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 October 14, 1997
-----------------
YAHOO! INC.
(Exact name of registrant as specified in its charter)
0-26822
(Commission File Number)
California 77-0398689
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3400 Central Expressway, Suite 201
Santa Clara, California 95051
(Address of principal executive offices, with zip code)
(408) 731-3300
(Registrant's telephone number, including area code)
The Registrant hereby amends its Report on Form 8-K filed with the
Securities and Exchange Commission on October 14, 1997.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On October 20, 1997, Yahoo! Inc., a California corporation ("YAHOO!")
completed the closing of an Agreement and Plan of Reorganization dated October
7, 1997 (the "AGREEMENT") by and among Yahoo!, ST Acquisition Corporation, a
wholly-owned subsidiary of Yahoo!, and Four11 Corporation ("FOUR11"). The
reorganization occurred following the approval of the transaction by the
shareholders of Four11 and satisfaction of certain other closing conditions.
In the reorganization, all outstanding shares of Four11 stock, options to
purchase Four11 stock, and warrants to purchase Four11 stock were converted into
1,654,099 shares and options and warrants to purchase shares of Yahoo! Common
Stock at an Exchange Ratio of 0.2318121. All outstanding options to purchase
Four11 stock have been assumed by Yahoo! and converted into options to purchase
Yahoo! common stock, and all outstanding warrants to purchase Four11 stock have
been assumed by Yahoo! and converted into warrants to purchase Yahoo! Common
Stock.
Under the terms of the Agreement and a related Escrow Agreement dated
October 20, 1997, a total of 124,057 shares of Yahoo!'s Common Stock will be
held in escrow for the purpose of indemnifying Yahoo! against certain
liabilities of Target. Such escrow will expire upon the issuance of Yahoo!'s
auditor's opinion for the financial statements for Yahoo! and its subsidiaries
for the fiscal year ending December 31, 1997.
It is intended that the transaction qualify as a tax-free reorganization
for federal income tax purposes and that the merger be accounted for on a
pooling of interests basis.
This transaction was originally reported voluntarily under Item 5 (Other
Events) of this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
FOUR11 CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997 (unaudited). . . . . . . .F-2
Statement of Operations for the years ended December 31, 1995 and 1996 and
for the nine months ended September 30, 1996 and 1997 (unaudited). . . . . . . . . . . . . . . .F-3
Statement of Shareholders' Equity (Deficit) for the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . .F-4
Statement of Cash Flows for the years ended December 31, 1995 and 1996 and for
the nine months ended September 30, 1996 and 1997 (unaudited). . . . . . . . . . . . . . . . . .F-5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Four11 Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of shareholders' equity (deficit) present
fairly, in all material respects, the financial position of Four11
Corporation at December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from inception (February 24, 1994) to
December 31, 1995, and for the year ended December 31, 1996, 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 audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 9, on October 20, 1997, the Company consummated an
Agreement and Plan of Reorganization (the "Agreement") with Yahoo! Inc., a
publicly held company, upon which the Company's shareholders exchanged all of
their shares of Common Stock for shares of Common Stock of Yahoo! Inc., in a
business combination to be accounted for as a pooling of interests.
/s/ PRICE WATERHOUSE LLP
San Jose, California
October 6, 1997, except as to
Note 9, which is as of
October 20, 1997
F-1
FOUR11 CORPORATION
BALANCE SHEET
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
---------- ----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 238,000 $ 1,682,000 $ 694,000
Short-term investments . . . . . . . . . . . . . . . . . . 392,000 - -
Accounts receivable, net of allowance for doubtful
accounts of $2,000, $65,000, and $275,000. . . . . . . . 13,000 434,000 661,000
Prepaid expenses and other currents assets . . . . . . . . 14,000 16,000 56,000
---------- ----------- ------------
Total current assets . . . . . . . . . . . . . . . . . 657,000 2,132,000 1,411,000
Property and equipment, net. . . . . . . . . . . . . . . . . 78,000 566,000 1,111,000
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 15,000 15,000
---------- ----------- ------------
$ 739,000 $ 2,713,000 $ 2,537,000
---------- ----------- ------------
---------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 43,000 $ 114,000 $ 201,000
Accrued expenses and other current liabilities.. . . . . . 36,000 351,000 770,000
Deferred revenue . . . . . . . . . . . . . . . . . . . . . 5,000 118,000 207,000
Advances and convertible notes payable . . . . . . . . . . - - 600,000
Capitalized lease obligation . . . . . . . . . . . . . . . - - 398,000
---------- ----------- ------------
Total current liabilities. . . . . . . . . . . . . . . 84,000 583,000 2,176,000
---------- ----------- ------------
Capitalized lease obligation . . . . . . . . . . . . . . . . - - 899,000
---------- ----------- ------------
Commitments (Note 7)
Shareholders' equity (deficit):
Convertible preferred stock, $0.01 par value; 3,945,106
shares authorized: 1,697,915, 3,630,500
and 3,630,500 issued and outstanding . . . . . . . . . . 815,000 4,233,000 4,233,000
Common stock, $0.01 par value; 15,000,000 shares
authorized; 2,548,230, 2,548,230 and 2,834,874
shares issued and outstanding. . . . . . . . . . . . . . 5,000 13,000 259,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (165,000) (2,116,000) (5,030,000)
---------- ----------- ------------
Total shareholders' equity (deficit) . . . . . . . . . 655,000 2,130,000 (538,000)
---------- ----------- ------------
$ 739,000 $ 2,713,000 $ 2,537,000
---------- ----------- ------------
---------- ----------- ------------
The accompanying notes are an integral part of these financial statements.
