-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDphxseIr6d7LRLBWL7dI9dAGO/gMnpb+r1h6J2rtXHu5gnuCWnu2/uXkPtSzcwz aH4CHaTg3MWU+uJvtu6xqA== /in/edgar/work/20000814/0001012870-00-004393/0001012870-00-004393.txt : 20000921 0001012870-00-004393.hdr.sgml : 20000921 ACCESSION NUMBER: 0001012870-00-004393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOGDOG INC CENTRAL INDEX KEY: 0001094323 STANDARD INDUSTRIAL CLASSIFICATION: [5940 ] IRS NUMBER: 770388602 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28029 FILM NUMBER: 698027 BUSINESS ADDRESS: STREET 1: 500 BROADWAY CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6508122559 MAIL ADDRESS: STREET 1: 500 BROADWAY CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 0001.txt QUARTERLY REPORT FOR PERIOD ENDING 6/30/2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______to______ Commission File Number 000-27437 FOGDOG, INC. (Exact name of registrant as specified in its charter) Delaware 77-0388602 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 500 Broadway, Redwood City, California 94063 (Address of principal executive offices) Registrant's telephone number, including area code: (650) 980-2500 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No // Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at August 5, 2000 Common Stock, $0.001 par value 36,636,429 ------------ 1
Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999................................................ 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999 (unaudited).................. 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 (unaudited)............................. 5 Notes to Condensed Consolidated Financial Statements (unaudited)..... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................... 30 Item 2. Changes in Securities and Use of Proceeds............................ 31 Item 3. Defaults Upon Senior Securities...................................... 31 Item 4. Submission of Matters to a Vote of Security Holders.................. 31 Item 5. Other Information.................................................... 31 Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 31 Signatures........................................................................ 32
2 PART I ITEM 1. FINANCIAL STATEMENTS FOGDOG, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands; unaudited)
June 30, December 31, 2000 1999 --------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 27,313 $ 26,451 Short-term investments 24,815 46,450 Accounts receivable, net of allowances of $216 and $213, respectively 182 216 Merchandise inventory 3,501 2,765 Prepaid expenses and other current assets 4,695 1,963 --------------- ---------------- Total current assets 60,506 77,845 Property and equipment, net 3,572 2,427 Other assets and intangibles, net 20,599 27,920 ---------------- ---------------- Total assets $ 84,677 $ 108,192 ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,332 $ 5,638 Current portion of long-term debt 436 473 Other current liabilities 2,958 3,283 ---------------- ----------------- Total current liabilities 10,726 9,394 ---------------- ----------------- Long-term debt, less current portion 100 300 ---------------- ----------------- Stockholders' equity 73,851 98,498 ---------------- ----------------- Total liabilities and stockholders' equity $ 84,677 $ 108,192 ================ =================
See accompanying notes to condensed consolidated financial statements. 3 FOGDOG, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) (in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Net revenue $ 5,844 $ 731 $ 10,550 $ 1,084 Cost of revenue 5,223 718 9,782 1,041 -------- -------- -------- -------- Gross profit 621 13 768 43 Operating expenses: Marketing and sales 13,689 2,680 24,921 4,125 Technology and content 1,257 726 2,578 1,208 General and administrative 1,660 448 3,341 752 Amortization of intangible assets 332 12 664 24 Amortization of stock-based compensation 2,156 409 3,484 740 -------- -------- -------- -------- Total operating expenses 19,094 4,275 34,988 6,849 -------- -------- -------- -------- Operating loss (18,473) (4,262) (34,220) (6,806) Interest income, net 887 136 1,887 158 -------- -------- -------- -------- Net loss $(17,586) $ (4,126) $(32,333) $ (6,648) ======== ======== ======== ======== Basic and diluted net loss per share $ (0.49) $ (0.92) $ (0.90) $ (1.50) ======== ======== ======== ======== Basic and diluted weighted average shares used in the computation of net loss per share 35,823 4,494 36,039 4,420 ======== ======== ======== ======== See accompanying notes to condensed consolidated financial statements.
4 FOGDOG, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands; unaudited)
Six Months Ended June 30, 2000 1999 ------ ------ Cash flow from operating activities: Net loss $(32,333) $ (6,648) Adjustments to reconcile net loss to net cash used in operating activities Allowances for bad debt and sales returns 1,187 48 Depreciation and amortization 583 134 Amortization of intangible assets 664 -- Amortization of stock-based compensation 2,708 740 Non-employee stock based expense 6,493 12 Changes in assets and liabilities Accounts payable and other current liabilities 1,369 810 Other assets 164 -- Accounts receivable (1,153) (53) Merchandise inventory (736) (273) Prepaid expenses and other current assets (2,732) (152) ---------------------- Net cash used in operating activities (23,786) (5,382) ---------------------- Cash flows from investing activities: Sale or maturity of short-term investments 90,220 -- Purchase of short-term investments (68,586) -- Purchase of property and equipment (1,728) (318) ---------------------- Net cash provided by (used in) investing activities 19,906 (318) ---------------------- Cash flows from financing activities: Proceeds from the sale of Common Stock 5,010 112 Proceeds from the sale of Preferred Stock 17,937 Proceeds from (payments under) term loan (237) 245 Payments under capital leases (3) Repurchase of Common Stock (31) -- Payments under sofware loan (108) ----------------------- Net cash provided by financing activities 4,742 18,183 ----------------------- Net increase in cash and cash equivalents 862 12,483 Cash and cash equivalents at the beginning of the period 26,451 1,694 ----------------------- Cash and cash equivalents at the end of the period $ 27,313 $ 14,177 =========================
See accompanying notes to condensed consolidated financial statements. 5 FOGDOG, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 -- The company and basis of presentation The Company Fogdog, Inc. ("the Company") is an online retailer of sporting goods. The Company's online retail store "fogdog.com" offers products, detailed product information and personalized shopping services. The Company was incorporated in California in October 1994 as Cedro Group, Inc. and in November 1998, changed its name to Fogdog, Inc. The Company was reincorporated in the state of Delaware as Fogdog, Inc. in September 1999. Presentation The accompanying unaudited condensed financial statements reflect all adjustments, which in the opinion of management, are necessary for the fair presentation of the financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results to be expected for the full fiscal year or any future period. These financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the 1999 Annual Report on Form 10-K. Certain amounts in this Form 10-Q have been reclassified to conform the financial statement presentation. Note 2 -- Net loss per share Basic net loss per share available to common stockholders is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per share available to common stockholders is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common and potential common equivalent shares outstanding during the period. The calculation of diluted net loss per share excludes potential common shares if the effect is antidilutive. Potential common shares are composed of Common Stock subject to repurchase rights, incremental shares of Common Stock issuable upon the exercise of stock options, and warrants and incremental shares of Common Stock issuable upon conversion of Preferred Stock. 6 FOGDOG, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (unaudited) The following table sets forth the computation of basic and diluted net loss per share available to common stockholders for the periods indicated (in thousands, except per share amounts):
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ------------------------------ 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Numerator: Net loss $ (17,586) $ (4,126) $ (32,333) $ (6,648) ============= ============= ============= ============= Denominator: Weighted average shares 36,031 4,983 36,246 4,909 Weighted average Common Stock subject to repurchase agreements (208) (489) (208) (489) ------------- ------------- ------------- ------------- Denominator for basic and diluted calculation 35,823 4,494 36,038 4,420 ============= ============= ============= ============= Basic and diluted net loss per share $ (0.49) $ (0.92) $ (0.90) $ (1.50) ============= ============= ============= =============
The following table sets forth the weighted average potential shares of Common Stock that are not included in the diluted net loss per share available to common stockholder's calculation above because to do so would be antidilutive for the periods indicated (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ---------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Weighted average effect of dilutive securities: Preferred stock -- 18,956 -- 14,555 Warrants to purchase Preferred Stock -- 89 -- 89 Warrants to purchase Common Stock 4,207 67 4,235 51 Employee stock options 4,382 3,780 4,708 3,126 Common Stock subject to repurchase 208 489 208 489 ------------- ------------- ------------- ------------- 8,797 23,381 9,151 18,310 ============= ============= ============= =============
