EXHIBIT 13.1
PORTIONS OF THE 1996 ANNUAL REPORT TO SHAREHOLDERS
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
1996 1995*
STATEMENTS OF OPERATIONS DATA:
Net revenues $ 19,073,000 $ 1,363,000
Gross profit 15,997,000 1,180,000
Sales and marketing expenses 13,825,000 738,000
Product development expenses 4,461,000 242,000
General and administrative expenses 4,516,000 880,000
Net loss (2,334,000) (634,000)
Net loss per share $ (0.09) $ (0.03)
Shares used in computing net loss per share 25,444,000 22,541,000
BALANCE SHEETS DATA:
Cash, cash equivalents, and short and
long-term investments $102,302,000 $ 5,297,000
Working capital 89,885,000 5,264,000
Total assets 110,255,000 6,298,000
Shareholders' equity $102,075,000 $ 5,450,000
* PERIOD COMPRISED OF ONLY TEN MONTHS FROM MARCH 5, 1995 (INCEPTION) THROUGH
DECEMBER 31, 1995.
FINANCIAL INFORMATION BY QUARTER
FIRST SECOND THIRD FOURTH
(UNAUDITED) QUARTER QUARTER QUARTER QUARTER
1996
Net revenues $1,733,000 $ 3,274,000 $ 5,515,000 $8,551,000
Gross profit 1,566,000 2,754,000 4,477,000 7,200,000
Net income (loss) 81,000 (1,366,000) (1,145,000) 96,000
Net income (loss) per share $ 0.00 $ (0.05) $ (0.04) $ 0.00
1995
Net revenues - $ - $ 288,000 $1,075,000
Gross profit - (26,000) 243,000 963,000
Net income (loss) - (355,000) (371,000) 92,000
Net income (loss) per share - $ (0.02) $ (0.02) $ 0.01
THE SECOND QUARTER OF 1995 INCLUDES THE COMPANY'S RESULTS FOR THE PERIOD FROM
MARCH 5, 1995 (INCEPTION) THROUGH JUNE 30, 1995.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AND THE
RISKS DISCUSSED UNDER THE CAPTION, "RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 (A COPY OF WHICH IS AVAILABLE
UPON REQUEST FROM THE COMPANY).
OVERVIEW
Yahoo! offers branded Internet navigational services that are among the most
widely used guides to information and discovery on the World Wide Web (the
"Web"). From March 5, 1995 (Inception) to December 31, 1996, the Company's
operating activities related primarily to recruiting personnel, raising capital,
purchasing operating assets, performing product development and investing in
sales and marketing programs. The Company commenced selling advertisements on
its Web pages and recognized its initial revenues in August 1995.
The Company's revenues are derived principally from the sale of
advertisements on short-term contracts. The Company's standard rates for
advertising currently range from $0.02 to $0.06 per impression. To date, the
duration of the Company's advertising commitments has ranged from one week to
one year. Advertising revenues are recognized ratably in the period in which
the advertisement is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include guarantees of minimum number of "impressions," or
times that an advertisement appears in pages viewed by users of YAHOO!. To the
extent minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until the remaining guaranteed
impression levels are achieved. Deferred revenue is comprised of billings in
excess of recognized revenue relating to advertising contracts.
The Company has an extremely limited operating history, and its prospects
are subject to the risks, expenses, and difficulties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. To address these risks, the Company must, among other things,
continue to respond to competitive developments, continue to develop and extend
the "Yahoo!" brand, attract, retain, and motivate qualified personnel, implement
and successfully execute its advertising sales strategy, develop and market
additional media properties, and develop and upgrade its technologies. There
can be no assurance that the Company will be successful in addressing such
risks. As of December 31, 1996, the Company had an accumulated deficit of
$2,968,000. The extremely limited operating history of the Company makes the
prediction of future results of operations difficult or impossible and,
therefore, the recent revenue growth experienced by the Company should not be
taken as indicative of the rate of revenue growth, if any, that can be expected
in the future. The Company believes that period to period comparisons of its
operating results are not meaningful and the results for any period should not
be relied upon as an indication of future performance. Although the Company
reported a nominal profit for the quarter ended December 31, 1996, the Company
plans to significantly increase its operating expenses to expand its sales and
marketing operations, to fund greater levels of product development, and to
develop and
18
commercialize additional media properties. As a result of these factors, there
can be no assurance that the Company will not incur significant losses on a
quarterly and annual basis for the foreseeable future.
As a result of the Company's extremely limited operating history, the
Company does not have historical financial data for any significant period of
time on which to base planned operating expenses. The Company's expense levels
are based in part on its expectations concerning future revenue and to a large
extent are fixed. Accordingly, the cancellation or deferral of a small number
of advertising contracts or inability to achieve contractual levels of
impressions could have a material adverse effect on the Company's business,
operating results, or financial condition. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
and any significant shortfall in revenue in relation to the Company's
expectations would have an immediate adverse effect on the Company's business,
operating results, and financial condition. In addition, the Company plans to
significantly increase its operating expenses to expand its sales and marketing
operations, to fund greater levels of product development, and to develop and
commercialize additional media properties. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results, and financial condition will be materially and
adversely affected.
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside the Company's
control. These factors include the level of usage of the Internet, demand for
Internet advertising, seasonal trends in Internet usage and advertising
placements, the level of user traffic on YAHOO! and the Company's other online
media properties, the advertising budgeting cycles of individual advertisers,
the amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the introduction of new products or
services by the Company or its competitors, pricing changes in the industry,
technical difficulties with respect to the use of current and planned YAHOO!
properties, general economic conditions, and economic conditions specific to the
Internet and online media. As a strategic response to changes in the
competitive environment, the Company may from time to time make certain pricing,
service, or marketing decisions or acquisitions that could have a material
adverse effect on the Company's business, results of operations, and financial
condition. The Company also expects that, in the future, it will experience
seasonality in its business with advertising impressions (and therefore
revenues) being lower during the summer and year-end vacation and holiday
periods, when usage of the Web and the Company's services decline.
