176 2.08 -- --
Granted at fair value... 1,231 0.083 13 0.083 -- -- 1,244 3.12
Exercised............... (5) 0.083 (292) 0.083 (1,067) 0.23 (358) 2.03
Canceled................ (27) 0.083 (447) 0.083 (514) 0.87 (1,986) 2.44
----- ----- ------ ------
Outstanding at end of
period................. 1,199 0.083 2,404 0.083 4,999 1.64 3,899 1.73
===== ===== ====== ======
Options vested.......... -- 504 2,762 2,834
===== ===== ====== ======
Weighted average fair
value of options
granted during the
period................. $0.083 $ 0.72 $ 4.16 $2.67
====== ====== ====== =====
</TABLE>
At September 30, 2000, the Company had 2,285,322 shares available for future
grant under the Plan.
The following table summarizes the information about stock options
outstanding and exercisable as of September 30, 2000 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Exercise Price Outstanding (in years) Price Exercisable Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.08-$1.00................ 2,336 3.74 $0.30 2,030 $0.20
$1.03-$1.88............... 420 3.98 1.33 364 1.32
$2.19-$3.88............... 478 5.85 3.01 30 3.11
$4.00-$7.06............... 560 4.49 5.36 413 5.27
$7.50-$13.94.............. 105 4.79 9.91 -- --
----- ---- ----- ----- -----
Total................... 3,899 4.16 $1.73 2,837 $1.11
===== ==== ===== ===== =====
</TABLE>
1999 Employee Stock Purchase Plan
In September 1999, the Company's Board of Directors approved the 1999
Employee Stock Purchase Plan (the "1999 ESPP"). Under the plan, eligible
employees can have up to 15% of their earnings withheld to be used to purchase
shares of Common Stock on specified dates determined by the Board of Directors.
The price of Common Stock purchased under the Purchase Plan will be equal to
85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the specified purchase date.
Accordingly, approximately 46,000 shares were issued in July 2000 in connection
with the plan.
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
The Board of Directors may specify a look-back period of up to 24 months. The
Common Stock reserved for future issuances under the plan is 500,000 shares of
Common Stock. Additionally, the shares reserved in the plan will automatically
increase on the first trading day in January each year, beginning with calendar
year 2000 through 2005, equal to 1% of the total number of shares of common
stock outstanding on the last trading day in December in the immediately
preceding year, but in no event will exceed 1,000,000 shares.
Fair value disclosures
The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for the
years ended December 31, 1997, 1998 and 1999 and the nine months ended
September 30, 1999 and 2000 been determined based on the fair value at the
grant date as prescribed by SFAS No. 123, the Company's net loss and net loss
per share would have decreased to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss available to
common stockholders:
As reported.............. $(1,045) $(4,120) $(42,531) $(28,054) $(45,454)
======= ======= ======== ======== ========
Pro forma................ $(1,048) $(4,018) $(40,669) $(27,119) $(42,984)
======= ======= ======== ======== ========
Basic and diluted net loss
per share available to
common Stockholders:
As reported.............. $ (0.23) $ (0.95) $ (5.95) $ (6.04) $ (1.26)
======= ======= ======== ======== ========
Pro forma................ $ (0.23) $ (0.93) $ (5.69) $ (5.84) $ (1.19)
======= ======= ======== ======== ========
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
-------------------- --------------------
1998 1999 1999 2000
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Risk-free interest rates......... 4.06-5.15% 4.34-5.50% 4.34-5.50% 5.91-6.88%
Expected lives (in years)........ 5 5 5 5
Dividend yield................... 0% 0% 0% 0%
Expected volatility.............. 0% 90% 0% 122%
</TABLE>
Unearned stock-based compensation
In connection with certain stock option grants during the year ended
December 31, 1998 and 1999 and the nine months ended September 30, 1999 and
2000, the Company recognized unearned stock-based compensation totaling $1.2
million and $13.8 million, $10.9 million and $0 respectively, which is being
amortized over the vesting periods of the related options, which is generally
four years, using the multiple option approach. Amortization expense recognized
for the year ended December 31, 1998 and 1999 and the nine months ended
September 30, 1999 and 2000 was approximately $243,000, $3.4 million, $1.6
million and $4.5 million, respectively. In determining the fair market value on
each grant date the Company, prior to the completion of the initial public
offering, considered among other things, the relative level of revenues and
other
<PAGE>
FOGDOG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
operating results, the absence of a public trading market for the Company's
securities and the competitive nature of the Company's market. During the year
ended December 31, 1999, the Company issued 57,500 options with an estimated
fair value of $99,000 to consultants in exchange for services. The Company
estimated the fair value of the options using a Black-Scholes option pricing
model.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
------------- -------------
1998 1999 1999 2000
------------- ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Marketing and sales............................. $ 60 $ 1,236 $ 472 $1,914
Technology and content.......................... 38 321 134 299
General and administrative...................... 145 1,867 976 2,316
----- ------- ------ ------
Total stock-based compensation.................. $ 243 $ 3,424 $1,582 $4,529
===== ======= ====== ======
</TABLE>
401(k) Plan
During the year ended December 31, 1998, the Board of Directors adopted an
employee savings and retirement plan (the "401(k) Plan") offering substantially
all of the Company's employees the opportunity to participate. Pursuant to the
401(k) Plan, eligible employees may elect to reduce their current compensation
by up to the statutory prescribed limit and have the amount of such reduction
contributed to the 401(k) Plan. The Company may make contributions to the
401(k) Plan on behalf of eligible employees. To date, the Company has not made
any contributions to the 401(k) Plan.
Note 10--Subsequent Event (unaudited):
On October 24, 2000, the Company announced that it had entered into a
definitive agreement to merger with Global Sports, Inc. Under the terms of the
merger agreement, Company stockholders will receive 0.135 shares of Global
Sports, Inc. common stock for each share of the Company's common stock. In
addition, Global Sports, Inc. will assume all of the Company's outstanding
options. The transaction is expected to close in the first quarter of 2001,
subject to the satisfaction of certain customary closing conditions, including
the approval of the stockholders of the Company and termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
