<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 17, 1998
INFOSEEK CORPORATION
(Exact name of registrant as specified in its charter)
California 1-11797 77-0353450
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1399 Moffett Park Drive
Sunnyvale, California 94089
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (408) 543-6000
Not Applicable
--------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
Infoseek Corporation (the "Company") has included herein the consolidated
balance sheets of the Company as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997 (the "Consolidated
Financials"). The Consolidated Financials give retroactive effect to the merger
of a wholly owned subsidiary of the Company with and into WebChat
Communications, Inc. on April 17, 1998, which transaction has been accounted for
as a pooling of interests.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and exhibits are filed as part of
this report.
(a) Financial Statements of the Registrant:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................ 3
Consolidated Balance Sheets as of
December 31, 1997 and 1996.................................. 4
Consolidated Statements of Operations for
each of the three years in the period ended
December 31, 1997........................................... 5
Consolidated Statements of Cash Flows for each
of the three years in the period ended December 31, 1997.... 6
Consolidated Statements of Shareholders' Equity
for each of the three years in the period ended
December 31, 1997........................................... 7
Notes to Consolidated Financial Statements....................... 9
Schedule II Valuation and Qualifying Accounts.................... 20
(c) Exhibits:
23.1 Consent of Ernst & Young LLP, independent auditors
</TABLE>
2
<PAGE>
ITEM 7. (a) Financial Statements of the Registrant
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Infoseek Corporation
We have audited the accompanying consolidated balance sheets of Infoseek
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
consolidated financial statement schedule listed in the Index at Item 7. These
consolidated financial statements and schedule are the responsibility of the
management of Infoseek Corporation. Our responsibility is to express and opinion
on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted audited standards.
Those standards 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Infoseek Corporation at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
/s/ ERNST & YOUNG LLP
San Jose, California
January 16, 1998, except for Note 14,
as to which the date is February 12, 1998
and Note 2, as to which the date is April 17, 1998
3
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,323 $ 3,786
Short-term investments 28,116 42,867
Accounts receivable, less allowance for doubtful accounts of $980
in 1997, and $350 in 1996 6,921 2,428
Other current assets 648 371
-------- --------
Total current assets 39,008 49,452
Property and equipment:
Computer and office equipment 16,525 9,651
Furniture and fixtures 935 307
Leasehold improvements 1,323 108
-------- --------
18,783 10,066
Less accumulated depreciation and amortization 8,295 2,479
-------- --------
Net property and equipment 10,488 7,587
Deposits and other assets 1,993 1,293
-------- --------
Total assets $ 51,489 $ 58,332
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,861 $ 3,269
Accrued payroll and related expenses 1,630 1,362
Accrued liabilities to service providers 4,221 --
Other accrued liabilities 2,262 1,070
Deferred revenue 2,564 760
Accrued restructuring and other charges 1,877 --
Short-term obligations 2,575 994
-------- --------
Total current liabilities 19,990 7,455
Long-term obligations 4,493 1,892
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized shares 5,000,000
No shares issued and outstanding -- --
Common stock, no par value:
Authorized shares -- 60,000,000
Issued and outstanding shares 27,534,000 in 1997 and 25,691,000
in 1996 76,000 73,754
Accumulated deficit (48,030) (20,771)
Deferred compensation (753) (3,546)
Notes receivable from shareholders (211) (452)
-------- --------
Total shareholders' equity 27,006 48,985
-------- --------
Total liabilities and shareholders' equity $ 51,489 $ 58,332
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
TOTAL REVENUES $ 35,082 $ 15,095 $ 1,032
COSTS AND EXPENSES
Hosting, content and website costs 6,319 3,194 614
Research and development 7,900 4,550 1,175
Sales and marketing 34,320 20,455 1,488
General and administrative 7,042 4,177 1,148
Restructuring and other charges 7,349 -- --
-------- -------- -------
Total costs and expenses 62,930 32,376 4,425
-------- -------- -------
Operating loss (27,848) (17,281) (3,393)
INTEREST INCOME (EXPENSE)
Interest income 1,943 1,771 115
Interest expense (657) (428) (18)
-------- -------- -------
1,286 1,343 97
-------- -------- -------
Net loss $(26,562) $(15,938) $(3,296)
======== ======== =======
Basic and diluted net loss per share $(1.00) $(0.72) $(0.21)
Shares used in computing basic and diluted net loss per share
(pro forma in 1995) 26,627 22,120 15,535
</TABLE>
See accompanying notes.