FOGDOG, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) Note 3 - Short-term investments The Company considers all investments with original maturities of less than one year but greater than 90 days at the respective balance sheet date to be short- term investments. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" the Company has categorized its marketable securities as "available- for-sale." At June 30, 2000, amortized cost approximated fair value and unrealized gains and losses were insignificant. Note 4-Common stock In January 2000, the Company sold an additional 425,000 shares at $11.00 per share which generated proceeds of approximately $4.3 million, net of issuance costs, in connection with the exercise of the underwriters over-allotment, as a part of the Company's initial public offering. Note 5 - Comprehensive income Comprehensive income is comprised of net income (loss) and other comprehensive earnings such as unrealized gains or losses on available-for-sale marketable securities. The Company's unrealized gains/losses on available-for-sale marketable securities have been insignificant for all periods presented. Note 6 - Development Costs Technology and content expenses primarily consist of payroll and related costs for web site maintenance, information technology personnel, Internet access, hosting charges and logistics engineering and web content and design costs. Effective January 1, 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use". In accordance with SOP 98-1, the Company classifies technology and content costs into one of three categories (I) preliminary project stage (II) application development stage and (III) operational stage. For the six months ended June 30, 2000, costs associated with the preliminary projects stage were insignificant and charged to technology and content expense as incurred. Costs associated with the application development stage primarily consist of external software purchased and internal costs to develop software with a life in excess of three months. For the six months ended June 30, 2000, the Company capitalized approximately $619,000 of costs associated with the application development stage and is amortizing such amounts to technology and content expense over the estimated useful life of one to three years. Costs associated with the operational stage primarily consist of internal costs to maintain and enhance the Company's web site and internal costs to develop software with an expected life of three months or less. For the six months ended June 30, 2000 the Company expensed approximately $2.6 million, to technology and content expense associated with the operational stage. Note 7 - Recent Accounting Pronouncements In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 summarizes certain interpretations and practices followed by the SEC in applying generally acceptable accounting principles to revenue recognition. SAB 101 is effective for all periods beginning with the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company has evaluated its current revenue recognition policies and believes that they are compliance with guidance provided under SAB 101. In June 1998, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation: an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 establishes guidance for the accounting for stock option grants and modifications to existing stock option awards and is effective for option grants made after June 30, 2000. FIN 44 also establishes guidance for the repricing of stock options and determining whether a grantee is an employee, for which the guidance was effective after December 15, 1998 and modifying a fixed option to add a reload feature, for which the guidance was effective after January 12, 2000. The adoption of certain of the provisions of FIN 44 prior to June 30, 2000 did not have a material effect on the financial statements. The Company does not expect that the adoption of the remaining provisions will have a material effect on the financial statements. In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-02, "Accounting for Web Site Development Costs". EITF 00-02 establishes guidance for how companies should account for costs incurred to develop a web site including costs incurred in the web site application and infrastructure development stage, costs incurred to develop graphics, costs incurred to develop content and costs incurred in the operating stage. EITF 00-02 is effective for web site development costs incurred for fiscal quarters beginning after June 30, 2000. The Company does not expect the adoption of EITF 00-02 to have a material impact on the financial statements. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,regarding our business, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ from those that may be anticipated by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business. Overview We are a leading online retailer of sporting goods. We have designed fogdog.com, our online store, to offer extensive product selection, detailed product information and a personalized shopping experience. We believe that we offer the largest selection of sporting goods online, with slightly over 80,000 distinct stock keeping units representing approximately 850 brands in all major sports categories. Fogdog.com features a collection of specialty shops, including soccer, baseball, golf, outdoors, fan/memorabilia and other popular categories, organized to appeal to a broad base of customers from the avid enthusiast to the occasional participant. Our online store is designed to address the limitations of the traditional sporting goods retail channel for consumers and manufacturers. Most of our products, representing thirty different sports, are featured in twenty nine specialty shops and fifteen brand concept shops. We provide information and analysis authored by experts, helpful shopping services and innovative merchandising. We derive our revenue from the sale of sporting goods from our web site. Merchandise revenue is recognized when goods are shipped to our customers from manufacturers, distributors or third-party warehouses, which occurs only after credit card authorization. For sales of merchandise, we are responsible for pricing, processing and fulfilling the orders. We process merchandise returns and bear the credit risk for these transactions. We generally allow returns for any reason within 45 days of the sale. Accordingly, we provide for allowances for estimated future returns at the time of shipment based on historical data. Historically, our rate of product returns has ranged between 8% and 10% of total revenues, but our future return rates could differ significantly from our historical averages. Currently approximately 40% of our transactions are shipped from inventory held at third party warehouses. We expect this percentage to increase in future periods. Results of Operations SECOND QUARTER OF FISCAL YEAR 2000 COMPARED TO SECOND QUARTER OF FISCAL YEAR 1999 The following table presents selected financial data for the periods indicated as a percentage of total net revenues. 9
Three Months Ended June 30, 2000 1999 -------------- ------------- Net revenue 100% 100% Cost of revenue 89 98 -------------- ------------- Gross profit 11 2 -------------- ------------- Operating expenses: Marketing and sales 234 367 Technology and content 22 99 General and administrative 28 61 Amortization of intangible assets 6 2 Amortization of stock-based compensation 37 56 -------------- ------------- Total operating expenses 327 585 -------------- ------------- Operating loss (316) (583) Interest income, net 15 19 -------------- ------------- Net loss (301%) (564%) ============== =============
Net revenue Net revenue increased by 699% to $5.8 million from $731,000 for the three months ended June 30, 2000 and 1999. The increase in our net revenue was due to increased transactions on our fogdog.com web site. The top sports in the three months ended June 30, 2000 were baseball, representing approximately 19% of revenue, and golf, fitness and health, and basketball each representing between 7% and 9% of revenue. Revenue from merchandise shipped outside the United States was approximately 3.3% and 10.0% of total merchandise revenue for the three months ended June 30, 2000 and 1999, respectively. The decline in international merchandise revenues as a percentage of revenue in the second quarter of 2000 was due to the increased volume of North American sales. Cost of revenue Costs of revenues consists of products costs, shipping costs, credit card processing fees, out-bound freight costs and certain promotional expenses. Cost of revenues were $5.2 million and $718,000 or 89% and 98% of merchandise revenues for the three months ended June 30, 2000 and 1999, respectively. Cost of revenues increased in total dollars in 2000 compared to 1999 as a result of the significantly higher volume of transactions in 2000 and higher freight costs. Cost of revenues as a percentage of net revenues decreased in 2000 as compared to 1999 primarily due to growth in net revenues with a less than a proportional increase in promotional and shipping costs. Marketing and sales 10 Our marketing and sales expenses consist primarily of advertising expenditures, distribution facility expenses, including equipment and supplies, credit card verification fees and payroll and related expenses for personnel engaged in marketing, merchandising, customer service and distribution activities. Marketing and sales expenses were $13.7 million and $2.7 million for the three months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, marketing and sales expenses were 234% and 367% for the three months ended June 30, 2000 and 1999, respectively. The increase in marketing and sales expenses in dollars year over year was attributable to an increase in advertising, merchandising, customer service, distribution, and marketing personnel and related costs as we continued to expand our online store and establish the Fogdog brand. The decrease in marketing and sales expenses as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in marketing and sales expenses during the three months ended June 30, 2000. In September 1999, the Company entered into a two year strategic agreement with Nike USA, Inc. to distribute Nike products on our web site. In exchange for certain online exclusivity rights, we granted Nike a fully-vested warrant to purchase 4,114,349 shares of our common stock at an exercise price of $1.54 per share. Our marketing and sales expenses in each quarter over the two-year term of the agreement will include a portion of the warrant's estimated fair value of approximately $28.8 million, amortized on a straight-line basis. For the three months ended June 30, 2000, the Company recorded $3.2 million of