Additionally, seasonality may also affect the amount of customer advertising
dollars placed with the Company in the first and third quarters of a calendar
year. Due to all of the foregoing factors, in some future quarter the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's Common Stock would
likely be materially and adversely affected.
Because the Company was engaged primarily in product development during the
period from inception (March 5, 1995) to December 31, 1995, and only recognized
a comparatively insignificant amount of revenues during this period, and because
of the significant growth in operating expenses from such period, as compared to
the year ended December 31, 1996, the Company believes that a comparison of
operating results for the period from inception (March 5, 1995) to December 31,
1995 versus the year ended December 31, 1996 is not meaningful.
19
RESULTS OF OPERATIONS
NET REVENUES. Net revenues were $19,073,000 for the year ended December 31,
1996. For the quarter ended December 31, 1996, net revenues were $8,551,000, an
increase of 55% from the third quarter ended September 30, 1996 due primarily to
an increase in the number of advertisers from 340 in the quarter ended September
30, 1996 to 550 in the quarter ended December 31, 1996. Many of the Company's
customers purchase advertisements on a short-term basis. There can be no
assurance that customers will continue to purchase advertising on the Company's
Web pages. During the year ended December 31, 1996, SOFTBANK Corporation, a 36%
shareholder of the Company, purchased directly and through SOFTBANK affiliates
(including companies in which SOFTBANK has invested) $2,075,000 of advertising
at rates which are comparable with other large customers.
COST OF REVENUES. Cost of revenues consists of the expenses associated with the
production and usage of the Company's online navigational guides. These costs
primarily consist of fees paid to third parties for content included in the
guides, Internet connection charges, equipment depreciation, and compensation.
Cost of revenues were $3,076,000 for the year ended December 31, 1996, or 16% of
net revenues. For the quarter ended December 31, 1996, cost of revenues were
$1,351,000, or 16% of net revenues. For the quarter ended September 30, 1996,
cost of revenues were $1,038,000, or 19% of net revenues. The $313,000 increase
in cost of revenues from the quarter ended September 30, 1996 was primarily
attributable to an increase in the quantity of content available on the
Company's online navigational guide YAHOO! and other Internet navigational
services, and increased usage of YAHOO! branded properties and the Company's
other Internet navigational services. The Company anticipates that its content
and Internet connection expenses will increase with the quantity and quality of
content available on the Company's Internet navigational services, and increased
usage of Company's Internet navigational services. As measured in page views
(defined as electronic page displays), the Company delivered an average of over
20 million page views per day in December 1996, compared with an average of
approximately 6 million page views per day in February 1996. The Company
anticipates that its content and Internet connection expenses as a percentage of
revenue will increase for the foreseeable future, resulting in lower gross
margins as a percentage of revenue.
OPERATING EXPENSES. The Company's operating expenses have increased
significantly since the Company's inception. This trend reflects the costs
associated with the formation of the Company, the development of infrastructure,
the marketing and promotion of the Company's brand name, and increased efforts
to commercialize the Company's products and services. The Company believes that
continued expansion of its operations is essential to enhance and extend the
YAHOO! main site, establish branded properties in targeted markets, and expand
the Company's user and advertising base. As a consequence, the Company intends
to continue to significantly increase expenditures in all operating areas.
SALES AND MARKETING. Sales and marketing expenses were $13,825,000 for the year
ended December 31, 1996, or 72% of net revenue. For the quarter ended December
31, 1996, sales and marketing expenses were $5,660,000, or 66% of net revenue as
compared to $4,015,000, or 73% of net revenue for the quarter ended September
30, 1996. The increase of $1,645,000 from the quarter ended September 30, 1996
is primarily attributable to increased commissions associated with the
$3,036,000 increase in revenue and additional compensation expense associated
with increased direct sales personnel.
20
Sales and marketing expenses consist primarily of Netscape Preferred Provider
costs, advertising commissions, sales commissions, compensation, television
advertising, public relations, travel, and costs of promotional materials. The
Company anticipates that sales and marketing expenses will increase in future
periods in absolute dollars as it continues to pursue an aggressive brand
building strategy and continues to build a direct sales organization. In
addition, in March 1996, the Company entered into an agreement with Netscape
whereby it was designated as one of five "Premier Providers." Under the terms
of this agreement, the Company is required to make payments totaling $5,000,000
over the course of the one year term of this agreement, which commenced in mid-
April 1996. There can be no assurance that Netscape will offer such a program
in April 1997 or, if so, they materially increase the fee. In the future, other
leading Web sites, browser providers, and other distribution channels may also
require payments or other consideration in return for listing YAHOO! or other
online properties of the Company.
PRODUCT DEVELOPMENT. Product development expenses were $4,461,000 for the year
ended December 31, 1996, or 23% of net revenue. For the quarter ended December
31, 1996, product development expenses were $1,732,000, or 20% of net revenue as
compared to $1,362,000, or 25% of net revenue for the quarter ended September
30, 1996. The increase of $370,000 from the quarter ended September 30, 1996 is
primarily attributable to the development of new online media properties and the
addition of engineers. Product development expenses consist primarily of
employee compensation relating to developing and enhancing the features and
functionality of YAHOO! and other online media properties. To date, all product
development costs have been expensed as incurred. The Company believes that
significant investments in product development are required to remain
competitive. As a consequence, the Company intends to incur increased product
development expenditures in absolute dollars in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $4,516,000
for the year ended December 31, 1996, or 24% of net revenue. For the quarter
ended December 31, 1996, general and administrative expenses were $1,594,000, or
19% of net revenue as compared to $1,673,000, or 30% of net revenue for the
quarter ended September 30, 1996. The decrease of $79,000 from the quarter
ended September 30, 1996 is primarily attributable to a lower level of
professional services being provided. General and administrative expenses
consist primarily of compensation and fees for professional services. The
Company believes that the absolute dollar level of general and administrative
expenses will increase in future periods, as a result of increased staffing,
fees for professional services, and costs associated with registering the
Company's trademarks in various countries.