F-2
FOUR11 CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
---------- ------------ ------------ ------------
(unaudited)
Revenues . . . . . . . . . . . . . $ 47,000 $ 624,000 $ 232,000 $ 1,951,000
Cost of revenues . . . . . . . . . 15,000 240,000 100,000 875,000
---------- ------------ ------------ ------------
Gross profit . . . . . . . . . . 32,000 384,000 132,000 1,076,000
---------- ------------ ------------ ------------
Operating expenses:
Sales and marketing. . . . . . . 77,000 1,281,000 627,000 2,357,000
Product development. . . . . . . 61,000 689,000 428,000 1,051,000
General and administrative . . . 92,000 362,000 251,000 520,000
---------- ------------ ------------ ------------
Total operating expenses . . . 230,000 2,332,000 1,306,000 3,928,000
---------- ------------ ------------ ------------
Loss from operations . . . . . . . (198,000) (1,948,000) (1,174,000) (2,852,000)
Interest and other income. . . . . 33,000 17,000 5,000 29,000
Interest and other expense . . . . - (20,000) (20,000) (91,000)
---------- ------------ ------------ ------------
Net loss . . . . . . . . . . . . . $ (165,000) $ (1,951,000) $ (1,189,000) $ (2,914,000)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-3
FOUR11 CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------------- --------------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------------ ------------ ------------- ----------- ------------- -----------
Issuance of Common Stock
in connection with formation
of the Company . . . . . . . . . . . - $ - 2,500,000 $ 3,000 $ - $ 3,000
Issuance of Series A Convertible
Preferred Stock at $0.49
per share, net of issuance costs
of $10,000 . . . . . . . . . . . . . 1,697,915 815,000 - - - 815,000
Issuance of Common Stock
in exchange for technology
rights . . . . . . . . . . . . . . . - - 48,230 2,000 - 2,000
Net loss for the period from
inception (February 24, 1994)
through December 31, 1995. . . . . . - - - - (165,000) (165,000)
------------ ------------ ------------ ----------- ------------- -----------
Balance at December 31, 1995 . . . . . 1,697,915 815,000 2,548,230 5,000 (165,000) 655,000
Issuance of Series B Convertible
Preferred Stock, net of issuance
costs of $22,000 . . . . . . . . . . 1,932,585 3,418,000 - - - 3,418,000
Compensation expense on
option grants. . . . . . . . . . . . - - - 8,000 - 8,000
Net loss . . . . . . . . . . . . . . . - - - - (1,951,000) (1,951,000)
------------ ------------ ------------ ----------- ------------- -----------
Balance at December 31, 1996 . . . . . 3,630,500 4,233,000 2,548,230 13,000 (2,116,000) 2,130,000
Issuance of Common Stock
pursuant to the exercise of
options (unaudited). . . . . . . . . - - 286,644 30,000 - 30,000
Compensation expense on
option grants (unaudited). . . . . . - - - 216,000 - 216,000
Net loss (unaudited).. . . . . . . . . - - - - (2,914,000) (2,914,000)
------------ ------------ ------------ ----------- ------------- -----------
Balance at September 30, 1997
(unaudited).. . . . . . . . . . . . 3,630,500 $ 4,233,000 2,834,874 $ 259,000 $ (5,030,000) $ (538,000)
------------ ------------ ------------ ----------- ------------- -----------
------------ ------------ ------------ ----------- ------------- -----------
The accompanying notes are an integral part of these financial statements.