amortization related to the Nike warrant. We paid $250,000 to Nike upon execution of the agreement and an additional $250,000 was paid in the first quarter of 2000 in accordance with the agreement. These payments are being amortized to marketing and sales expense over the life of the agreement. We have more recently adopted a strategy that focuses on increasing profitability by controlling our operating expenses while increasing revenue at a more moderate pace. However, we may continue to substantially increase our marketing and promotional efforts and hire additional marketing, merchandising, customer service, and operations personnel in the future. Technology and content Our technology and content expenses consist of payroll and related expenses for web site maintenance and information technology personnel, Internet access, hosting charges and logistics engineering, and web content and design expenses. Technology and content expenses were $1.3 million and $726,000 for the three months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, technology and content expenses were 22% and 99% for the three months ended June 30, 2000 and 1999, respectively. The increase in technology and content expenses in dollars in 2000 compared to 1999 was due to higher costs of maintaining and hosting the web site. The decrease in technology and content expenses as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in technology and content expenses during 2000. We have more recently adopted a strategy that focuses on increasing profitability by controlling our operating expenses while increasing revenue at a more moderate pace. However, we may continue to substantially increase our technology and content efforts and hire additional engineering and design support in the future. General and administrative General and administrative expenses consist of payroll and related expenses for executive and administrative personnel, facilities expenses, professional service expenses and other general corporate expenses. General and administrative expenses were $1.7 million and $448,000 for the three months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, general and administrative expenses were 28% and 61% for the three months ended June 30, 2000 and 1999, respectively. The increase in general and administrative expenses in dollars was due to increased personnel and related costs to support the implementation of our business strategy. The decrease in general and administrative expenses as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in general and administrative expenses during 2000. Amortization of intangible assets 11 Amortization of intangible assets was $332,000 and $12,000 for the three months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, amortization of intangible assets was 6% and 2% for the three months ended June 30, 2000 and 1999, respectively. The increase in amortization in dollars and as a percentage of net revenues was due to the acquisition of Sports Universe, Inc. in September of 1999. Amortization of stock-based compensation In connection with the grant of employee stock options, we recorded aggregate unearned stock-based compensation of $11.5 million through June 30, 2000. Employee stock-based compensation expense is amortized over the vesting period of the options, which is generally four years, using the multiple-option approach. We recorded employee stock-based compensation expenses of approximately $2.2 million and $409,000 for the three months ended June 30, 2000 and 1999, respectively. The increase in stock-based compensation expense in dollars was due to the increased headcount in 1999. Unearned stock-based compensation expense will be reduced in future periods to the extent that options are terminated prior to full vesting. Interest income, net Interest income, net, consists of interest earned on cash and short-term investments, offset by interest expense related to bank borrowings and other financing lines. Interest income, net, was $887,000 and $136,000, for the three months ended June 30, 2000 and 1999, respectively. The increase in interest income, net, in 2000 was due to higher average cash balances from the Company's initial public offering in the fourth quarter of 1999 as well as the proceeds from the exercise of the underwriters' over-allotment in January 2000 and sales of preferred stock completed in the second half of 1999. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 The following table presents selected financial data for the periods indicated as a percentage of total net revenues. 12 Six Months Ended June 30, 2000 1999 ------ ------ Net revenue 100% 100% Cost of revenue 93 96 ------ ------ Gross profit 7 4 ------ ------ Operating expenses: Marketing and sales 236 381 Technology and content 24 111 General and administrative 32 69 Amortization of intangible assets 6 2 Amortization of stock-based compensation 33 68 ------ ------ Total operating expenses 331 631 ------- ------- Operating loss 324 627 Interest income, net 18 15 ------- ------- Net loss (306%) (612%) ======== =======
Net revenue Net revenue increased by 873% to $10.6 million from $1.1 million for the six months ended June 30, 2000 and 1999. The increase in our net revenue was due to increased transactions on our fogdog.com web site. The top sports in the six months ended June 30, 2000 were baseball, representing approximately 18% of revenue, fitness and health, golf, and basketball each representing between 7% and 11% of revenue. Revenue from merchandise shipped outside the United States was approximately 3% and 12% of total merchandise revenue for the six months ended June 30, 2000 and 1999, respectively. The decline in international merchandise revenues as a percentage of revenue in the first six months of 2000 was due to the increased volume of North American sales. Cost of revenue Cost of revenues were $9.8 million and $1.0 million or 93% and 96% of merchandise revenues for the six months ended June 30, 2000 and 1999, respectively. Cost of revenues increased in total dollars in 2000 compared to 1999 as a result of the significant increase in volume of transactions and higher freight costs. The decrease in the cost of revenue as a percentage of net revenues was due to growth in revenue with less than a proportional increase in promotional and shipping costs Marketing and sales Marketing and sales expenses were $24.9 million and $4.1 million for the six months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, marketing and sales expenses were 236% 13 and 381% for the six months ended June 30, 2000 and 1999, respectively. The increase in marketing and sales expenses in dollars year over year was attributable to an increase in advertising, merchandising, customer service, distribution, and marketing personnel and related costs as we continued to expand our online store and establish the Fogdog brand. The decrease in marketing and sales expenses as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in marketing and sales expenses during 2000. We have more recently adopted a strategy that focuses on increasing profitability by controlling our operating expenses while increasing revenue at a more moderate pace. However, we may continue to substantially increase our marketing and promotional efforts and hire additional marketing, merchandising, customer service, and operations personnel in the future. Technology and content Technology and content expenses were $2.6 million and $1.2 million for the six months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, technology and content expenses were 24% and 111% for the six months ended June 30, 2000 and 1999, respectively. The increase in technology and content expenses in dollars in 2000 compared to 1999 was due to higher costs of maintaining and hosting the web site. The decrease in technology and content expenses as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in technology and content expenses during 2000. We have more recently adopted a strategy that focuses on increasing profitability by controlling our operating expenses while increasing revenue at a more moderate pace. However, we may continue to substantially increase our technology and content efforts and hire additional engineering and design support in the future. General and administrative General and administrative expenses were $3.3 million and $752,000 for the six months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, general and administrative expenses were 32% and 69% for the six months ended June 30, 2000 and 1999, respectively. The increase in general and administrative expenses in dollars was due to increased personnel and related costs to support the implementation of our business strategy. The decrease in general and administrative as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in general and administrative expenses during 2000. Amortization of intangible assets Amortization of intangible assets was $664,000 and $24,000 for the six months ended June 30, 2000 and 1999, respectively. As a percentage of net revenues, amortization of intangible assets was 6% and 2% for the six months ended June 30, 2000 and 1999, respectively. The increase in amortization in dollars and as a percentage of net revenues was due to the acquisition of Sports Universe, Inc. in September of 1999. Amortization of stock-based compensation We recorded employee stock-based compensation expenses of approximately $3.5 million and $740,000 for the six months ended June 30, 2000 and 1999, respectively. The increase in stock-based compensation expense in dollars was due to the increased headcount in 1999. Unearned stock-based compensation expense will be reduced in future periods to the extent that options are terminated prior to full vesting. Interest income, net Interest income, net, was $1.9 million and $158,000, for the six months ended June 30, 2000 and 1999, respectively. The increase in interest income, net, in 2000 was due to higher average cash balances from the Company's initial public offering in the fourth quarter of 1999 as well as the proceeds from the exercise of the underwriters' over-allotment in January 2000, and the additional sales of preferred stock completed in the last two quarters of 1999. 