INVESTMENT INCOME, NET. Investment income, net of investment expense, was
$3,931,000 for the year ended December 31, 1996. For the quarter ended December
31, 1996, investment income was $1,508,000 as compared to $1,262,000 for the
quarter ended September 30, 1996. The increase of $246,000 from the quarter
ended September 30, 1996 is primarily attributable to an higher average rate of
return on investments. Investment income in future periods may fluctuate as a
result of fluctuations in average cash balances maintained by the Company and
changes to market rates for investments.
MINORITY INTERESTS IN LOSSES FROM OPERATIONS OF CONSOLIDATED SUBSIDIARIES.
During the second half of 1996, the Company entered into two separate joint
venture agreements (Yahoo! Marketplace and Yahoo! Europe) whereby the Company
holds a majority interest in the subsidiaries under both agreements. Minority
interests in losses from operations of these consolidated subsidiaries were
$540,000 for the year ended December 31, 1996. For the quarter ended
December 31, 1996, minority
21
interests in losses from operations of consolidated subsidiaries were $374,000
as compared to $166,000 for the quarter ended September 30, 1996. The increase
of $208,000 from the quarter ended September 30, 1996 is attributable to
increased losses from operations of consolidated subsidiaries. Because these
subsidiaries are still in the early stages of development, minority interests in
losses from operations of consolidated subsidiaries will continue to fluctuate
in future periods as do the results from consolidated subsidiaries. When and if
the consolidated subsidiaries become profitable, the minority interests
elimination on the statement of operations will have an adverse effect on the
Company's net result.
INCOME TAXES. No provision for federal and state income taxes has been recorded
as the Company has incurred net operating losses through December 31, 1996. At
December 31, 1996, the Company had approximately $5,900,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards expire in 2010. Under the Tax Reform
Act of 1986, the amounts of and benefits from net operating losses carried
forward may be impaired or limited in certain circumstances. Events which may
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% over a three year period. At December 31, 1996, the
effect of such limitation, if imposed, is not expected to be material.
LIQUIDITY AND CAPITAL RESOURCES
Yahoo! invests predominantly in instruments that are highly liquid, of high
quality investment grade, and predominantly have maturities of less than one
year with the intent to make such funds readily available for operating
purposes. For the year ended December 31, 1996, cash provided by operating
activities of $436,000 was primarily due to increases in accrued liabilities and
expenses of $3,975,000, deferred revenues of $1,055,000, accounts payable of
$972,000, and amounts due to related parties of $948,000, offset by increases in
accounts receivable of $3,833,000 and prepaid expenses of $353,000, and the net
loss of $2,334,000.
Capital expenditures for the year ended December 31, 1996 totaled
$2,427,000 and are expected to significantly increase in future periods.
Capital expenditures have generally been comprised of purchases of computer
hardware and software as well as leasehold improvements related to leased
facilities.
For the year ended December 31, 1996, cash provided by financing activities
of $99,725,000 was primarily due to the March 1996 issuance of 5,100,000 shares
of Mandatorily Redeemable Convertible Series C Preferred Stock for aggregate
proceeds of $63,750,000 and the April 1996 initial public offering of 2,990,000
shares of Common Stock for net proceeds of $35,043,000. Additionally, proceeds
of $1,050,000 were received from minority investors.
The Company currently has no material commitments other than those under
operating leases. The Company has experienced a substantial increase in its
capital expenditures and operating lease arrangements in 1996 consistent with
increased staffing and anticipates that this will continue in the future. At
December 31, 1996, the Company had one payment remaining under the agreement
with Netscape totaling $1,500,000. Management believes existing cash and
investments will be sufficient to meet the Company's operating requirements for
at least the next twelve months. Thereafter, the Company may sell additional
equity or debt securities or obtain credit facilities. The sale of additional
equity or convertible debt securities will result in additional dilution to the
Company's shareholders.