F-4
FOUR11 CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------ ------------- ------------- -------------
(unaudited)
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (165,000) $ (1,951,000) $ (1,189,000) $ (2,914,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued in exchange
for technology rights and services . . . . . . . . . . 5,000 - - -
Compensation expense related
to stock options . . . . . . . . . . . . . . . . . . . - 8,000 2,000 216,000
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 7,000 162,000 63,000 556,000
Changes in assets and liabilites:
Accounts receivable, net . . . . . . . . . . . . . . . (13,000) (421,000) (156,000) (227,000)
Prepaid expenses and other assets. . . . . . . . . . . (14,000) (2,000) (10,000) (40,000)
Deposits . . . . . . . . . . . . . . . . . . . . . . . (4,000) (11,000) (15,000) -
Accounts payable . . . . . . . . . . . . . . . . . . . 43,000 71,000 145,000 87,000
Accrued expenses and
other current liabilities. . . . . . . . . . . . . . 36,000 315,000 184,000 419,000
Deferred revenue . . . . . . . . . . . . . . . . . . . 5,000 113,000 89,000 89,000
----------- ------------ ------------ ------------
Net cash used in operating activities. . . . . . . . (100,000) (1,716,000) (887,000) (1,814,000)
----------- ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . (85,000) (650,000) (313,000) (1,101,000)
Purchase of short-term investments . . . . . . . . . . . . . . (392,000) - - -
Proceeds from sale of short-term
investments. . . . . . . . . . . . . . . . . . . . . . . . . - 392,000 392,000 -
----------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . . . . . (477,000) (258,000) 79,000 (1,101,000)
----------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from bridge loan. . . . . . . . . . . . . . . . . . . - - 594,000 -
Proceeds from advances and issuance
of convertible notes payable . . . . . . . . . . . . . . . . - - - 600,000
Proceeds from issuance of convertible
preferred stock, net . . . . . . . . . . . . . . . . . . . . 815,000 3,418,000 2,500,000 -
Proceeds from exercise of stock options. . . . . . . . . . . . - - - 30,000
Proceeds from capitalized lease obligations. . . . . . . . . . - - - 1,500,000
Principal payments on capitalized
lease obligations. . . . . . . . . . . . . . . . . . . . . . - - - (203,000)
----------- ------------- ------------ ------------
Net cash provided by financing
activities. . . . . . . . . . . . . . . . . . . . . 815,000 3,418,000 3,094,000 1,927,000
----------- ------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents . . . . . . 238,000 1,444,000 2,286,000 (988,000)
Cash and cash equivalents at beginning of period . . . . . . . . - 238,000 238,000 1,682,000
----------- ------------- ------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 238,000 $ 1,682,000 $ 2,524,000 $ 694,000
----------- ------------- ------------ ------------
----------- ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-5
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Four11 Corporation (the "Company") develops and maintains Web-based e-mail
and a branded white page directory service which includes e-mail, telephone
and Internet phone directories. The Company was incorporated in California
on February 24, 1994, and recognized immaterial operating transactions from
that date through December 31, 1994, which have been included in the
Company's financial statements for the year ended December 31, 1995 to
simplify presentation. The Company conducts its business within one industry
segment.
On October 20, 1997, the Company consummated an Agreement and Plan of
Reorganization (the "Agreement") with Yahoo! Inc., a publicly held company,
upon which the Company's shareholders exchanged all of their shares of Common
Stock for shares of Common Stock of Yahoo! Inc. in a business combination to be
accounted for as a pooling of interests (See Note 9).
The Company's significant accounting policies are set forth below:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are comprised of highly liquid debt instruments with an
original maturity at the date of purchase of three months or less. The Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents, and investments with original maturities
greater than three months to be short-term investments.
Short-term investments are classified as available for sale and consist of
U.S. Treasury bills. At December 31, 1995, the estimated fair value of these
investments approximated cost. At December 31, 1996 and September 30, 1997 no
short-term investments were outstanding. Fair value is determined based upon
the quoted market prices of the securities as of the balance sheet date.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives of the assets,
generally from two to three years.