5
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(26,562) $(15,938) $(3,296)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 4,849 2,157 438
Writedown of restructure related assets 2,080 -- --
Amortization of unearned compensation related to stock options 832 1,347 44
Amortization of warrants issued in connection with term loan -- -- 21
Fair value assigned to services provided by Netscape -- -- 200
Changes in operating assets and liabilities
Accounts receivable (4,490) (1,929) (499)
Other current assets (211) (260) (92)
Deposits and other current assets (1,490) -- --
Accounts payable 1,491 2,047 1,211
Accrued payroll and related expenses 253 1,291 67
Accrued liabilities to service providers 4,221 -- --
Other accrued liabilities 1,192 457 498
Deferred revenue 1,804 760 --
Accrued restructuring and other charges 1,877 -- --
-------- -------- -------
Net cash used in operating activities (14,154) (10,068) (1,408)
INVESTING ACTIVITIES
Purchases of available-for-sale investments (44,769) (92,966) (2,483)
Proceeds from sales of available-for-sale investments 59,520 50,596 1,986
Issuance of notes receivable (950) (600) --
Purchase of property and equipment (7,597) (6,857) (2,829)
-------- -------- -------
Net cash provided by (used) in investing activities 6,204 (49,827) (3,326)
FINANCING ACTIVITIES
Term loan 5,265 2,573 967
Repayments of term loan (1,082) (763) (100)
Proceeds from issuance of convertible debt 305 -- --
Payment of deposit -- (693) --
Proceeds from sale of convertible preferred stock, net of issuance costs -- 17,619 4,430
Proceeds from sale of common stock, net of issuance costs 1,217 43,785 --
Proceeds from the exercise of stock options 1,183 6 --
Proceeds from employee stock purchase plan 295 -- --
Proceeds from repayment of notes receivable from shareholders 302 28 --
Repurchase of common stock -- (3) (2)
-------- -------- -------
Net cash provided by financing activities 7,485 62,552 5,295
-------- -------- -------
Net increase in cash and cash equivalents (465) 2,657 561
Cash and cash equivalents at beginning of period 3,788 1,129 568
-------- -------- -------
Cash and cash equivalents at end of period $ 3,323 $ 3,786 $ 1,129
======== ======== =======
</TABLE>
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unearned compensation related to stock options amounted to $440,000, $3,102,000
and $2,124,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash paid for interest expense amounted to $606,000, $428,000 and
$18,000 in 1997, 1996 and 1995, respectively.
See accompanying notes.
6
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
------------------------ ----------------- ACCUMULATED DEFERRED FROM SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT COMPENSATION SHAREHOLDERS EQUITY
------------- --------- ------- -------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994 9,421 $ 2,020 3,783 $ 38 $ (1,537) $ -- $ -- $ 521
Issuance of Series A
preferred stock
for purchased technology 559 224 -- -- -- -- -- 224
Repurchase of common stock
from
founder -- -- (155) (2) -- -- -- (2)
Issuance of Series C
convertible
preferred stock for
cash, net of issuance
costs 5,600 4,430 -- -- -- -- -- 4,430
Issuance of warrants for
shares of
series C convertible
preferred stock -- 21 -- -- -- -- -- 21
Issuance of common stock
to employee
for note receivable -- -- 372 50 -- -- (50) --
Unearned compensation
related to
stock options -- -- -- 2,124 -- (2,124) -- --
Amortization of unearned
compensation
related to stock options -- -- -- -- -- 44 -- 44
Fair value assigned to
services provided
by Netscape -- -- -- 200 -- -- -- 200
Net loss -- -- -- -- (3,296) -- -- (3,296)
------------ -------- ------ ------- ----------- ------------ ------------ --------
BALANCE AT DECEMBER 31,
1995 15,580 6,695 4,000 2,410 (4,833) (2,080) (50) 2,142
Cancellation of
convertible preferred
stock issued for
purchased
technology (280) -- -- -- -- -- -- --
Unearned compensation
related to
stock options -- -- -- 3,102 -- (3,102) -- --
Amortization of unearned
compensation -- -- -- -- -- 1,346 -- 1,346
Issuance of convertible
preferred
stock for cash, net of
issuance
costs 2,267 17,619 -- -- -- -- -- 17,619
Repurchases of common stock -- -- (325) (3) -- -- -- (3)
Issuance of common stock
to officers -- -- 787 910 -- -- (610) 300
Cancellation of note
receivable and
repurchase of shares -- -- (365) (470) -- 290 180 --
Payment on shareholders'
notes
receivable -- -- -- -- -- -- 28 28
Conversion of convertible
preferred
stock into common stock
upon
the initial public
offering (17,567) (24,314) 17,567 24,314 -- -- -- --
Issuance of common stock in
connection with initial
public
offering, net of
issuance costs -- -- 3,973 43,485 -- -- -- 43,485
Exercise of common stock
options -- -- 54 6 -- -- -- 6
Net loss -- -- -- -- (15,938) -- -- (15,938)
------------ -------- ------ ------- ----------- ------------ ------------ --------
BALANCE AT DECEMBER 31,
1996 -- -- 25,691 73,754 (20,771) (3,546) (452) 48,985
Issuance of common stock
and
activity from merger with
WebChat Communications,
Inc. -- -- 167 571 (697) -- -- (126)
Issuance of common stock
for cash -- -- 58 1,217 -- -- -- 1,217
Unearned compensation
related to
stock options -- -- -- 440 -- (440) -- --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
------------------------ ----------------- ACCUMULATED DEFERRED FROM SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT COMPENSATION SHAREHOLDERS EQUITY
------------- --------- ------- -------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amortization of unearned
compensation -- -- -- -- -- 832 -- 832
Reversal of unearned
compensation -- -- -- (2,071) -- 2,071 -- --
Writeoff deferred
compensation
related to restructure -- -- -- -- -- 330 -- 330
Repurchases of common stock -- -- (27) -- -- -- -- --
Issuance of common stock
for
notes receivable -- -- 38 61 -- -- (61) --
Payment on shareholders'
notes
receivable -- -- -- -- -- -- 302 302
Conversion of debt into
common stock -- -- 27 550 -- -- -- 550
Exercise of common stock
options -- -- 1,445 1,183 -- -- -- 1,183
Issuance of common stock
through
employee stock purchase
plan -- -- 44 295 -- -- -- 295
Issuance of common stock
from
exercise of warrants -- -- 91 -- -- -- -- --
Net loss -- -- -- -- (26,562) -- -- (26,562)
------------ -------- ------ ------- ----------- ------------ ------------ --------
BALANCE AT DECEMBER 31,
1997 -- $ -- 27,534 $76,000 $(48,030) $ (753) $(211) $ 27,006
============ ======== ====== ======= =========== ============ ============ ========
</TABLE>
See accompanying notes.