22
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 31,865,000 $5,297,000
Short-term investments in marketable securities 60,689,000 --
Accounts receivable, net of allowance of
$600,000 and $82,000 4,648,000 815,000
Prepaid expenses 353,000 --
------------ ----------
Total current assets 97,555,000 6,112,000
Long-term investments in marketable securities 9,748,000 --
Property and equipment, net 2,223,000 186,000
Investment in unconsolidated joint venture 729,000 --
------------ ----------
$110,255,000 $6,298,000
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 992,000 $ 20,000
Accrued expenses and other current liabilities 4,367,000 520,000
Deferred revenue 1,229,000 174,000
Due to related parties 1,082,000 134,000
------------ ----------
Total current liabilities 7,670,000 848,000
Commitments and contingencies (Note 7)
Minority interests in consolidated subsidiaries 510,000 --
Shareholders' equity:
Convertible Preferred Stock, $0.001 par value; none
and 7,750,072 shares authorized; none and
7,738,072 issued and outstanding -- 8,000
Preferred Stock, $0.001 par value; 10,000,000 and no
shares authorized; none issued and outstanding -- --
Common Stock, $0.001 par value; 150,000,000 and
50,000,000 shares authorized; 26,577,175 and
10,252,726 issued and outstanding 17,000 --
Additional paid-in capital 105,026,000 6,076,000
Accumulated deficit (2,968,000) (634,000)
------------ ----------
Total shareholders' equity 102,075,000 5,450,000
------------ ----------
$110,255,000 $6,298,000
------------ ----------
------------ ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
23
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 5, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1996 1995
Net revenues $19,073,000 $1,363,000
Cost of revenues 3,076,000 183,000
----------- ----------
Gross profit 15,997,000 1,180,000
Operating expenses:
Sales and marketing 13,825,000 738,000
Product development 4,461,000 242,000
General and administrative 4,516,000 880,000
----------- ----------
Total operating expenses 22,802,000 1,860,000
----------- ----------
Loss from operations (6,805,000) (680,000)
Investment income, net 3,931,000 46,000
Minority interests in losses from operations
of consolidated subsidiaries 540,000 -
----------- ----------
Loss before income taxes (2,334,000) (634,000)
Provision for income taxes - -
----------- ----------
Net loss $(2,334,000) $(634,000)
----------- ----------
----------- ----------
Net loss per share ($0.09) ($0.03)
----------- ----------
----------- ----------
Weighted average common shares and equivalents 25,444,000 22,541,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Convertible
Preferred Stock Common Stock Additional
-------------------------- -------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
Issuance of Common Stock
in connection with the
formation of the Company -- $ -- 10,000,000 $ -- $ -- $ -- $ --
Issuance of Series A
Convertible Preferred
Stock at $0.20 per share 5,200,000 5,000 -- -- 1,018,000 -- 1,023,000
Issuance of Common Stock -- -- 63,326 -- 1,000 -- 1,000
Issuance of options to
consultants in exchange
for services -- -- -- -- 75,000 -- 75,000
Issuance of Series B
Convertible Preferred
Stock at $1.97 per share 2,538,072 3,000 -- -- 4,978,000 -- 4,981,000
Issuance of Common Stock
pursuant to exercise of
options -- -- 189,400 -- 4,000 -- 4,000
Net loss -- -- -- -- -- (634,000) (634,000)
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1995 7,738,072 8,000 10,252,726 -- 6,076,000 (634,000) 5,450,000
Issuance of Mandatorily
Redeemable Convertible
Series C Preferred Stock
at $12.50 per share 5,100,000 5,000 -- -- 63,745,000 -- 63,750,000
Issuance of Common Stock,
net of issuance costs of
$1,192,000 -- -- 2,990,000 3,000 35,040,000 -- 35,043,000
Conversion Convertible
Preferred Stock to Common
Stock (12,838,072) (13,000) 12,838,072 13,000 -- -- --
Issuance of Common Stock
pursuant to exercise of
options -- -- 496,377 1,000 9,000 -- 10,000
Compensation expense on
option grants -- -- -- -- 156,000 -- 156,000
Net loss -- -- -- -- -- (2,334,000) (2,334,000)
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- $ -- 26,577,175 $17,000 $105,026,000 $(2,968,000) $102,075,000
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 5, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,334,000) $ (634,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 390,000 133,000
Compensation expense on stock option grants 156,000 -
Minority interests in losses from operations of
consolidated subsidiaries (540,000) -
Changes in assets and liabilities:
Accounts receivable, net (3,833,000) (815,000)
Prepaid expenses (353,000) -
Accounts payable 972,000 20,000
Accrued expenses and other current liabilities 3,975,000 392,000
Deferred revenue 1,055,000 174,000
Due to related parties 948,000 134,000
------------- ----------
Net cash provided by (used in) operating activities 436,000 (596,000)
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (2,427,000) (107,000)
Purchases of investments in marketable securities (113,285,000) -
Proceeds from sales and maturities of investments
in marketable securities 42,848,000 -
Investment in unconsolidated joint venture (729,000) -
------------- ----------
Net cash used by investing activities (73,593,000) (107,000)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net 35,053,000 5,000
Proceeds from issuance of Convertible Preferred Stock 63,750,000 6,004,000
Proceeds from minority investors 1,050,000 -
Repayment of lease obligations (128,000) (9,000)
------------- ----------
Net cash provided by financing activities 99,725,000 6,000,000
------------- ----------
Net change in cash and cash equivalents 26,568,000 5,297,000
Cash and cash equivalents at beginning of period 5,297,000 -
------------- ----------
Cash and cash equivalents at end of period $ 31,865,000 $5,297,000
------------- ----------
------------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ - $ 4,000
------------- ----------
------------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
Acquisition of property and equipment through
capital leases $ - $ 137,000
------------- ----------
------------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Yahoo! Inc. (the "Company") develops and maintains YAHOO!, a
branded Internet navigational service that is among the most widely used guides
for information and discovery on the World Wide Web. The Company was
incorporated in California on March 5, 1995 and commenced operations on that
date. The Company conducts its business within one industry segment.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Yahoo! Inc. and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The equity and
loss from operations attributable to the minority shareholder interests which
related to the Company's foreign and domestic subsidiaries, are shown separately
in the balance sheets and statements of operations, respectively. Losses in
excess of the minority interest equity are charged against the Company.
Investments in entities owned 20% or more but less than majority owned and not
otherwise controlled by the Company are accounted for under the equity method.
The consolidated financial statements are presented in accordance with the
accounting principles generally accepted in the United States.
REVENUE RECOGNITION. The Company derives substantially all of its revenues from
the sale of advertisements on short-term contracts. The Company's standard
rates for advertising currently range from $0.02 to $0.06 per impression. To
date, the duration of the Company's advertising commitments has ranged from one
week to one year. Advertising revenues are recognized ratably over the period
in which the advertisement is displayed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include guarantees of minimum number of
"impressions," or times that an advertisement appears in page views downloaded
by users of YAHOO!. To the extent minimum guaranteed impressions are not met,
the Company defers recognition of the corresponding revenues until guaranteed
impression levels are achieved. Deferred revenue is comprised of billings in
excess of recognized revenue relating to advertising contracts. During 1996,
SOFTBANK, a 36% shareholder of the Company, and its related companies accounted
for approximately 12% of net revenues. During the period from March 5, 1995
(Inception) to December 31, 1995, another company accounted for approximately
11% of net revenues. International revenues were not material in any period
presented. License and royalty revenues are recognized as amounts are earned
under the terms of applicable agreements, provided no significant Company
obligations exist and collection of the resulting receivable is probable.