F-6
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION
Advertising revenues are derived from the sale of advertising space on the
Four11 directory. Advertising revenues are recognized in the period the
advertisement is displayed, provided that no significant vendor obligations
remain and collection of the resulting receivable is probable. The obligations
typically include guarantees of minimum number of "impressions," or times that
any advertisement is viewed. In the event that minimum impression levels are
not achieved, revenue is deferred until the obligation is satisfied. Promotion
revenues are derived from contractual arrangements with customers. Promotion
fees are recognized in the period services are rendered.
Revenue from barter transactions are recognized as the advertisements are
shown on the Four11 directory. Barter transactions are recorded at the
estimated fair value of the goods and services received. Revenue from barter
transactions were insignificant during the period from inception through
December 31, 1995. In 1996, the Company recorded revenues of $50,000 relating
to a barter transaction with a company whose significant shareholder is also a
holder of a significant portion of the Company's Convertible Preferred Stock.
For the nine months ended September 30, 1997, the Company recorded revenues of
$140,000 relating to barter transactions, of which $60,000 relates to a Company
whose significant shareholder is also a holder of a significant portion of the
Company's Convertible Preferred Stock.
No individual customer accounted for more than 10% of total revenues in 1995.
Revenues from customers representing 10% or more of total revenues were as
follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
----------------- ------------------ ------------------
(UNAUDITED)
Customer A 12% 13% 1%
Customer B 19% 26% 10%
PRODUCT DEVELOPMENT
Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established.
After establishment of technological feasibility, any additional development
costs incurred through the date the product is available for general release are
capitalized in accordance with Statement of Financial Accounting Standard
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" and amortized over the estimated product life. To date, all
software development costs incurred subsequent to the establishment of
technological feasibility have been immaterial, and thus no costs have been
capitalized.
ADVERTISING COSTS
Advertising costs are recorded as an expense the first time an advertisement
appears. Advertising expense totaled $4,000, $138,000 and $311,000 for the
years ended December 31, 1995 and 1996 and the nine months ended September 30,
1997, respectively.
F-7
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
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.
STOCK SPLIT
During 1996, the Board of Directors approved a five-for-one stock split of
the Company's Preferred and Common Stock. All applicable share and per share
amounts of convertible Preferred and Common Stock have been retroactively
adjusted to reflect the stock split.
WARRANTS
Warrants issued under certain agreements are accounted for in accordance with
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." The costs associated with warrants granted are amortized over
the period of the expected benefit. Where warrant costs are in excess of
expected future benefit, these costs are recognized immediately.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of APB Opinion. No. 25, "Accounting for Stock
Issued to Employees," and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents,
short-term investments and accounts receivable. The Company places its cash,
cash equivalents and short-term investments primarily in checking, money market
accounts and U.S. Treasury bills. The Company performs credit evaluations of
its customers and provides for expected credit loss. As of December 31, 1996
and September 30, 1997, four customers represented 51% and 34% of total accounts
receivable, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash
equivalents, short-term investments, accounts receivable, prepaid expenses and
accounts payable, the carrying amounts approximate fair value due to the
relatively short maturity of these instruments.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying balance sheet as of September 30, 1997 and the statements of
operations and cash flows for the nine months ended September 30, 1996 and 1997
and the statement of shareholders' equity (deficit) for the nine months ended
September 30, 1997 are unaudited. Similarly, amounts disclosed in the notes to
the financial statements relating to the nine moths ended September 30, 1996 and
1997 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for the fair
presentation of the results of the
F-8
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
interim periods. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 129 ("SFAS 129"), "Disclosure of Information about
Capital Structure", SFAS 129 requires disclosure of certain information related
to the Company's capital structure and is not anticipated to have a material
impact on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from nonowner
sources. Examples of items to be included in comprehensive income, which are
excluded from net income, include foreign currency translation adjustment and
unrealized gain/loss on available for sale securities. The disclosure
prescribed by SFAS 130 must be made beginning with the first quarter of 1998
and is not anticipated to have a material impact on the Company's financial
position or results of operations.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
has not yet determined the impact, if any, of adopting this new standard. The
disclosures prescribed by SFAS 131 are effective in 1998.