14 Liquidity and Capital Resources We raised approximately $59.7 million in December 1999 from an initial public offering of 6,000,000 shares of our Common Stock, net of underwriting discounts and issuance costs. We raised an additional $4.3 million in the first quarter of 2000 from the sale of 425,000 shares from the underwriters' over-allotment. Prior to the offering, we had financed our operations primarily from private sales of convertible preferred stock totaling $38.8 million and, to a lesser extent, from bank borrowings and lease financing. Our operating activities used cash of $23.8 million and $5.4 million for the six months ended June 30, 2000 and 1999, respectively. This negative operating cash flow resulted primarily from our net losses experienced during these periods, less significant levels of amortization related to stock-based compensation and the Nike warrant. Throughout 2000 and 1999, we invested in the development of our brand and online store, hired additional personnel and expanded our technology infrastructure to support our growth. Our investing activities, consisting of the maturity, sale, and purchase of short-term investments and purchase of furniture, fixtures and computer equipment to support our growing number of employees, generated cash of $19.9 million for the six months ended June 30, 2000 and used cash of $318,000 for the six months ended June 30,1999. Our financing activities generated cash of $4.7 million and $18.2 million, for the six months ended June 30, 2000 and 1999, respectfully. The cash generated from these financing activities was primarily related to the exercise of the underwriters' over-allotment of 425,000 shares of Common Stock for $4.3 million, net of discounts and issuance costs in the first quarter of 2000, and the issuance and sale of our Series C Preferred Stock in the first six months of 1999. At June 30, 2000, we had cash and cash equivalents and short-term investments aggregating $52.1 million. Approximately $150,000 of our short-term investments secure a letter of credit issued in connection with the lease of our corporate offices. We have an agreement with a bank, which provides us with the ability to borrow up to $5.0 million, subject to specified limitations. The agreement provides for the following: . a revolving line of credit facility for $3,000,000 expiring in December of 2000; . an equipment term loan facility for $2,000,000 limited to 75% of the invoice amount of the equipment; . an equipment term loan for $88,552 payable in 26 equal installments commencing December 22, 1998; and . an equipment term loan for $766,667 payable in 24 equal installments commencing September 30, 1999. We had an outstanding aggregate debt balance at June 30, 2000 of $536,000. Interest on the borrowings range from the prime rate plus one-half percent to the prime rate plus one percent and is payable monthly. We must meet financial covenants with respect to the borrowings, with which we were in compliance at June 30, 2000. During the first six months of 2000, we entered into commitments for online and traditional offline advertising. As of June 30, 2000, our remaining commitments were approximately $3.0 million. In addition, we have remaining commitments under the lease for our headquarters of $4.3 million. We expect to devote substantial resources to continue development of our brand and online store, expand our sales, support, marketing and engineering organizations, establish additional facilities worldwide and build the systems necessary to support our growth. Although we believe that our current cash and cash 15 equivalents and our borrowing capacity, will be sufficient to fund our activities for at least the next 12 months, there can be no assurance that we will not require additional financing within this time frame or that additional funding, if needed, will be available on terms acceptable to us or at all. In addition, although at present we do not have any legally binding agreements or commitments with respect to any acquisition of other businesses, products or technologies, from time to time, we evaluate potential acquisitions of other businesses, products and technologies. In order to consummate potential acquisitions, we may issue additional securities or need additional equity or debt financing and these financings may be dilutive to existing investors. Year 2000 Readiness Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. Prior to December 31, 1999, we completed our Year 2000 compliance program. The program was directed by our information technology group. We have not experienced any material Year 2000 related difficulties in either our IT or non- IT systems, or otherwise. We may discover Year 2000 compliance problems in our systems in the future. In addition, third-party software, hardware or services incorporated into our business or used in our web site may need to be revised or replaced, all of which could be time-consuming and expensive and could adversely affect our business. Risks Related to Our Business We expect significant increases in our operating expenses and continuing losses. We incurred a cumulative net loss of $67.7 million for the period from inception through June 30, 2000. Our net loss for the three months ended June 30, 2000 was $17.6 million and for the three months ended June 30, 1999 was $4.1 million. Our net loss for the year ended December 31, 1999 was $29.6 million and for the year ended December 31, 1998 was $4.1 million. We have not achieved profitability. We only began selling products under our current business model in November 1998. We may not obtain enough customer traffic or a high enough volume of purchases to generate sufficient revenues and achieve profitability. We believe that we will continue to incur operating losses and net losses for the next several years, and while we have adopted a strategy of controlling operating expenses while increasing revenues at a more moderate pace, the rate at which we will incur losses may increase significantly from current levels. While we are focused on controlling operating expenses, we may again in the future increase our operating expenses substantially as we: . increase our sales and marketing activities, particularly advertising efforts; . provide our customers with promotional benefits; . increase our general and administrative functions to support our growing operations; . expand our customer support and sports consultant staffs to better serve customer needs; . develop enhanced technologies and features to improve our web site; 16 . enhance our distribution and order fulfillment capabilities; and . expand third-party distribution facilities or possibly buy or build our own. Because we will spend these amounts before we receive any revenues from these efforts, our losses will be greater than the losses we would incur if we developed our business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate, which would further increase our losses. Also, the timing of these expenses may contribute to fluctuations in our quarterly operating results. Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market analysts and investors, the market price of our Common Stock may decline significantly. Our annual and quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Because our operating results are volatile and difficult to predict, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. We have in the past and it is likely that we may in some future quarter have operating results which fall below the expectations of securities analysts and investors. In this event, the trading price of our Common Stock may decline significantly. Factors that may harm our business or cause our operating results to fluctuate include the following: . our inability to obtain new customers at a reasonable cost, retain existing customers, or encourage repeat purchases; . decreases in the number of visitors to our web site or our inability to convert visitors to our web site into customers; . the mix of sporting goods, apparel, footwear and other products sold by us; . our inability to manage inventory levels; . our inability to adequately maintain, upgrade and develop our web site, the systems that we use to process customers' orders and payments or our computer network; . the ability of our competitors to offer new or enhanced web sites, services or products; . price competition; . fluctuations in the demand for sporting goods associated with sports events, movies, television and other entertainment events; . fluctuations in the amount of consumer spending on sporting goods and related products, which tend to be discretionary spending items; . the termination of existing marketing relationships with key business partners or failure to develop new ones; . increases in the cost of online or offline advertising; . the amount and timing of operating costs and capital expenditures relating to expansion of our operations; . unexpected increases in shipping costs or delivery times, particularly during the holiday season; and . technical difficulties, system downtime or Internet slowdowns. 17 A number of factors will cause our gross margins to fluctuate in future periods, including the mix of products sold by us, inventory management, inbound and outbound shipping and inbound handling costs, the level of product returns and the level of discount pricing and promotional coupon usage. Any change in one or more of these factors could reduce our gross margins in future periods. Our stock price is subject to fluctuation, which could result in substantial losses for investors. The market price for our Common Stock has and will continue to vary. This could result in substantial losses for investors. The market price of our Common Stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include: - Changes in financial estimates by securities analysts; - Publicity about us, our products and services, our competitors, or e-commerce in general; - Any future sales of our Common Stock or other securities; and - Stock market price and volume fluctuations of publicly-traded companies in general and Internet-related companies in particular. The trading prices of Internet-related companies and e-commerce companies have been especially volatile and many have fallen since reaching near historical highs in prior months. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources, which could seriously harm our business and operating results. Seasonal fluctuations in the sales of sporting goods could cause wide fluctuations in our quarterly results. We have experienced and expect to continue to experience seasonal fluctuations in our revenues. These seasonal patterns will cause quarterly fluctuations in our operating results. In particular, the fourth calendar quarter accounted for a large percentage of our total annual sales for 1999. We expect that the fourth calendar quarter will account for a large percentage of our total annual sales in this and future years. In anticipation of increased sales activity during the fourth calendar quarter, we may hire a significant number of temporary employees to bolster our permanent staff and may significantly increase our inventory levels. For this reason, if our revenues were below seasonal expectations during this quarter, our annual operating results could be below the expectations of securities analysts and investors. In the future, our seasonal sales patterns may become more pronounced, may strain our personnel, product distribution and shipment activities and may cause a shortfall in revenues as compared to expenses in a given period. Our limited operating history makes forecasting difficult. Because most of our expenses are based on planned operating results, failure to accurately forecast revenues could cause net losses in a given quarter to be greater than expected. As a result of our limited operating history, it is difficult to accurately forecast our revenues and we have limited meaningful historical financial data upon which to base planned operating expenses. We were incorporated in October 1994. We started as a web site design company and derived most of our revenues from the sale of web development services until August 1998, when we stopped selling those services. We began selling products on our web site only in November 1998. Our results since that time will not be comparable to our prior results. We base our current and future expense levels on our operating plans, expected traffic and purchases from our web site and estimates of future revenues, and our significant expenses are to a large extent fixed in the short term. Our sales and operating results are difficult to forecast because they generally depend on the volume and timing of the orders we receive. As a result, we may be 18 unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall. This inability could cause our net loss in a given quarter to be greater than expected. We have been unable to fund our operations with the cash generated from our business. If we do not generate cash sufficient to fund our operations, we may need additional financing to continue our growth or our growth may be limited. To date, we have funded our operations from the sale of equity securities and have not generated sufficient cash from operations. Cash from revenues must increase significantly for us to fund anticipated operating expenses internally. If our cash flows are insufficient to fund these expenses, we may need to fund our growth through additional debt or equity financing or reduce costs. Further, we may not be able to obtain financing on satisfactory terms. Our inability to finance our growth, either internally or externally, may limit our growth potential and our ability to execute our business strategy. If we issue securities to raise capital, our existing stockholders may experience additional dilution or the new securities may have rights senior to those of our common stock. We must maintain relationships with our distributors and manufacturers to obtain sufficient quantities of quality merchandise on acceptable commercial terms. If we fail to maintain our relationships with those parties on acceptable terms, our sales and profitability could suffer. Because we rely primarily on product manufacturers and third-party distributors to stock the products we offer, our business would be seriously harmed if we were unable to develop and maintain relationships with suppliers that allow us to obtain sufficient quantities of quality merchandise on acceptable terms. Our product orders are fulfilled by more than 90 distributors and manufacturers. However, our contracts or arrangements with these parties do not guarantee the availability of merchandise, establish guaranteed prices or provide for the continuation of particular pricing practices. In addition, we do not have a written contract with most of our major suppliers. Although we have alternative sources of supply for a small percentage of the products we offer, we may have difficulty establishing alternative sources for many of our products. Our current suppliers may not continue to sell products to us on current terms or at all, and we may not be able to establish new supply relationships to ensure delivery of merchandise in a timely and efficient manner or on terms acceptable to us. Some sporting goods manufacturers may be slow to adopt the use of the Internet as a distribution channel. In addition, our supply contracts typically do not restrict a supplier from selling products to other retailers, which could limit our ability to supply the quantity of merchandise requested by our customers. If we cannot supply our products to consumers at acceptable prices, we may lose sales and market share as consumers make purchases elsewhere. Further, an increase in supply costs could cause our operating losses to increase beyond current expectations. If we are unable to establish and maintain relationships with key brand manufacturers, our sales will decrease. If we are unable to establish and maintain relationships with important brand manufacturers, we may be unable to obtain sufficient quantities of popular products and in-depth product information. This could result in lower sales. We have never derived more than 40% of our revenues in any quarter from products purchased directly from manufacturers, although we cannot predict whether we will exceed this percentage in future periods. For the three months ended June 30, 2000, we derived approximately 18% of our net revenues from sales of Nike. We entered into an agreement with Nike in September 1999 that will give us access to Nike's generally available product lines and product information, as well as advance availability of mutually agreed upon, newly released Nike products. However, this agreement has a term of only two years and is subject to earlier termination if we breach the agreement. Moreover, Nike is not legally obligated to sell us any quantity of product or deliver on any particular schedule. Also, our purchases from Nike's online affiliate are subject to similar limitations. If our relationship with Nike deteriorates, our business and reputation could be seriously harmed. In addition, we believe our relationship with Nike has caused other existing suppliers or could cause future suppliers to modify their existing relationships with us or prevent new relationships from being formed. We believe that some of Nike's competitors 19 have been and may in the future be reluctant to enter into an agreement with us or to provide products for sale on our online store because of our agreement with Nike. For example, we believe that some competitors may not want to be featured on our web site because of Nike's involvement with us. Also, we believe that Nike's competitors may fear that Nike may use its relationship with us to attempt to gain access to competitive information concerning those competitors. We have experienced difficulty in obtaining sufficient product allocations from some of our key vendors. If we have to rely exclusively on distributors and not manufacturers, we may not be able to obtain the types and quantities of the products we desire because of varying demand from their other customers or temporal limitations on the availability of products from their suppliers. In addition, Nike and some of our other key vendors have established, and may continue to expand, their own online retailing efforts, which may impair our ability to acquire sufficient product allocations from these vendors. In connection with this expansion, or a decision by manufacturers not to offer products online or through our web site, manufacturers have asked us and may again ask us to remove their products from our web site. We depend on third parties to fulfill all of our customer orders, and any problems with these parties could impair our operating results and harm our reputation. Currently, we rely primarily on third-party distributors and product manufacturers to fulfill our customers' orders. These fulfillment partners are responsible for packaging products and arranging for them to be shipped to our customers. We may be unable to ensure that our fulfillment partners fill our customers' orders accurately and that orders are shipped promptly and in appropriate packaging. In addition, we have no written contracts with some of these fulfillment partners, and our contracts with the others are generally terminable upon short notice. If any of our existing fulfillment arrangements were to be terminated, our business could be disrupted and we could incur significant costs in attempting to make alternative arrangements. Our distribution network is also heavily dependent upon third-party carriers, primarily United Parcel Service, for product shipments. UPS accounted for approximately 90% of our customer shipments by units for the three months ended June 30, 2000. We are therefore subject to the risk that labor shortages, strikes, inclement weather or other factors may limit the ability of UPS and other carriers to meet our shipping needs. Our shippers' failure to deliver products to our customers in a timely manner would damage our brand and adversely affect our operating results. If UPS or our other existing shippers are unable or unwilling to deliver our products to our customers, we would need to arrange for alternative carriers. We may be unable to engage an alternative carrier on a timely basis or upon terms favorable to us. Changing carriers would likely disrupt our business. If we fail to expand our fulfillment operations successfully, sales could fall below expectations and we could incur unexpected costs. We must be able to fill customer orders quickly and efficiently. If we do not expand our fulfillment operations and systems to accommodate increases in demand, particularly during the peak holiday selling season, we will not be able to increase our net sales in accordance with the expectations of securities analysts and investors. We intend to add to the capacity of our distribution network by entering into agreements with additional fulfillment partners. We cannot guarantee that we will be able to enter into any such agreements on terms acceptable to us or at all. It may be difficult for us to assimilate new partners into our distribution system. We may be unable to secure these additional partners or integrate their systems and technologies into ours. If we fail to do so, we may lose sales and our reputation for prompt delivery and customer service would suffer. Even if we are successful in expanding our distribution network, our planned expansion may cause disruptions in our business and our fulfillment operations may be inadequate to accommodate increases in customer demand. High merchandise returns could adversely affect our financial condition and results of operations. We allow our customers to return products within 45 days for a full refund. We make allowances in our financial statements for anticipated merchandise returns based on historical return rates. However, actual returns may exceed our allowances. If merchandise returns increase significantly or exceed our allowances, our financial condition and results of operations could be adversely affected. 