Revenues from barter transactions are recognized during the period in which
the advertisements are displayed in YAHOO!. Barter transactions are recorded at
the lower of estimated fair value of the goods or services received or the
estimated fair value of the advertisements given. To date, barter transactions
have been insignificant.
27
PRODUCT DEVELOPMENT. Costs incurred in the classification and organization of
listings within YAHOO! and the development of new products and enhancements to
existing products are charged to expense as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the
working model and the point at which the product is ready for general release
have been insignificant.
ADVERTISING COSTS. Advertising costs are recorded as expense the first time an
advertisement appears. Advertising expense totaled $3,801,000 for 1996 and
$126,000 for the period from March 5, 1995 (Inception) through December 31,
1995.
CASH, CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS. The Company invests
certain of its excess cash in debt instruments of the U.S. Government, its
agencies, and high-quality corporate issuers. All highly liquid instruments
with an original maturity of three months or less are considered cash
equivalents; those with original maturities greater than three months and
current maturities less than twelve months from the balance sheet date are
considered short-term investments, and those with maturities greater than twelve
months from the balance sheet date are considered long-term investments.
At December 31, 1996, short-and long-term investments were classified as
available-for-sale and consisted of 64% corporate debt securities, 26% debt
securities of the U.S. Government and its agencies, and 10% foreign debt
securities. All long-term investments are due within five years. At December
31, 1996, the fair value of the investments approximated cost. Fair value is
determined based upon the quoted market prices of the securities as of the
balance sheet date. At December 31, 1995, the Company did not hold any short or
long-term investments.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject
the Company to significant concentration of credit risk consist primarily of
cash, cash equivalents, short and long-term investments, and accounts
receivable. Substantially all of the Company's cash, cash equivalents, short
and long-term investments are managed by two financial institutions. Accounts
receivable are typically unsecured and are derived from revenues earned from
customers primarily located in the United States. The Company performs ongoing
credit evaluations of its customers and maintains reserves for potential credit
losses; historically, such losses have been immaterial and within management's
expectations. At December 31, 1996, no one customer accounted for 10% or more
of the accounts receivable balance. At December 31, 1995, two customers
accounted for a total of 21% of the accounts receivable balance.
PROPERTY AND EQUIPMENT. Property and equipment, including leasehold
improvements, are stated at cost. Depreciation is computed using the straight-
line method over the estimated useful lives of the assets, generally two to five
years.
28
INCOME TAXES. Income taxes are computed using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws.
FOREIGN CURRENCY. The functional currency of the Company's subsidiaries in the
United Kingdom, Germany, and France is the local currency. The financial
statements of these subsidiaries are translated to United States dollars using
year-end rates of exchange for assets and liabilities, and average rates for the
year for revenues, costs, and expenses. Translation gains and losses, which
were insignificant at December 31, 1996, are deferred and accumulated as a
component of shareholders' equity. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations
and were not significant during the periods presented.
NET LOSS PER SHARE. Net loss per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable upon
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon the exercise of stock options and warrants (using the
treasury stock method or the modified treasury stock method, whichever applies).
Common equivalent shares are excluded from the computation if their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletin, the convertible preferred stock (using the if-
converted method) and common equivalent shares (using the treasury stock method
and the assumed public offering price) issued subsequent to March 5, 1995
through April 11, 1996 have been included in the computation as if they were
outstanding for all periods presented.
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,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
RECLASSIFICATION. Certain prior period balances have been reclassified to
conform with current period presentation.
BENEFIT PLAN. The Company maintains a 401(k) Profit Sharing Plan (the "401(k)
Plan") for its full time employees. Each participant in the 401(k) Plan may
elect to contribute from 1% to 17% of his or her annual compensation to the
401(k) Plan. The Company matches employee contributions at a rate of 25%.
Employee contributions are fully vested, whereas vesting in matching Company
contributions occurs at a rate of 33.3% per year of employment. All
contributions to the 401(k) Plan are invested at the employee's discretion in
eight separate funds. During 1996, the Company's contribution amounted to
$81,000, all of which was expensed.
29
NOTE 2 - BALANCE SHEET COMPONENTS
DECEMBER 31,
1996 1995
Property and equipment:
Computers and equipment $1,520,000 $239,000
Furniture and fixtures 861,000 2,000
Leasehold improvements 290,000 3,000
---------- --------
2,671,000 244,000
Less: accumulated depreciation (448,000) (58,000)
---------- --------
$2,223,000 $186,000
---------- --------
---------- --------
Accrued expenses and other current liabilities:
Accrued vacation, wages, and other
employee benefits $ 894,000 $110,000
Accrued professional service expenses 706,000 48,000
Accrued content costs 554,000 --
Other 2,213,000 362,000
---------- --------
$4,367,000 $520,000
---------- --------
---------- --------
NOTE 3 - RELATED PARTY TRANSACTIONS
During July 1995, the Company entered into an agreement with a holder of
approximately 2% of the Company's Common Stock at December 31, 1996 whereby the
shareholder granted the Company a license for trademarks and intellectual
property rights for inclusion in YAHOO!. The Company agreed to share with the
shareholder certain advertising revenue earned from YAHOO! pages where the
shareholder's data appears. The amount of advertising revenue allocated to the
shareholder varies based upon the location of pages within YAHOO! and the level
of customer usage of the supplied data. During 1996, the Company paid
approximately $375,000 to the shareholder under this agreement and the amount
due to the shareholder at December 31, 1996 was $186,000. During the period
from March 5, 1995 (Inception) through December 31, 1995, no amount was paid to
the shareholder under the agreement and the amount due to the shareholder at
December 31, 1995 was $35,000. The shareholder also pays certain fees for the
maintenance of YAHOO! pages where its data appears. During 1996 and the period
from March 5, 1995 (Inception) through December 31, 1995, the Company recognized
$20,000 and $30,000, respectively, of maintenance revenue relating to the
agreement.