8
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Infoseek Corporation, (the "Company"), provides leading
Internet search and navigation technology, products and services that use the
Web to connect its viewers' personal, work and community lives. As a
"connected" media company, Infoseek is able to segment viewers by interest area,
providing advertisers with focused and targeted audiences. The Infoseek Service
is a comprehensive Internet gateway that combines search and navigation with
directories of relevant information sources and content sites, offers chat and
instant messaging for communicating shared interest and facilitates the purchase
of related goods and services. The Company conducts its business within one
industry segment.
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany transactions and balances have been eliminated. As more fully
described in Note 2, a wholly owned subsidiary of the Company merged with
WebChat Communications, Inc. ("WebChat") in April 1998 in a pooling of interests
transaction. The consolidated financial statements for 1997 have been restated
to include the financial position, results of operations and cash flows of
WebChat. Prior to 1997, these amounts for WebChat were not significant compared
to those of the Company and accordingly, the Company's previously issued
financial statements were not restated. An adjustment was made to the beginning
1997 common stock and accumulated deficit as a result of not restating the
Company's financial statements prior to 1997. Amounts shown in previous
consolidated statements of operations which were formerly titled "Costs of
Revenues" have been retitled to "Hosting, Content and Website Costs" and have
been reclassified as operating expenses.
Hosting, Content and Website Costs - Hosting, Content and Website costs
consist primarily of expenses associated with the enhancement, maintenance and
support of the Company's Web sites, including telecommunications costs and
equipment depreciation. Hosting, Content and Website costs also include
expenses associated with the licensing of certain third-party technologies.
Cash and Cash Equivalents -- The Company considers all highly liquid debt
instruments which are purchased with a maturity of three months or less to be
cash equivalents.
Short-Term Investments -- The Company accounts for investments in accordance
with Financial Accounting Standards Board, Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company's short-
term investments, which consist primarily of commercial paper and government
agency notes with maturities of one year or less, are classified as available-
for-sale, and as such, are carried at fair value with the unrealized gains and
losses, net of tax, reported in a separate component of shareholders' equity.
The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization, as well as any interest on the securities, is included in interest
income. Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in interest income
(expense). The cost of securities sold is based on the specific identification
method. The Company had no investments in equity securities at December 31, 1997
and 1996.
Property and Equipment - Property and equipment are carried at cost less
accumulated depreciation. The Company depreciates property and equipment using
the straight-line method over the estimated useful lives of three to five years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the life of the related asset or the term of the lease.
Research and Development - Research and development expenditures are
generally charged to operations as incurred. Financial Accounting Standards
Board, Statement No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," requires the capitalization of certain
software development costs subsequent to the establishment of technological
feasibility. In the Company's case, capitalization would begin upon completion
of a working model as the Company does not prepare detail program designs as
part of the development process. As of December 31, 1997 and 1996, capitalized
costs were insignificant.
Stock-Based Compensation - The Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting of Stock Issued to
Employees" and related interpretations, in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under Financial Accounting Standards Board, Statement No. 123 (SFAS
123) "Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, with the exception of certain options granted during 1997, 1996 and 1995
as discussed in Note 8, no compensation expense is recognized as the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant.
9
<PAGE>
Long-Lived Assets - In 1995, the Financial Accounting Standards Board
released the Statement No. 121 (SFAS No. 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS No. 121 has not had a material impact on the
financial statements of the Company.
Revenue Recognition - The Company's advertising revenues are derived
principally from short-term advertising contracts in which the Company
guarantees a minimum number of impressions for a fixed fee. Advertising revenues
are recognized ratably over the term of the contract provided that the monthly
minimum impressions are met, the Company does not have any remaining significant
obligations, and collection of the resulting receivable is probable. To the
extent the minimum guaranteed impressions are not met, the Company defers
recognition of the revenue until guaranteed impressions levels are met.
Also included in advertising revenues is the exchange by the Company of
advertising space on the Company's Web sites for reciprocal advertising space in
other media publications or other Web sites or receipt of applicable goods and
services. Revenues from these exchange transactions are recorded as advertising
revenue at the estimated fair value of the goods and services received and are
recognized when both the Company's advertisements and the reciprocal
advertisements are run, or goods or services are received. Advertising revenues
recognized under these trading activities were less than 10% of total revenues
for all periods presented.
In late 1997, the Company released a new version of its service which features
15 "channels," and provides opportunities for revenue from the sale of channel
sponsorships, as well as to enable the Company to share in a portion of the
revenue generated by its viewers with these channel sponsors. Revenue generated
by channel sponsors is included in advertising revenues and is generally
recognized on a straight line basis over the term of the agreements provided
that minimum impressions are met.
The Company also derived revenues of $2,141,000 from the licensing of its
Ultraseek technology. License revenues are recognized at the time of delivery,
provided no significant obligations remain and collectibility of the resulting
receivable is probable.
During 1996 and 1995, the Company also derived revenues from fees related to a
premium subscription service offered to business and professional users.
Revenues from this service are recognized over the period the services are
provided. During the third quarter of 1996, the Company discontinued this
service.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs, which include service provider fees and reciprocal advertising amounted
to $15,104,000 and $8,523,000 for the years ended December 31, 1997 and 1996,
respectively. There were no advertising costs for the year ended December 31,
1995. The Company does not incur any significant direct response advertising
costs.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, and trade receivables. The Company places
its cash equivalents and short-term investments with high-quality financial
institutions. Through December 31, 1997, the Company invested its excess cash in
commercial paper, government agency notes and money market funds. The Company
operates in one business segment and sells advertising to various companies
across several industries. The Company generally does not require collateral.