NOTE 2 - BALANCE SHEET COMPONENTS:
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
(UNAUDITED)
Property and equipment:
Computer equipment and software $ 83,000 $ 708,000 $ 1,798,000
Furniture and equipment 2,000 27,000 38,000
--------- ---------- ------------
85,000 735,000 1,836,000
Less: accumulated depreciation (7,000) (169,000) (725,000)
--------- ---------- ------------
$ 78,000 $ 566,000 $ 1,111,000
--------- ---------- ------------
--------- ---------- ------------
Accrued expenses and other
current liabilities:
Accrued payroll and related
expenses $ 11,000 $ 175,000 $ 238,000
Accrued connection costs - 34,000 188,000
Accrued professional services 25,000 95,000 130,000
Accrued expenses and other
liabilities - 47,000 214,000
--------- ---------- ------------
$ 36,000 $ 351,000 $ 770,000
--------- ---------- ------------
--------- ---------- ------------
F-9
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INCOME TAXES:
No current provision for income taxes has been provided as the Company has
incurred net operating losses for income tax purposes and has no carryback
potential. No deferred benefit for income taxes has been recorded as the
Company is in a net deferred tax asset position for which a full valuation
allowance has been provided due to uncertainty of its realization. Deferred tax
assets of approximately $50,000 and $770,000 at December 31, 1995 and 1996,
respectively, consist primarily of net operating loss carryforwards.
At December 31, 1995 and 1996, the Company had federal net operating loss
carryforwards, of approximately $125,000 and $1,900,000, respectively, available
to reduce future taxable income, which expire in 2009 through 2011.
Under the Tax Reform Act of 1986, the amount of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership change
of more than 50% over a three-year period, as defined.
NOTE 4 - CONVERTIBLE PREFERRED STOCK:
Under the Company's Amended and Restated Articles of Incorporation, the
Company is authorized to issue 3,945,106 shares of Preferred Stock, of which
1,697,915 and 2,247,191 shares have been designated as Series A and B,
respectively.
During 1995, the Company issued 1,697,915 shares of Series A Preferred Stock
("Series A") for aggregate gross proceeds of $825,000. During 1996, the Company
issued 1,932,585 shares of Series B Convertible Preferred Stock ("Series B") for
aggregate gross proceeds of $3,440,000.
In June 1996, the Company issued a warrant to purchase shares of Series B
Convertible Preferred Stock to a bank that provided bridge financing aggregating
$500,000 during 1996. The warrant enables the holder to purchase 21,067 shares
of Series B Convertible Preferred Stock at $1.78 per share, subject to
adjustment for dilution. The warrants are exercisable at any time prior to
their expiration in June 2001. A nominal value was prescribed to the warrant on
the date of issuance. No warrants had been exercised as of September 30, 1997.
In February 1997, the Company issued warrants to purchase 48,455 shares of
Series B Convertible Preferred Stock at $1.78 per share, subject to adjustment
for dilution, in connection with the closing of a capital lease line of credit.
The warrants are exercisable at any time prior to their expiration in February
2007. A nominal value was prescribed to the warrant on the date of issuance.
No warrants were exercised as of September 30, 1997.
The rights, preferences and privileges with respect to the convertible preferred
stock are as follows:
DIVIDENDS
Holders of Series A and B are entitled to receive noncumulative cash
dividends at the annual rate of $0.04 and $0.17 per share, respectively, when,
as and if declared by the Board of Directors. No dividends shall be paid on any
Common Stock unless an equal dividend is paid with respect to all outstanding
shares of Preferred Stock on an as-if converted basis. There have been no
dividends declared to date.
F-10
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
CONVERSION
Each share of Series A and B is convertible at the option of the holder into
shares of Common Stock at a conversion price of $0.49 and $1.78 per share,
respectively, subject to adjustment, as defined, which essentially provides
dilution protection for holders of the Preferred Stock. Such conversion is
automatic upon the effective date of a public offering of the Company's Common
Stock with aggregate proceeds of at least $6,000,000 and a corporate market
valuation of at least $40,000,000.
At December 31, 1996, the Company reserved 1,697,915 and 2,002,107 shares of
Common Stock for the conversion of Series A and B Preferred Stock, respectively.
LIQUIDATION
In the event of liquidation, dissolution or winding up of the Company,
including a merger or consolidation where the beneficial owners of the Company's
Common Stock and Preferred Stock own less than 50% of the resulting voting power
of the surviving entity, the holders of Series A and B Preferred Stock are
entitled to a per share distribution, in preference to holders of Common Stock,
equal to $0.49 and $1.78 per share, respectively, plus any declared and unpaid
dividends. The remaining assets, if any, shall be distributed ratably on an
"as-if converted" basis with aggregate distributions to holders of Series A and
B Preferred Stock limited to $1.46 and $5.34 per share, respectively. Should
the Company's legally available assets be insufficient to satisfy the
liquidation preferences, the funds will be distributed ratably in proportion to
the aggregate Series A and B Preferred Stock preferences.