During 1996, the Company recognized net revenues of approximately $2,075,000
on advertising contracts placed by SOFTBANK and its related companies, a 36%
shareholder of the Company at December 31, 1996. Contracted prices on these
orders are comparable to those given to other major customers of the Company.
During 1996, the Company also
30
recognized publication revenues from a subsidiary of SOFTBANK of approximately
$200,000 and development and licensing revenues of approximately $85,000.
Additionally, a sales representative firm which is a subsidiary of SOFTBANK has
provided services to the Company totaling approximately $2,300,000 and $177,000
during 1996 and 1995, respectively. The amount due to the firm for services
rendered totaled $896,000 at December 31, 1996 and $99,000 at December 31, 1995.
Additionally, the Company entered into two separate joint venture agreements
with SOFTBANK during 1996 (see Note 4 below).
NOTE 4 - JOINT VENTURES
YAHOO! JAPAN. During April 1996, the Company signed a joint venture agreement
with SOFTBANK, a 36% shareholder of the Company at December 31, 1996, whereby
Yahoo! Japan Corporation was formed to establish and manage in Japan a Japanese
version of the YAHOO! Internet Guide, develop related Japanese on-line
navigational services, and conduct other related business. The Company's
ownership interest in the joint venture is 40% and is being accounted for using
the equity method. At December 31, 1996, the Company's investment in the joint
venture was $729,000, which was also the Company's initial investment. There is
no commitment on either company's behalf to invest additional cash in the
joint venture.
YAHOO! MARKETPLACE. On August 26, 1996, the Company entered into agreements
with Visa International Service Association (VISA) and another party to
establish a new company, Yahoo! Marketplace, to develop and operate a
navigational service focused on information and resources for the purchase of
consumer products and services over the Internet. The parties have agreed to
invest a total of up to $3,000,000 in proportion to their respective equity
interests, and as of December 31, 1996, had invested $1,000,000. The Company
currently owns approximately 55% of the equity interest in Yahoo! Marketplace,
and therefore, has consolidated the financial results. Additionally, the
Company holds two options to acquire a further 9% interest in Yahoo! Marketplace
for $3,600,000 and $7,000,000 which expire in August 1997 and August 1998,
respectively. During 1996, Yahoo! Marketplace incurred losses from operations
of $637,000. At December 31, 1996, $163,000 of the minority interest on the
balance sheet represents VISA's interest in the net assets of Yahoo!
Marketplace. In connection with this agreement, the Company has issued to VISA
for a purchase price of $50,000 a warrant to purchase 350,000 shares of the
Company's Common Stock at an exercise price of $12.50 per share, which warrant
is exercisable during a two year period commencing in March 1997.
YAHOO! EUROPE. On November 1, 1996, the Company signed a joint venture
agreement with a subsidiary of SOFTBANK, a 36% shareholder of the Company at
December 31, 1996, whereby separate companies were formed in Germany, the United
Kingdom, and France to establish and manage versions of the YAHOO! Internet
Guide for Germany, the United Kingdom, and France, develop related on-line
navigational services, and conduct other related business. The parties have
agreed to invest a total of up to $4,000,000 in proportion to their respective
equity interests, and as of December 31, 1996,
31
had invested $2,000,000. The Company has a majority share of approximately 70%
in each of the Yahoo! Europe entities, and therefore, has consolidated the
financial results. During 1996, Yahoo! Europe incurred losses from operations
of $842,000. At December 31, 1996, $347,000 of the minority interest on the
balance sheet represents SOFTBANK's interest in the net assets of Yahoo! Europe.
NOTE 5 - SHAREHOLDERS' EQUITY
STOCK SPLIT. On March 6, 1996, the Board of Directors authorized a 2-for-1
stock split (the "Stock Split") of the Company's Preferred Stock and Common
Stock. All references to the number of shares of Preferred Stock, Common Stock,
and per share amounts have been retroactively restated in the accompanying
financial statements to reflect the effect of the Stock Split.
COMMON STOCK. On April 11, 1996, the Company completed its initial public
offering of 2,990,000 shares of its Common Stock. Net proceeds to the Company
aggregated approximately $35,043,000. As of the closing date of the offering,
all of the Convertible Preferred Stock and Mandatorily Redeemable Convertible
Preferred Stock outstanding was converted into an aggregate of 12,850,072 shares
of Common Stock. The Company has the right to repurchase, at the original issue
price, a declining percentage of certain of the common shares issued to
employees under written agreements with such employees. The Company's right to
repurchase such stock declines on a percentage basis over four years based on
the length of the employees' continual employment with the Company. At December
31, 1996, 3,055,555 shares of common stock were subject to repurchase by the
Company.
PREFERRED STOCK. At December 31, 1996, the Company has authorized 10,000,000
shares of undesignated preferred stock. At December 31, 1995, the Company had
authorized 7,750,072 shares of preferred stock, of which 5,212,000 shares had
been designated Series A Convertible Preferred Stock ("Series A") and 2,538,072
shares had been designated Series B Convertible Preferred Stock ("Series B").