The Company maintains allowances for credit losses, and such losses have been
within management's expectations. For the year ended December 31, 1997 no
customer accounted for greater than 10% of revenues. For the year ended
December 31, 1996, one customer (a related party, see Note 12) accounted for 13%
of revenues and for the year ended December 31, 1995, another customer accounted
for 13% of revenues.
Net Loss Per Share - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share. Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary and fully diluted earnings per
share, outstanding nonvested shares are not included in the computations of
basic and diluted earnings per share until the time-based vesting restriction
has lapsed. Basic earnings per share also excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. In
addition, in February 1998, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 98, Earnings Per Share. Staff Accounting Bulletin No.
98 effected the treatment of certain stock and warrants ("cheap stock") issued
within a one-year period prior to an initial public offering. Earnings per
share amounts presented have been restated to conform to the requirements of
Statement No. 128 and Staff Accounting Bulletin No. 98.
10
<PAGE>
Net loss per share information for 1997 has been adjusted on a retroactive basis
to give effect to the merger with WebChat (see Note 2), whereby each share of
WebChat was converted to 0.03 shares of Infoseek common stock. Share
information for 1996 and 1995 has not been restated due to WebChat amounts
being insignificant.
Pro Forma Net Loss Per Share - Pro forma net loss per share for the year
ended December 31, 1995 has been computed as described above and also gives
effect, even if antidilutive, to common equivalent shares from preferred stock
that automatically converted upon the closing of the Company's initial public
offering (using the as-if-converted method).
Use of Estimates in the Preparation of Financial Statements - 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 the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenue and expenses during the reporting
period. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
New Accounting Pronouncements - The Financial Accounting Standards Board
approved the new American Institute of Certified Public Accountants Statement of
Position, Software Revenue Recognition (SOP 97-2). SOP 97-2 will be effective
for the Company beginning in the first quarter of 1998. The Company does not
believe the adoption of SOP 97-2 will have a significant impact on its revenue
recognition policy.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income (SFAS No. 130) and Statement No. 131, Disclosures
About Segments of An Enterprise and Related Information (SFAS No. 131). SFAS
No. 130 establishes rules for reporting and displaying comprehensive income.
SFAS No. 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during 1998. The Company does not believe that the adoption of SFAS No. 130 or
SFAS No. 131 will have a material impact on the Company's results of operations,
cash flows, or financial position.
Reclassifications - Certain reclassifications, none of which affected net
loss, have been made to prior year's amounts in order to conform to the current
year's presentation.
2. BUSINESS COMBINATION
On April 17, 1998, the Company acquired WebChat in a tax-free reorganization in
which a wholly owned subsidiary of the Company was merged directly into WebChat.
The Company has exchanged approximately 316,000 shares of Infoseek Corporation
common stock and has reserved approximately 11,000 shares for WebChat options
assumed by the Company. Each share exchanged represents 0.03 share of common
stock of the Company for each share of the common, and preferred stock of
WebChat. Merger related expenses, which are not expected to be significant, will
be recorded in the second quarter 1998. The merger has been accounted for under
the pooling of interests method.
A reconciliation of net sales and net loss of the Company, as previously
reported, WebChat and combined for the year ended December 31, 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
Net revenue NET LOSS
----------- --------
<S> <C> <C>
Infoseek $34,603 $24,623
Webchat 479 1,939
------- -------
Combined $35,082 $26,562
======= =======
</TABLE>
11
<PAGE>
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SHORT-TERM INVESTMENTS COSTS GAINS LOSSES FAIR VALUE
- ---------------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Commercial paper $23,007 $ -- $ -- $23,007
Government agency notes 4,003 2 -- 4,005
Money market fund 1,106 -- -- 1,106
------- ---------- --------- -------
Total $28,116 $ 2 $ -- $28,118
======= ========== ========= =======
AT DECEMBER 31, 1996
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SHORT-TERM INVESTMENTS COSTS GAINS LOSSES FAIR VALUE
- ---------------------- ---------- ---------- --------- ----------
Commercial paper $27,588 $ -- $ -- $27,588
Government agency notes 15,279 -- -- 15,279
------- ---------- --------- -------
Total $42,867 $ -- $ -- $42,867
======= ========== ========= =======
</TABLE>
Realized gains and losses were insignificant during all periods presented.
4. OBLIGATIONS
In March 1997, the Company entered into a four year, $5,000,000 equipment term
loan facility. The loan bears interest at the bank's prime rate plus 0.25%
(8.75% at December 31, 1997). Under the terms of the agreement, the Company
grants a security interest in certain assets of the Company and must maintain
financial covenants including minimum tangible net worth and others based on
monthly cash balances with which the Company was in compliance as of December
31, 1997. Under the equipment term loan facility, the Company is restricted in
its ability to pay dividends. Interest only payments will be made during the
first 12 months and borrowings and interest will be repaid on a straight-line
basis over 36 months beginning in month 13 of the facility. As of December 31,
1997, there was approximately $5,000,000 outstanding against the term loan
facility.
In February 1997, WebChat entered into a three and one half year $300,000
equipment term loan facility. The loan bears interest at the bank's prime rate
plus 2.5% (11% at December 31, 1997). Under the terms of the facility, Webchat
grants a security interest in certain assets and is restricted in its ability to
pay cash dividends. Interest only payments will be made during the first six
months and principal and interest will be repaid on a straight-line basis over
36 months beginning in month seven of the facility. As of December 31, 1997,
there was approximately $265,000 outstanding against the term loan facility.