VOTING
The holders of Series A and B have one vote for each share of Common Stock
into which such Preferred Stock may be converted.
NOTE 5 - COMMON STOCK:
The Company's Amended and Restated Articles of Incorporation authorize the
Company to issue 15,000,000 shares of $0.01 par value Common Stock. During the
period from inception (February 24, 1994) through the year ended December 31,
1996 and the nine months ended September 30, 1997 the Company issued 2,548,230
and 0 shares, respectively, of Common Stock to the founders of the Company and
other employees in exchange for services and certain rights to technology. A
portion of the shares issued to the founders are subject to a right of
repurchase by the Company subject to vesting over a three year period. At
December 31, 1996 and September 30, 1997 there were 729,000 shares and 417,000
shares, respectively, subject to repurchase. In connection with the issuance of
Series A Preferred Stock, the Company entered into agreements with the founders
whereby in the event of 1) an acquisition or merger or other transaction where
the shareholders of the Company own less than 50% of the surviving corporation,
2) the sale of substantially all of the assets of the Company, or 3) the closing
of an underwritten public offering of shares of Common Stock, the Company's
right to repurchase the shares of Common Stock lapses provided that the above
transactions result in the payment to holders of Series A Preferred Stock
consideration aggregating $2.43 per share.
Certain Common Stock options holders (see Note 6) have the right to exercise
unvested options, subject to a repurchase right held by the Company. At
December 31, 1996 and September 30, 1997, 0 and 193,507, respectively, of the
shares issued on the exercise of options were subject to repurchase by the
Company at the original purchase price in the event of employee termination.
F-11
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTION PLAN:
The 1995 Stock Option Plan (the "Plan") authorized the Board of Directors to
grant incentive stock options and nonstatutory stock options to employees,
directors and consultants for up to 1,425,000 shares of Common Stock. Options
under the Plan may be granted at prices no less than 100% of the estimated fair
value of the shares on the date of grant as determined by the Board of Directors
provided, however, that 1) the exercise price for nonstatutory stock options
shall not be less than 85% of the estimated fair value of the shares on the date
of grant, and 2) the exercise price of an option granted to a 10% shareholder
shall not be less than 110% of the estimated fair value on the date of grant.
Options vest over a four year period and are exercisable for a maximum period of
ten years after the date of grant.
A summary of the Plan activity is as follows:
OPTIONS EXERCISE RANGE OF
AVAILABLE OPTIONS PRICE EXERCISE
FOR GRANT OUTSTANDING PER SHARE PRICES
Authorized 1,425,000 -
Granted (337,605) 337,605 $ 0.05 $ 0.05
---------- ----------
Balance at December 31, 1995 1,087,395 337,605 $ 0.05 $ 0.05
Granted (573,183) 573,183 $ 0.11 $ 0.05-$0.18
Canceled 171,811 (171,811) $ 0.05 $ 0.05
---------- ----------
Balance at December 31, 1996 686,023 738,977 $ 0.10 $ 0.05-$0.18
Granted (unaudited) (344,500) 344,500 $ 0.18 $ 0.18
Exercised (unaudited) - (286,644) $ 0.11 $ 0.05-$0.18
Cancelled (unaudited) 196,813 (196,813) $ 0.13 $ 0.05-$0.18
---------- ----------
Balance at September 30, 1997 (unaudited) 538,336 600,020 $ 0.14 $ 0.05-$0.18
---------- ----------
---------- ----------
Of the options outstanding as of December 31, 1996, 462,296 had an exercise
price of $0.05 per share and a weighted average remaining contractual life of
9.2 years and 276,681 had an exercise price of $0.18 per share and a weighted
average contractual life of 10.0 years. As of December 31, 1996 and
September 30, 1997, vested options to purchase 74,599 and 71,014 shares,
respectively, at a weighted average exercise price of $0.05 and $0.06 per share,
respectively, were exercisable.