At December 31, 1995, 5,200,000 of Series A and 2,538,072 of Series B were
issued and outstanding. Holders of Series A and B were entitled to receive
noncumulative, preferential dividends of $0.025 and $0.24625, respectively, per
annum, when and if declared by the Board of Directors. No such dividends were
declared. In the event of liquidation or sale of the Company, Series A and B
shareholders were entitled to a per share distribution in preference to common
shareholders equal to the original issue price per share of $0.20 and $1.97,
respectively, plus any declared but unpaid dividends. During March 1996, the
Company entered into an agreement to sell 5,100,000 shares of Mandatorily
Redeemable Convertible Series C Preferred Stock ("Series C") at a price of
$12.50 per share for aggregate proceeds of $63,750,000. The holder of Series C
was entitled to receive cumulative, preferential dividends of $0.625 per annum,
payable on March 31 of each year, commencing March 31,1997. The holder of
Series C was also entitled to receive dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held by the holder of Series C, assuming conversion of all Series C into
Common Stock. No such dividends on Common Stock have been declared. In the
event of liquidation or sale of the Company, the Series C shareholder was
entitled to a per share dis-
32
tribution in preference to common shareholders equal to the original issue price
of $12.50 per share plus any accrued and unpaid dividends. On April 11, 1996,
the Company completed its initial public offering of its Common Stock. At that
time, all issued and outstanding shares of the Company's Convertible Preferred
Stock and Mandatorily Redeemable Convertible Preferred Stock were converted into
an aggregate of 12,850,072 shares of Common Stock.
STOCK OPTION PLAN. In May 1995, the Board of Directors adopted the 1995 Stock
Plan (the "Plan") which originally provided for the grant of up to 5,000,000
incentive stock options, non-qualified stock options, and stock purchase rights.
On March 6, 1996, the Board of Directors approved an increase in the number of
authorized shares in the Plan to 8,000,000. Under the Plan, incentive stock
options may be granted to employees, officers, and directors of the Company and
non-qualified stock options and stock purchase rights may be granted to
consultants, employees, directors, and officers of the Company. Options granted
under the Plan are for periods not to exceed ten years, and must be issued at
prices not less than 100% and 85%, for incentive and nonqualified stock options,
respectively, of the fair market value of the stock on the date of grant as
determined by the Board of Directors. Options granted to shareholders who own
greater than 10% of the outstanding stock are for periods not to exceed five
years and must be issued at prices not less than 110% of the fair market value
of the stock on the date of grant as determined by the Board of Directors.
Options granted under the Plan generally vest 25% after the first year and
ratably each month over the remaining thirty-six month period. Options to
purchase 541,831 and 67,500 shares were exercisable at December 31, 1996 and
1995, respectively.
A summary of the Plan's activity is as follows:
AVAILABLE OPTIONS
FOR GRANT OUTSTANDING PRICE PER SHARE
Shares reserved 5,000,000 -- --
Options granted (3,454,910) 3,454,910 $0.02 - $0.20
Options exercised -- (189,400) $0.02
---------- --------- ---------------
Balance at December 31, 1995 1,545,090 3,265,510 $0.02 - $0.20
Additional shares reserved 3,000,000 -- --
Options granted (3,716,343) 3,716,343 $0.20 - $20.875
Options canceled 281,000 (281,000) $0.02 - $18.50
Options exercised -- (496,377) $0.02
---------- --------- ---------------
Balance at December 31, 1996 1,109,747 6,204,476 $0.02 - $20.875
---------- --------- ---------------
---------- --------- ---------------
During the period from January 1996 through April 1996, the Company granted
options to purchase an aggregate of 2,300,468 shares of Common Stock at exercise
prices ranging from $0.20 to $10.00 per share. Based in part on an independent
appraisal obtained by the Company's Board of Directors, $625,000 of compensation
expense relating to certain options is to be recognized over the four-year
vesting periods of the options, of which, $156,000 was recognized in 1996.
During the period from March 5, 1995 (Inception) through December 31, 1995, the
Company granted options to purchase 294,400
33
shares of Common Stock to consultants in exchange for services at an exercise
price of $0.02 per share. The Company recorded expense totaling $75,000 during
the period from March 5, 1995 (Inception) through December 31, 1995 based on the
estimated fair value of the services received.
DIRECTORS' STOCK OPTION PLAN. Effective March 6, 1996, the Board of Directors
adopted the 1996 Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan provides for the issuance of up to 200,000 nonstatutory stock
options to nonemployee directors of the Company. Each person who becomes a
nonemployee director of the Company after the date of the Company's initial
public offering will automatically be granted a nonstatutory option (the "First
Option") to purchase 40,000 shares of Common Stock upon the date on which such
person first becomes a director. Thereafter, each director of the Company will
be granted an annual option (the "Annual Option") to purchase 5,000 shares of
Common Stock. Options under the Directors' Plan will be granted at the fair
value of the stock and will vest in equal monthly installments over four years,
in the case of the First Option, or at the end of four years in the case of the
Annual Option. At December 31, 1996, there had been no option grants under the
Directors' Plan.
EMPLOYEE STOCK PURCHASE PLAN. Effective March 6, 1996, the Company's Board of
Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), which
provides for the issuance of a maximum of 300,000 shares of Common Stock.
Eligible employees can have up to 15% of their earnings withheld, up to certain
maximums, to be used to purchase shares of the Company's Common Stock on every
January 1st and July 1st. The price of the 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 six month offering period or the
specified purchase date. There were no shares issued under the Purchase Plan
during 1996.
STOCK COMPENSATION. The Company accounts for its employee stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation" which established a fair value based method of accounting for
employee stock option plans. The Company has elected to adopt the disclosure
method of FAS 123. Had compensation cost for the Company's option plans been
determined based on the fair value at the grant dates, as prescribed in FAS 123,
the Company's net loss and pro forma net loss per share would have been as
follows:
1996 1995
Net loss:
As reported $ (2,334,000) $ (634,000)
------------ ----------
------------ ----------
Pro forma $ (3,158,000) $ (636,000)
------------ ----------
------------ ----------
Net loss per share:
As reported $ (0.09) $ (0.03)
------------ ----------
------------ ----------
Pro forma $ (0.12) $ (0.03)
------------ ----------
------------ ----------
34
Prior to the Company's initial public offering, the fair value of each
option grant was determined on the date of grant using the minimum value method.