In 1996 and 1995, the Company entered into term loan agreements with a lending
institution under which the Company borrowed approximately $3,540,000 to finance
the purchase of equipment. Borrowings made under the agreement are due over 37
months, bear interest which ranges from 15.80% to 16.39%, and are secured by
certain assets of the Company. In connection with the 1996 loan agreement, the
Company paid a cash deposit of $693,000 to the lending institution which is
included in deposits and other assets on the balance sheet.
12
<PAGE>
Maturities under these agreements as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(In thousands)
<S> <C>
1998 $2,575
1999 2,344
2000 1,733
2001 416
------
$7,068
======
</TABLE>
5. COMMITMENTS
The Company leases its facilities under operating lease agreements which expire
at various dates through 2002. Total rent expense for the years ended December
31, 1997, 1996 and 1995 was $1,397,000, $379,000 and $86,000, respectively. In
January 1998, the Company signed an agreement to sublease approximately 20,500
square feet of its Sunnyvale, California facility. In connection with the
sublease agreement, the Company will receive future rent payments of
approximately $372,000 in 1998 and $300,000 in 1999. Minimum future rental
commitments under these leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(In thousands)
<S> <C>
1998 $ 2,128
1999 2,099
2000 2,089
2001 1,985
2002 1,712
-------
$10,013
=======
</TABLE>
Netscape
Historically, a large portion of the Company's traffic was derived through the
Web page of Netscape Communications Corporation ("Netscape"). In March 1996,
the Company entered into an agreement with Netscape, which provided that the
Company would be listed as a Premier Provider on Netscape's Web page for the
period from April 10, 1996 to March 31, 1997. This agreement with Netscape
provided for payments of up to an aggregate of $5,000,000 in cash and reciprocal
advertising ($3,500,000 in cash and $1,500,000 in reciprocal advertising) over
the course of the one-year term of the agreement. In March 1997, Infoseek
renewed its agreement with Netscape under terms that extended the current
contract through April 30, 1997 and thereafter provided for Infoseek to be one
of four premier providers displayed on Netscape's Web page for the period of May
1, 1997 through April 30, 1998. The renewed agreement with Netscape provides for
payments of up to an aggregate of $12,500,000 in cash and reciprocal advertising
($10,000,000 in cash and $2,500,000 in reciprocal advertising) over the term of
the agreement. During the year ended December 31, 1997 and 1996, the Company
recognized $9,583,000 and $3,750,000, respectively, of expense related to this
agreement. The payments to Netscape are being recognized ratably over the term
of the agreement. At December 31, 1997, the Company had approximately
$7,555,000 of cash commitment remaining in connection with this agreement, of
which $4,221,000 is included in accrued liabilities to service providers on the
December 31, 1997 balance sheet.
In July 1997, the Company entered into an agreement with Netscape whereby it was
designated as a premier provider of international search and navigational guide
services for the Netscape Net Search Program. Under the terms of the agreement,
the Company will provide services for 10 Netscape local Web sites. The
Company's agreement with Netscape provides for payments ranging from a minimum
of $666,000 ($400,000 in cash and $266,000 in reciprocal advertising) to a
maximum of $1,219,000 ($677,000 in cash and $542,000 in reciprocal advertising)
depending on the level of traffic delivered by Netscape. During the year ended
December 31, 1997, Netscape delivered traffic at the minimum level and as a
result the Company recognized sales and marketing expenses of approximately
$333,000 under this agreement. At December 31, 1997, the Company had a cash
commitment ranging from a
13
<PAGE>
minimum of $74,000 to a maximum of $351,000 depending on the level of traffic
delivered by Netscape in connection with this agreement (see also Note 15).
Contingencies
From time to time, the Company may be a part to litigation and claims incident
to the ordinary course of its business. Although the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on the Company's
financial position results of operations, or cash flows.
6. RESTRUCTURING AND OTHER CHARGES
During the second quarter of 1997, the Company recorded restructuring and other
charges of approximately $7,400,000, of which approximately $6,200,000 related
to a program to discontinue certain business arrangements, which were determined
to be non-strategic, and approximately $1,200,000 related to management changes.
Of these restructuring charges, approximately $5,000,000 involves cash outflows,
of which $3,100,000 has been completed as of December 31, 1997. Non-cash
restructuring charges of approximately $2,400,000 relate primarily to the write-
down of certain non-strategic business assets. There have been no material
changes to the restructuring plan or in the estimates of the restructuring
costs. As of December 31, 1997, the Company has approximately $1,900,000
remaining in its restructuring reserve, which is expected to be fully utilized
by mid 1998.
7. SHAREHOLDERS' EQUITY
Preferred Stock - On May 15, 1996, the Board of Directors authorized
5,000,000 shares of undesignated preferred stock. In connection with this
action, the Board has the authority to issue in one or more series and to fix
the rights, preferences, privileges, and restrictions thereof, without further
vote or action by the shareholders. No such shares have been issued to date.
Convertible Preferred Stock - Through May of 1996, the Company issued series
A, B, C, and E convertible preferred stock. A portion of the Series E
convertible preferred stock was redeemable at the request of the holder. On June
11, 1996 the Company completed its initial public offering and at that time all
outstanding shares of convertible preferred stock were converted into common
stock on a one-for-one basis.
Common Stock - On May 15, 1996, the Company's Shareholders approved a 3-for-4
reverse stock split of the Company's preferred and common stock. All
outstanding preferred, common and common equivalent shares in the accompanying
financial statements have been retroactively adjusted to give effect to this
reverse stock split. At the same time, the Board of Directors approved the
increase of authorized common stock to 60,000,000 shares.