The Company will record $2,168,000 of compensation expense related to certain
stock options issued between August 1996 and September 1997 below fair market
value, of which the Company recorded $8,000 and $216,000, during the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
F-12
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's option plan been determined based on
the fair value at the grant dates, as prescribed in SFAS 123, the Company's net
loss would have been as follows:
YEAR ENDED DECEMBER 31,
1995 1996
Net loss:
As reported $ (165,000) $ (1,951,000)
Pro forma $ (165,000) $ (1,973,000)
The fair value of each option granted is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: annual dividend yield of 0.0% for both periods: risk-free
interest rates of 5.8% to 6.7% for options granted during 1996 and 5.5% for
options granted during 1995; and a weighted average expected option term of four
years for both periods.
The pro forma amounts reflect compensation expenses related to 1995 and 1996
option grants only. In future years, the annual compensation expense will
increase due to the expense associated with future grants.
The weighted average fair value of options granted during 1995 and 1996 was
$0.01 and $0.72 per share, respectively.
NOTE 7 - COMMITMENTS:
The Company leases its facility under a non-cancelable operating lease
agreement which ends in 1998. Rent expense for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1997 were $12,000, $86,000
and $111,000, respectively.
Future minimum lease payments under non-cancelable operating and capital leases
as of September 30, 1997 are as follows:
Capital Operating
Leases Leases
---------- ---------
Year ended December 31,
1997 $ 142,000 $ 44,000
1998 569,000 125,000
1999 569,000 -
2000 322,000 -
---------- ---------
Total minimum lease payments 1,602,000 169,000
---------
---------
Less: amount representing interest (305,000)
----------
Present value of capitalized lease obligations 1,297,000
Less: current portion (398,000)
----------
Long-term portion of capitalized lease obligations $ 899,000
----------
----------
F-13
FOUR11 CORPORATION
NOTES TO FINANCIAL STATEMENTS
During February 1997, the Company entered into four separate equipment lease
line of credit agreements aggregating $1,500,000. During the nine months ended
September 30, 1997 the Company financed $1,500,000 of computers and equipment
under these facilities. For equipment purchased under the lease line, principal
and interest are payable over a 36 month period.
During July 1997, the Company issued a convertible subordinated promissory
note for aggregate proceeds of $500,000. The note bears interest at an annual
rate of 6% and is payable on demand by the holder any time after March 15, 1998
or default by the Company. The promissory note is convertible at the option of
the holder at the close of an equity financing into shares of Preferred Stock
provided 1) the Company receives at least $2,000,000 in aggregate proceeds, and
2) when one or more strategic business partners participate in the equity
financing, the current holders of Series A and Series B Convertible Preferred
Stock must participate .
NOTE 8 - RELATED PARTY TRANSACTIONS:
During 1996, the Company issued various promissory notes to its founders
totaling $94,000. These notes bore interest at 8% per annum. The notes were
repaid during the year.
Included in accounts receivable and accrued expenses as of December 31, 1996,
was an amount of $50,000 and $50,000, respectively, due from and to a company
whose significant shareholder is also a holder of a significant portion of the
Company's Convertible Preferred Stock.
At September 30, 1997, the Company has recorded a $100,000 current liability
payable to Yahoo! Inc.
NOTE 9 - SUBSEQUENT EVENTS:
On October 20, 1997, the Company consummated an Agreement and Plan of
Reorganization (the "Agreement") with Yahoo! Inc., a publicly held company, upon
which the Company's shareholders exchanged all of their shares of Common Stock,
on an as-if-converted basis, for shares of Common Stock of Yahoo! Inc., in a
business combination to be accounted for as a pooling of interests.
F-14
(c) EXHIBITS.
2.1 (1) Agreement and Plan of Reorganization dated as of
October 7, 1997, by and among Yahoo! Inc., ST
Acquisition Corporation, and Four11 Corporation.
99.1 Supplementary Consolidated Financial Statements
of Yahoo! Inc.
- --------------------
(1) Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YAHOO! INC.
Date: October 30, 1997 By: /s/ GARY VALENZUELA
----------------------------------
Gary Valenzuela
Senior Vice President, Finance and
Administration, and Chief Financial
Officer
(Principal Financial Officer)
INDEX TO EXHIBITS
Exhibit
Number
----------
2.1 (1) Agreement and Plan of Reorganization dated as of
October 7, 1997, by and among Yahoo! Inc., ST
Acquisition Corporation, and Four11 Corporation.
99.1 Supplementary Consolidated Financial Statements
of Yahoo! Inc.
- --------------------
(1) Previously filed.