Subsequent to the offering, the fair value was determined using the Black-
Scholes model. Except for the volatility assumption which was only used under
the Black-Scholes model, the following range of assumptions was used to perform
the calculations:
1996 1995
Expected life 30 months 30 months
Interest rate 5.1% - 6.5% 5.3% - 6.0%
Volatility 53% not applicable
Dividend yield 0% 0%
Because additional stock options are expected to be granted each year, the
above pro forma disclosures are not representative of pro forma effects on
reported financial results for future years.
NOTE 6 - INCOME TAXES
No provision for federal and state income taxes has been recorded as the Company
has incurred net operating losses through December 31, 1996. The following
table sets forth the primary components of deferred tax assets:
DECEMBER 31,
1996 1995
Net operating loss and credit carryforwards $ 2,651,000 $ 94,000
Nondeductible reserves and expenses 1,382,000 134,000
Other 86,000 --
----------- ---------
Gross deferred tax assets 4,119,000 228,000
Valuation allowance (4,119,000) (228,000)
----------- ---------
$ -- $ --
----------- ---------
----------- ---------
At December 31, 1996 and December 31, 1995, the Company fully reserved its
deferred tax assets. The Company believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets such that a valuation
allowance is required.
Deferred tax assets and related valuation allowances of approximately
$2,400,000 relate to certain U.S. operating loss carryforwards resulting from
the exercise of employee stock options, the tax benefit of which, when
recognized, will be accounted for as a credit to additional paid-in capital
rather than a reduction of the income tax provision. Additionally, deferred tax
assets of $236,000 relate to operating loss carryforwards in various foreign
jurisdictions. Certain of these carryforwards will expire if not utilized.
35
At December 31, 1996, the Company had approximately $5,900,000 of federal
net operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards expire in 2010. Additionally, the
Company has approximately $6,400,000 of California net operating loss
carryforwards for tax reporting purposes which will expire beginning in 2003.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating losses carried forward may be impaired or limited in certain
circumstances. Events which may 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% over a three year
period. At December 31, 1996, the effect of such limitation, if imposed, is not
expected to be material.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under noncancelable operating lease
agreements which expire in June 1998 and January 1999. Future minimum lease
payments under noncancelable operating leases with initial terms of one year are
$527,000 in 1997, $482,000 in 1998, and $36,000 in 1999 aggregating $1,045,000.
Rent expense under operating leases totaled $350,000 during 1996 and $20,000 for
the period from March 5, 1995 (Inception) through December 31, 1995.
On March 15, 1996, the Company entered into an agreement with Netscape
whereby the Company was designated as one of five "Premier Providers." Under
the terms of the agreement, the Company is required to make payments of up to
$5,000,000 over the course of the agreement's one year term, which began in mid-
April 1996. During 1996, $3,500,000 had been paid and recognized as expense
under the agreement. The remaining $1,500,000 was paid during January 1997.
From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company is not currently
aware of any legal proceedings or claims that the Company believes will have,
individually or in the aggregate, a material adverse effect on the Company's
financial position or results of operations.
36
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF YAHOO! INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Yahoo! Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for the year ended December 31, 1996 and the
period from March 5, 1995 (Inception) through December 31, 1995, in conformity
with generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards 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
audit provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------------
San Jose, California
January 14, 1997
37
CORPORATE INFORMATION
EXECUTIVE OFFICERS AND DIRECTORS CORPORATE HEADQUARTERS
Timothy Koogle Yahoo! Inc.
President and Chief Executive Officer 3400 Central Expressway, Suite 201
Santa Clara, California 95051-0703
Jerry Yang
Co-founder, Chief Yahoo and Director INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
David Filo San Jose, California
Co-founder and Chief Yahoo
LEGAL COUNSEL
Jeff Mallett Venture Law Group
Senior Vice President, Business Operations Menlo Park, California
Gary Valenzuela TRANSFER AGENT
Senior Vice President, Finance and First National Bank of Boston
Administration, Chief Financial Officer c/o Boston EquiServe Limited Partnership
P.O. Box 8040
Farzad Nazem Boston, Massachusetts 02266-8040
Senior Vice President, Product
Development and Site Operations FORM 10-K
A copy of the Yahoo! Inc. Form 10-K
Anil Singh as filed with the Securities and Exchange
Vice President, Advertising Sales Commission is available at biz.yahoo.com/
profiles/yhoo.html or request a copy by
Eric Hippeau mail without charge by contacting:
Director (1); Chairman and CEO,
Ziff-Davis Publishing Company Investor Relations
Yahoo! Inc.
Arthur Kern 3400 Central Expressway, Suite 201
Director (1)(2); Chairman and CEO, Santa Clara, California 95051
American Media (408) 731-3382
investor_relations@yahoo.com
Michael Moritz
Director (1)(2); General Partner, ANNUAL MEETING
Sequoia Capital The annual meeting of shareholders will
be April 30, 1997 at 2:00 pm at the Guild
(1) MEMBER OF THE COMPENSATION COMMITTEE Theatre, located at 949 El Camino Real,
(2) MEMBER OF THE AUDIT COMMITTEE Menlo Park, California
ALL TRADEMARKS ARE THE PROPERTIES OF THEIR DESIGN & PRODUCTION: Hausman Design,
RESPECTIVE OWNERS Palo Alto, CA, www.hausmandesign.com
STOCK INFORMATION
Yahoo! Inc. Common Stock is quoted on the The Company had 472 shareholders of record as of
NASDAQ National Market System under the December 31, 1996. The Company has not declared
symbol YHOO. The following table sets forth or paid any cash dividends on its Common Stock and
the range of high and low closing sales prices presently intends to retain its future earnings, if any,
for the quarters indicated: to fund the development and growth of its business
and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
1996 High Low
-------- --------
Second Quarter $ 33.00 $ 18.25
Third Quarter $ 24.00 $ 15.75
Fourth Quarter $ 22.63 $ 17.00
38