Founders' Common Stock - The Company has the right, at any time within sixty
days after termination of a founder's employment or service, to repurchase
certain common shares at the price per share paid by the founder. The Company's
right to repurchase lapses with respect to 25% of the total number of shares
held by the founder, commencing twelve months after purchase, and in monthly
increments of 2.08% of the total number of shares thereafter. There were 7,000
and 1,101,000 common shares subject to repurchase by the Company at December 31,
1997 and 1996, respectively.
Shareholders' Notes Receivable - During 1997, 1996 and 1995, the Company
entered into agreements with certain officers and employees to sell
approximately 38,000, 412,000 and 372,000 shares, respectively, of the Company's
common stock in exchange for full recourse promissory notes. The shares are
subject to repurchase by the Company, and such repurchase options lapse in
monthly increments of 2.08% of the total number of shares purchased. At
December 31, 1997 and 1996, there were approximately 88,500 and 504,000 common
shares, respectively, subject to repurchase by the Company.
Warrants - During 1995, in connection with an equipment financing
transaction, the Company issued warrants to purchase 100,000 shares of Series C
convertible preferred stock at an exercise price of $0.80 per share. These
warrants are exercisable at any time through October 2000. As of December 31,
1997, all warrants had been exercised. The Company recorded additional interest
expense using the minimum value method to determine the value of the warrants.
14
<PAGE>
Common Stock Reserved For Future Issuance - Shares of common stock reserved
for future issuance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(In thousands)
<S> <C>
Preferred stock 5,000
Stock option plan 5,753
Employee stock purchase plan 143
------
10,896
======
</TABLE>
8. STOCK OPTION/STOCK ISSUANCE PLAN
The Company's Stock Option Plan (the "Predecessor Plan") provides for the grant
of incentive stock options and non statutory stock options to employees and
consultants of the Company at prices ranging from 85% to 110% (depending on the
type of grant) of the fair market value of the common stock on the date of grant
as determined by the Board of Directors.
In April 1996, the Board of Directors adopted the 1996 Stock Option/Stock
Issuance Plan (the "1996 Plan") which was approved by the Company's shareholders
on May 15, 1996. The 1996 Plan is intended to serve as the successor equity
incentive stock issuance program to the Predecessor Plan. Under the 1996 Plan,
7,225,000 shares of common stock have been authorized for issuance. The 1996
Plan is divided into three separate components: the Discretionary Option Grant
Program under which eligible individuals may be granted options to purchase
shares of common stock at an exercise price of not less than 85% of their fair
market value on the grant date; the Stock Issuance Program under which eligible
individuals may be issued shares of common stock directly through the purchase
of such shares at a price of not less than 85% of their fair market value at the
time of issuance or as a bonus tied to the performance of services; and the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible non employee Board members to purchase
shares of common stock at an exercise price equal to 100% of their fair market
value on the grant date.
The vesting and exercise provisions of the option grants are determined by the
Board of Directors. Options generally vest and become exercisable as to 25% of
the shares one year from the date of grant and the balance in monthly increments
over the subsequent three years of service. Options expire no later than seven
years from the date of grant. Options for the purchase of 583,000 and 845,000
shares were exercisable as of December 31, 1997 and 1996, respectively.
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting of Stock Issued to Employees" and related
interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board, Statement No. 123 (SFAS No. 123)
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. The
Company, under APB No. 25, generally does not recognize compensation expense as
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant.
Through December 31, 1997, the Company recorded aggregate deferred compensation
of $5,666,000 representing the difference between the grant price and the deemed
fair value of the Company's common stock granted during those periods. The
amortization of deferred compensation is being charged to operations and is
being amortized over the vesting period of the options, which is typically four
years. For December 31, 1997, 1996 and 1995, the amortized expenses were
$832,000 $1,346,000 and $44,000, respectively.
Pro forma information regarding net loss and loss per share is required by SFAS
No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of this statement. The fair value
for options granted during 1997 were estimated at the date of grant using the
Black-Scholes multiple option pricing model with the following weighted average
assumptions: risk-free interest rate ranging from 5.53% to 6.77%; a dividend
yield of 0.0%; a volatility factor of the expected market price of the Company's
common stock of .87; and a weighted-average expected life of the option of five
years for officers and four years for non officers. Subsequent to the Company's
initial public offering in June 1996, the fair value of options granted during
the balance of 1996 were estimated with the following weighted average
assumptions: risk-free interest rate ranging from 5.18% to 6.58% in 1996 and
5.34% to 7.03% in 1995; a dividend yield of 0.0%; a volatility factor of the
expected market price of the Company's common stock of .80; and a weighted-
average
15
<PAGE>
expected life of the option of five years for officers and four years for non
officers. The fair value for options granted prior to the Company's initial
public offering in June 1996 were estimated at the date of grant using the
minimum value method and have a volatility factor of zero.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
Pro forma net loss $30,919 $17,328 $3,442
Pro forma basic and diluted net loss per share $ 1.16 $ 0.80 $ 0.13
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
In July 1997, the Board of Directors authorized the repricing of options to
purchase 821,300 shares of common stock effective on July 23, 1997 to the then
fair market value of $6.13 per share. Under the terms of the repricing, the
repriced options maintain the same vesting and expiration terms, except they may
not be exercised until January 9, 1998. Executive officers, consultants and
members of the Board of Directors were not eligible to participate in the
repricing.
A summary of the Company's stock option activity and related information for the
years ended December 31 is as follows (amounts used in 1997 have been restated
to reflect the April 17, 1998 merger with WebChat):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- -------------------------------- -----------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------------- ----------------- -------------- ------------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
year 4,921 $ 2.10 3,074 $ 0.13 165 $0.07
Granted 4,418 $ 6.61 2,851 $ 3.98 3,438 $0.13
Exercised (1,456) $ 0.79 (54) $ 0.11 -- --
Canceled (3,725) $ 4.79 (957) $ 1.51 (529) $0.11
------- ------ ----- ------ ------ -----
Outstanding-end of year 4,158 $ 4.92 4,914 $ 2.10 3,074 $0.13
======= ===== ======
Exercisable at end of year 583 $ 2.63 845 $ 0.35 155 $0.13
Weighted-average fair
value of options granted
during the year $ 4.48 $ 3.79 $0.40
</TABLE>
Outstanding and Exercisable By Price Range as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- --------------------------------------------------
WEIGHTED NUMBER
NUMBER AVERAGE WEIGHTED EXERCISABLE AS OF WEIGHTED
OUTSTANDING AS OF REMAINING AVERAGE DECEMBER 31, AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- --------------------------- ------------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (YEARS) (IN THOUSANDS)
$ 0.00 - $ 5.00 2,724 7.9 $ 3.47 386 $0.51
$ 5.01 - $ 10.00 1,018 7.5 $ 6.64 197 $6.77
$ 10.01 - $ 15.00 416 9.8 $10.26 -- --
----- --- ------ --- -----
4,158 8.0 $ 2.10 583 $2.63
===== ===
</TABLE>
16
<PAGE>
9. EMPLOYEE STOCK PURCHASE PLAN
In April 1996, the Board of Directors adopted the 1996 Employee Stock Purchase
Plan (the "Purchase Plan"), which is designed to allow eligible employees of the
Company to purchase shares of common stock at semiannual intervals through their
periodic payroll deductions. An aggregate of 187,500 shares of common stock has
been reserved for the Purchase Plan of which 44,443 have been issued through
December 31, 1997. The Purchase Plan is implemented in a series of successive
offering periods, each with a maximum duration of 24 months. Eligible employees
can have up to 10% (up to a maximum of 1,000 shares per year) of their base
salary deducted that is to be used to purchase shares of the common stock on
specific 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. The Company does not recognize
compensation cost related to employee purchase rights under the Plan. To comply
with the pro forma reporting requirements of SFAS No. 123, compensation cost is
estimated for the fair value of the employees' purchase rights using the Black-
Scholes model with the following assumptions for those rights granted in 1997: a
risk free interest rate of 6.0%; dividend yield of 0.0%; expected volatility
factor of .87; an expected life of six months; and for those granted in 1996: a
risk free interest rate of 5.0%; dividend yield of 0.0%; expected volatility
factor of .80; an expected life of six months. The weighted average estimated
fair value of the Purchase Plan shares granted in 1997 was $4.05.
10. INCOME TAXES
Due to the Company's loss position, there was no provision for income taxes for
any period presented.
As of December 31, 1997, the Company has federal and state net operating loss
carry forwards of approximately $45,000,000 and $29,500,000, respectively. The
federal net operating loss carry forwards will expire in the years 2009 through
2012, and the state net operating loss carry forwards will expire in the years
1999 through 2002. The Company has federal and state research and
experimentation credits of approximately $300,000 each, that will expire in the
years 2009 through 2012. Utilization of the net operating losses and credits may
be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
--------- --------
<S> <C> <C>
(In thousands)
Deferred tax assets:
Net operating losses $ 17,448 $ 7,500
Research credit carry forwards 406 200
Accrued royalties 37 60
Other individually immaterial items 1,654 340
-------- -------
Total deferred tax assets 19,545 8,100
Valuation allowance (19,545) (8,100)
-------- -------
Total net deferred tax assets $ -- $ --
======== =======
</TABLE>
The change in the valuation allowance was a net increase of approximately
$6,409,000 and $1,030,000 for the years ended December 31, 1996 and 1995,
respectively.
17
<PAGE>
11. EMPLOYEE BENEFIT PLAN
In January 1996, the Company adopted a plan to provide retirement and incidental
benefits for its eligible employees, known as the Infoseek Corporation 401(k)
Plan ("The Plan"). As allowed under Section 401(k) of the Internal Revenue Code,
the Plan provides tax-deferred salary deductions for eligible employees.
Participants in the Plan may make salary deferrals of up to 20% of their annual
salary, limited by the maximum dollar amount allowed by the Internal Revenue
Code. The Company, at its discretion, may elect to make contributions to the
Plan on behalf of its eligible participants. The Company has made no such
contributions to date.
12. RELATED PARTY TRANSACTIONS
Bell Atlantic, with a representative on the Company's Board of Directors and
ownership of a substantial amount of the outstanding common stock of the Company
is considered a related party. In March 1996, the Company and Bell Atlantic
entered into a one-year agreement, which provided for the Company's display of
the Big Yellow logo within the Infoseek Service. According to the terms of the
agreement, Bell Atlantic agreed to pay to the Company up to an aggregate of
$4,600,000, in monthly payments, which amount would be decreased proportionately
if the number of impressions of the Big Yellow logo were below a specified
number. In February 1997, the Company signed an amendment with Bell Atlantic
extending the term of the original agreement, dated March 1996, through June
1998 in exchange for an additional $1,400,000, for a total of $6,000,000, in
monthly payments. The terms of conditions of the amended agreement are
substantially the same, except for elimination of certain exclusivity and
reimbursement provisions. The Company recognized revenue of $2,820,000 and
$1,882,000 in connection with this agreement during the year ended December 31,
1997 and 1996, respectively. Amounts receivable from and payable to such
related party were immaterial at December 31, 1997 and 1996.
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Numerator:
Net Loss: $(26,562) $(15,938) $(3,296)
-------- -------- -------
Numerator for basic and diluted loss per share $(26,562) $(15,938) $(3,296)
======== ======== =======
Weighted average of common shares 26,627 14,076 1,635
Conversion of preferred stock not included in shares
related to SEC Staff Accounting Bulletin 98 -- 8,044 13,900
-------- -------- -------
Denominator for basic and diluted loss per share 26,627 22,120 15,535
======== ======== =======
Basic and diluted loss per share
(pro forma in 1995) ($1.00) ($0.72) ($0.21)
======== ======== =======
</TABLE>
14. SUBSEQUENT EVENTS
In February 1998, the Company completed a follow-on public offering of 3,450,000
shares of Common Stock and received proceeds of approximately $43,015,000 net of
underwriting discounts, commissions and other offering costs.
18
<PAGE>
15. NETSCAPE AGREEMENT (UNAUDITED)
The agreement with Netscape expired on April 30, 1998 but was subsequently
extended through May 31, 1998. Recently, Netscape announced that they have
signed a two-year strategic partnership with Excite, Inc. ("Excite") to build
out content based channels jointly for Netscape's Web site and to create co-
branded search, thereby competing directly with the Company. Under terms of
this agreement, Netscape and Excite, will each serve as a premier provider, with
each receiving 25 percent of the net search rotation the percentage of pages
served to visitors who have not selected a preferred provider. The remaining 50
percent of premier provider rotations will be allocated or divided and sold
among the remaining navigational service providers (the allocated percent
rotation of premier provider rotations, which will be shared by other
navigational service providers, decreases to 25 percent in 1999).
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, 1997 JUNE 30, 1997 SEPT. 30, 1997 DEC. 31, 1997
--------------- -------------- --------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues $ 6,240 $ 7,786 $ 8,381 $12,675
Costs and expenses:
Hosting, content and website costs 1,297 1,533 1,567 1,922
Research and development 1,728 2,374 1,777 2,021
Sales and marketing 6,650 7,541 8,329 11,800
General and administrative 1,470 1,825 1,947 1,800
Restructuring and other charges -- 7,349 -- --
------- -------- ------- -------
Total costs and expenses $11,145 $ 20,622 $13,620 $17,543
------- -------- ------- -------
Operating loss (4,905) (12,836) (5,239) (4,868)
Net interest income 400 379 287 220
------- -------- ------- -------
Net loss $(4,505) $(12,457) $(4,952) $(4,648)
======= ======== ======= =======
Basic and diluted net loss per share $(0.17) $(0.47) $(0.19) $(0.17)
======= ======== ======= =======
THREE MONTHS ENDED
- ------------------------------------------
MARCH 31, 1996 JUNE 30, 1996 SEPT. 30, 1996 DEC. 31, 1996
-------------- ------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenues $ 1,731 $ 3,286 $ 4,007 $ 6,071
Operating expenses:
Hosting, content and website costs 690 729 827 948
Research and development 934 950 1,218 1,448
Sales and marketing 2,757 5,566 5,219 6,913
General and administrative 860 919 1,091 1,307
------- -------- ------- -------
Total costs and expenses 5,241 8,164 8,355 10,616
------- -------- ------- -------
Operating loss (3,510) (4,878) (4,348) (4,545)
Net interest income/(expense) (58) 155 652 594
------- -------- ------- -------
Net loss $(3,568) $ (4,723) $(3,696) $(3,951)
======= ======== ======= =======
Basic and diluted net loss per share $(0.18) $(0.25) $(0.15) $(0.16)
======= ======== ======= =======
</TABLE>
The 1997 quarterly amounts have been restated to reflect the April 17, 1998
merger with Webchat. The 1996 quarterly amounts have not been restated due to
WebChat amounts being insignificant.
19
<PAGE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF YEAR EXPENSES WRITE-OFFS END OF YEAR
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995......................................................................... -- $ 42 -- $ 42
1996......................................................................... $ 42 $651 $(343) $350
1997......................................................................... $350 $930 $(300) $980
</TABLE>
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: August 10, 1998 INFOSEEK CORPORATION
BY: /s/ Remo Canessa
Remo Canessa
Vice President of Finance & Chief
Financial Officer
(and Principal Accounting Officer)
21
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 333-05941 and 333-24471) pertaining to the 1996 Stock
Option/Stock Issuance Plan and Employee Stock Purchase Plan of Infoseek
Corporation of our report dated January 16, 1998, except for Note 14 as to which
the date is February 12, 1998 and Note 2 as to which the date is April 17, 1998,
relating to the consolidated financial statements and schedule of Infoseek
Corporation as of December 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997 included in this Current Report (Form 8-K/A)
of Infoseek Corporation dated April 17, 1998.
/s/ ERNST & YOUNG LLP
San Jose, California
August 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,323
<SECURITIES> 28,116
<RECEIVABLES> 7,901
<ALLOWANCES> (980)
<INVENTORY> 0
<CURRENT-ASSETS> 39,008
<PP&E> 18,783
<DEPRECIATION> (8,295)
<TOTAL-ASSETS> 51,489
<CURRENT-LIABILITIES> 19,990
<BONDS> 0
0
0
<COMMON> 76,000
<OTHER-SE> (48,994)
<TOTAL-LIABILITY-AND-EQUITY> 51,489
<SALES> 35,082
<TOTAL-REVENUES> 35,082
<CGS> 6,319
<TOTAL-COSTS> 56,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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</TABLE>