20 We plan to expand our inventory levels, and we may have to write down the value of our inventory if consumer demand changes after we order products. Although we currently rely primarily on our distributors and brand name suppliers to carry the inventory available for purchase on our site, we have increased the amount of inventory we carry and the percentage of sales made from our own inventory has increased. We anticipate that we will continue to increase our inventory levels, and that the percentage of sales made from our own inventory will continue to rise. As a result, it will be critical to our success that we accurately predict the rapidly changing trends in consumer preferences for sporting goods, and do not overstock unpopular products. Predicting these trends is difficult. If demand for one or more of our products falls short of our expectations, we may be required to take significant inventory markdowns, which could reduce our net sales and gross margins. In addition, to the extent that demand for our products increases over time, we may be forced to increase inventory levels. Any increase would subject us to additional inventory risks. We rely substantially on our relationships with online services, search engines and directories to drive traffic to our web site. If these relationships do not continue, it will be difficult for us to increase market share and achieve profitability. We have relationships with online services, search engines and directories to provide content and advertising banners that link to our web site. We rely on these relationships as significant sources of traffic to our web site and, therefore, new customers. However, these relationships are generally terminable on short notice, and they may not be available to us in the future on acceptable terms. If we are unable to maintain satisfactory relationships with high-traffic web sites on acceptable terms, our ability to attract new customers and enhance our brand could be harmed. Further, many of the web sites with which we have existing or potential online advertising arrangements may also provide advertising services for other marketers of sporting goods. As a result, these sites may be reluctant to enter into or maintain relationships with us. Our online advertising efforts may require costly, long-term commitments. We may not achieve sufficient online traffic or product purchases to realize sufficient sales to compensate for our significant obligations to these sites. Failure to achieve sufficient traffic or generate sufficient revenue from purchases originating from third-party web sites would likely reduce our profit margins and may result in termination of these types of relationships. Without these relationships, it is unlikely that we can sufficiently increase market share and achieve profitability. Because a key element of our strategy is to generate a high volume of traffic on our web site, our business could be harmed by capacity constraints. A key element of our strategy is to generate a high volume of traffic on, and use of, our web site, www.fogdog.com. Accordingly, the satisfactory performance, reliability and availability of our web site, transaction-processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers and maintain adequate customer service levels. Our revenue depends upon the number of visitors who shop on our web site and the volume of orders that we can fulfill. Any system interruptions that result in the unavailability of our web site or reduced order fulfillment would reduce the volume of goods that we sell and the attractiveness of our product offerings. We have experienced periodic system interruptions in the past, and we believe that system interruptions may continue to occur in the future. Any substantial increase in the volume of traffic on our web site or the number of orders placed by customers will require that we expand and upgrade our technology, transaction-processing systems and network infrastructure. We may not be able to accurately project the rate or timing of increases, if any, in the use of our web site or timely expand and upgrade our technology, transaction-processing systems and network infrastructure to accommodate these increases. Our vital computer and communications hardware and software systems are vulnerable to damage and interruption which could harm our business. Our success, in particular our ability to successfully receive and fulfill orders and provide high-quality customer service, largely depends upon the efficient and uninterrupted operation of our computer and 21 communications hardware and software systems. We use internally developed systems for our web site and some aspects of transaction processing, including customer profiling and order verifications. Our systems and operations are vulnerable to damage or interruption from: . earthquake, fire, flood and other natural disasters; . power loss, computer systems failures, Internet and telecommunications or data network failure, operator negligence, improper operation by or supervision of employees, physical and electronic loss of data or security breaches, misappropriation and similar events; and . computer viruses. In the past, a number of online retailers have been the target of "denial of service" attacks by outside third parties. These attacks seek to overburden online companies' capacity so that others trying to access the web site cannot do so. If we are the victim of a successful attack of this kind resulting in denial of access to our customers, our business, reputation, operations and financial condition may be adversely affected. Further, we may be the target of other types of computer attacks and hacking by third parties which could have similar adverse effects. In addition, we maintain our servers at the site of a third party, Exodus Communications, Inc., in Mountain View, California. We cannot control the maintenance and operation of this site, which is also susceptible to similar disasters and problems. We have no formal disaster recovery plan, and our insurance policies may not adequately compensate us for any losses that we may incur. Any system failure that causes an interruption in our service or a decrease in responsiveness could harm our relationships with our customers and result in reduced revenues. Establishing the Fogdog brand quickly and cost-effectively is central to our success. If we do not establish the Fogdog brand quickly, we may not capture sufficient market share or increase revenues enough to achieve profitability. We believe that we must establish, maintain and enhance the Fogdog brand to attract more customers to our web site and to generate revenues from product sales. Brand recognition and customer loyalty will become increasingly important as more companies with well-established brands in online services or the sporting goods industry offer competing services on the Internet. For example, existing sporting goods retailers with established brand names may establish a competing online presence and existing online providers with better name recognition than Fogdog may begin selling sporting goods. Establishing the Fogdog brand as a widely recognized and trusted source of sporting goods will depend largely on our success in providing a high-quality online experience supported by a high level of customer service, which cannot be assured. We expect that we will need to increase substantially our spending on programs designed to create and maintain strong brand loyalty among customers and we cannot be certain that our efforts will be successful. Our inability to secure and protect our Internet domain name may adversely affect our business operation. The www.fogdog.com Internet domain name is our brand on the Internet. In October 1999, a third party challenged the use of the domain name as a violation of a registered trademark. If we are unable to adequately protect our Internet domain name, our trademarks and other intellectual property rights, or must incur costs in doing so, it could harm our business. The acquisition and maintenance of Internet domain names generally is regulated by governmental agencies and their designees. Until recently, Network Solutions, Inc. was the exclusive registrar for the ".com," ".net" and ".org" generic top-level Internet domains in the U.S. In April 1999, however, the Internet Corporation for Assigned Names and Numbers, or ICANN, a new global non-profit corporation formed to oversee a set of the Internet's core technical management functions, opened the market for registering Internet domain names to an initial group of five companies. Network Solutions, Inc. still maintains the registry containing all the registrations in the generic top-level Internet domains. The market for registering these Internet domain names in the U.S. and 22 in foreign countries is expected to undergo further changes in the near future. We expect the requirements for registering Internet domain names also to be affected. The relationship between regulations governing Internet domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring Internet domain names that are similar to, infringe upon or otherwise decrease the value of our Internet domain name, our trademarks and other intellectual property rights used by us and we may need to protect our rights through litigation. We may not be able to compete successfully against current and future competitors, which could harm our margins and our business. The online commerce market is new, rapidly evolving and intensely competitive. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our net sales and results of operations. We expect competition to intensify in the future because current and new competitors can enter our market with little difficulty and can launch new web sites at a relatively low cost. In addition, the development of new technologies and the expansion of existing technologies, such as price comparison programs that select specific products from a variety of web sites, may increase competitive pressures on us. We currently or potentially compete with a variety of other companies, including: . retailers selling sporting goods exclusively online such as MVP.com, which has partner relationships with Sportsline.com and Galyans; . traditional, store-based, national chain sporting goods retailers such as the Venator Group (Footlocker brands and Champs); . traditional, store-based, national chain outdoor equipment retailers, such as REI; . traditional, store-based, national chain athletic footwear retailers, such as Footstar, Inc.; . traditional, store-based, regional chain sporting goods retailers such as The Sports Authority, Dick's Sporting Goods and Galyan's; . major discount retailers, such as Wal-Mart, Kmart and Target; . catalog sporting goods retailers, such as Eastbay, TSI and Edwin Watts; . numerous traditional local sporting goods and outdoor activity stores; . online efforts of these traditional retailers, including the online stores operated by Dick's Sporting Goods, Copeland's and REI; . vendors of sporting goods that currently sell some of their products directly online, such as K-Swiss and Patagonia; . Global Sports Interactive, a developer and operator of e-commerce sporting goods businesses for store-based retailers, general merchandisers, internet companies, and media companies; . Internet portals and online service providers that feature shopping services, such as AOL, Excite@Home, GO Network and Lycos; . other online retailers that include sporting goods as part of their product offerings, such as Onsale and Buy.com; and 23 . physical and online stores of entertainment entities that sell sporting goods and fan memorabilia, such as ESPN.com and CBS Sportsline; There are no assurances that we will be able to be competitive against current or potential competitors. Many of our traditional store-based and online competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing, technical and other resources than we do. Many of these competitors have well established relationships with manufacturers, more extensive knowledge about our industry and can devote substantially more resources to web site development and advertising. In addition, new competitors may emerge in the future and larger, well-established and well-financed entities may join with online competitors or sporting goods suppliers as the use of the Internet and other online services increases. New competitors may have the ability to attract customers through innovative ways including sports celebrities. Our competitors may be able to secure products from vendors on more favorable terms, fulfill customer orders more efficiently and adopt more aggressive pricing or inventory availability policies than we can. Furthermore, our competitors may be able to secure a broader range of products from or otherwise develop close relationships with primary vendors. Some competitors may price their products below cost in an attempt to gain market share. Traditional store- based retailers also enable customers to see and feel products in a manner that is not possible over the Internet. We may be unable to hire and retain the skilled personnel necessary to develop our business. While we have adopted a strategy of controlling operating expenses while increasing revenues at a more moderate pace, we may continue to hire a significant number of additional marketing, engineering, merchandising and retailing personnel in 2000 and beyond. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel in the future. Our business cannot continue to grow if we cannot attract qualified personnel. Our failure to attract and retain the highly trained personnel that are integral to our business may limit our growth rate, which would harm our business. We expect to face greater difficulty attracting these personnel with equity incentives as a public company than we did as a privately held company. We are dependent upon our chief executive officer for our future success and our managers are not obligated to stay with us. Our future success depends to a significant degree on the skills, experience and efforts of Timothy Harrington, our Chief Executive Officer, and other key personnel. The loss of the services of any of these individuals could harm our business and operations. In addition, we have not obtained key person life insurance on any of our key employees. If any of our key employees left or was seriously injured and unable to work and we were unable to find a qualified replacement, our business could be harmed. We have experienced significant growth in our business in recent periods and any inability to manage this growth and any future growth could harm our business. Our historical growth has placed, and any further growth is likely to continue to place, a significant strain on our management, administrative resources, software and systems. Any failure to manage growth effectively could seriously harm our business. We have grown from 55 employees on March 31, 1999 to 165 employees on June 30, 2000. To be successful, we will need to continue to implement management information systems and improve our operating, administrative, financial and accounting systems and controls. We will also need to train new employees and maintain close coordination among our executive, accounting, finance, marketing, sales, and operations organizations. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. If the protection of our trademarks and proprietary rights is inadequate, our brand and reputation could be damaged and we could lose customers. 24 The steps we take to protect our proprietary rights may be inadequate. We regard our copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success. We rely on trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our proprietary rights. Despite these precautions, it may be possible for a third- party to copy or otherwise obtain and use our intellectual property without our authorization. We have applied to register the trademark Fogdog in the United States and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which we will sell our products and services online. If we become involved in litigation to defend our intellectual property rights, we may have to spend significant amounts of money, and the litigation could divert our management's time and efforts. We may be subject to intellectual property claims that could be costly and could disrupt our business. Third parties have in the past and may in the future assert that our business or technologies infringe their intellectual property rights. From time to time, we have received notices from third parties questioning our right to present specific images or mention athletes' names on our Web site, or stating that we have infringed their trademarks or copyrights. In addition, in June 1999 we received a letter from a third party stating his belief that our Internet marketing activities infringe a patent for a home shopping device and inviting us to license this technology. Also, in October 1999 we received a letter from a third party alleging that our use of the trademark "Fogdog" and the domain name for our web site fogdog.com infringed a registered trademark licensed by this third party, and further alleging unfair competition under state and federal trademark law. In January 2000, we received a letter from a third party stating his belief that our Web site induces infringement by others of a patent for a remote query communication system, and inviting us to license this technology. We may in the future receive additional claims that we are engaging in unfair competition or other illegal trade practices. These claims may increase in the future. We may be unsuccessful in defending against any such claim, which could result in substantial damages, fines or other penalties. The resolution of a claim could also require us to change how we do business, redesign our web site and other systems, or enter into burdensome royalty or licensing agreements. In particular, we may have to enter into a license to use our domain name, or we could even be forced to change our name, either of which would severely harm our business. These license or royalty agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement. Our insurance coverage may not be adequate to cover every claim that could be asserted against us. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management's time and disruptions in our business. Any such claim could also harm our reputation and brand. We have recently curtailed our current efforts to expand business internationally due to market conditions. We believe that the current globalization of the economy requires businesses to consider pursuing international expansion. We have recently curtailed our current efforts to expand business internationally due to market conditions, although we intend to re-evaluate our international expansion plans and may consider international expansion in the future. Revenue from merchandise shipped outside the United States was approximately 3% of total merchandise revenue for the three months ended June 30, 2000. International sales are subject to inherent risks and challenges that could affect our profitability, including: . the need to develop new supplier and manufacturer relationships, particularly because major sporting goods manufacturers may require that our international operations deal with local distributors; . unexpected changes in international regulatory requirements and tariffs; . difficulties in staffing and managing foreign operations; . longer payment cycles from credit card companies; . greater difficulty in accounts receivable collection; 25 . potential adverse tax consequences; . price controls or other restrictions on foreign currency; and . difficulties in obtaining export and import licenses. To the extent we generate international sales in the future, any negative effects on our international business could negatively impact our business, operating results and financial condition as a whole. In particular, gains and losses on the conversion of foreign payments into U.S. dollars may contribute to fluctuations in our results of operations and fluctuating exchange rates could cause reduced gross revenues and/or gross margins from dollar-denominated international sales. Acquisitions of companies or technologies may result in disruptions to our business and management due to difficulties in assimilating personnel and operations. We may make acquisitions or investments in other companies or technologies. We may not realize the anticipated benefits of any acquisition or investment. If we make any acquisitions, we will be required to assimilate the operations, products and personnel of the acquired businesses and train, retain and motivate key personnel from the acquired businesses. We may be unable to maintain uniform standards, controls, procedures and policies if we fail in these efforts. Similarly, acquisitions may cause disruptions in our operations and divert management's attention from day-to-day operations, which could impair our relationships with our current employees, customers and strategic partners. Integration may require significant cash expenditures. In addition, our profitability may suffer because of acquisition-related costs or amortization costs for acquired goodwill and other intangible assets. We may be subject to product liability claims or other claims that could be costly and time consuming. We sell products manufactured by third parties, some of which may be defective. If any product that we sell were to cause physical injury or injury to property, the injured party or parties could bring claims against us as the retailer of the product. In addition, we contract for the delivery and assembly of some of the products we sell. We may be subject to claims if any such product were to cause physical injury or injury to property due to faulty assembly by our contractors. Our insurance coverage may not be adequate to cover every claim that could be asserted against us. Similarly, we could be subject to claims that users of the site were harmed due to their reliance on our product information, product selection guides and configurators, advice or instruction. If a successful claim were brought against us in excess of our insurance coverage, it could harm our business. Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business. Because of their significant stock ownership, our officers and directors will be able to exert significant control over our future direction. As of June 30, 2000, our executive officers and directors, their affiliates and other substantial stockholders together controlled approximately 65% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control all matters requiring our stockholders' approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may delay, prevent or deter a change in control, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the company or its assets and might adversely affect the market price of our common stock. Provisions of our certificate of incorporation and bylaws may make changes of control difficult, even if they would be beneficial to stockholders. The board of directors has the authority to issue up to 5,000,000 shares of preferred stock. Also, without any further vote or action on the part of the stockholders, the board of directors has the authority to determine the price, rights, preferences, privileges and restrictions of the preferred stock. If we issue 26 preferred stock, it might have preference over and harm the rights of the holders of common stock. Although the availability of this preferred stock will provide us with flexibility in connection with possible acquisitions and other corporate purposes, the issuance of preferred stock may make it more difficult for a third-party to acquire a majority of our outstanding voting stock. We currently have no plans to issue preferred stock. Our certificate of incorporation and bylaws include provisions that may deter an unsolicited offer to purchase us. These provisions, coupled with the provisions of the Delaware General Corporation Law, may delay or impede a merger, tender offer or proxy contest. Further, our board of directors is divided into three classes, only one of which is elected each year. Our directors are only removable by the affirmative vote of at least 66 2/3% of all classes of voting stock. These factors may further delay or prevent a change of control. We will rely on email and other forms of direct online marketing. Our business could suffer if these marketing techniques encounter consumer resistance or increased governmental regulation. We send emails to our registered users to obtain feedback about our online store, to provide order information and to promote repeat sales. We may expand our use of email and other direct online marketing techniques. If consumers resist these forms of communication due to concerns about privacy, computer viruses or the proliferation of commercial email, our business and reputation could be damaged. We also anticipate that our use of email and other direct online marketing techniques will be subject to increasingly stringent regulation. For example, several states have passed laws limiting the use of email for marketing purposes. To date, these laws have not had a significant effect on us because they focus primarily on unsolicited email marketing and we currently ask for our customers' permission before sending them email. However, other states and Congress have begun to consider placing restrictions on email marketing. This additional legislation could hamper our ability to provide effective customer service and generate repeat sales. If we experience significant inventory theft, our gross margin may decrease. If the security measures used at any distribution facility we use or operate do not significantly reduce or prevent inventory theft, our gross margin may significantly decrease. During the three months ended June 30, 2000 and for the year ended December 31, 1999, we experienced an immaterial amount of inventory theft. However, this theft may increase as we expand our fulfillment operations and distribution network. If measures we take to address inventory theft do not reduce or prevent inventory theft, our gross margin and results of operations could be significantly below expectations in future periods. Risks Specific to the Internet and Our Industry Sporting goods consumers may not accept our online business model. This may result in slower revenue growth, loss of revenue and increased operating losses. To be successful, we must attract and retain a significant number of consumers to our web site at a reasonable cost. Any significant shortfall in the number of transactions occurring over our web site will negatively affect our financial results by increasing or prolonging operating losses. Conversion of customers from traditional shopping methods to electronic shopping may not occur as rapidly as we expect, or at all. Therefore, we may not achieve the critical mass of customer traffic we believe is necessary to become successful. Specific factors that could prevent widespread customer acceptance of our online business model, and our ability to grow our revenue, include: . customer concerns about the security of online transactions; . customer concerns about buying sporting goods, footwear and other products without first seeing them; . delivery time before customers receive Internet orders, unlike the immediate receipt of products at traditional retail outlets; 27 . pricing that may not meet customer expectations; . customer resistance to shipping charges, which generally do not apply to purchases from traditional retail outlets; . shipment of damaged goods or wrong products from our suppliers; and . difficulties in returning or exchanging orders. The success of our business model is dependent upon the continued growth of the online commerce infrastructure. Our future revenue and any future profits are also dependent upon the continued development of the online commerce infrastructure. The Internet and other online services may not be accepted as a viable commercial marketplace for a number of reasons, including potentially inadequate development of enabling technologies and performance improvements. To the extent that the Internet and other online services continue to experience significant growth in the number of users, their frequency of use or an increase in their bandwidth requirements, there can be no assurance that the infrastructure for the Internet and other online services will be able to support the demands placed upon them. In addition, the Internet or other online services could lose their viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet or other online service activity. Changes in or insufficient availability of telecommunications services to support the Internet or other online services could result in slower response times and adversely affect usage of the Internet and other online services, including fogdog.com. These problems would adversely affect our business and cause our stock price to decline. Sporting goods and apparel are subject to changing consumer preferences. If we fail to anticipate these changes, we will experience lower sales, higher inventory markdowns and lower margins. Our success depends upon our ability to anticipate and respond to trends in sporting goods merchandise and consumers' participation in sports. Consumers' tastes in apparel and sporting goods equipment are subject to frequent and significant changes, due in part to manufacturers' efforts to incorporate advanced technologies into some types of sporting goods. In addition, the level of consumer interest in a given sport can fluctuate dramatically. If we fail to identify and respond to changes in sporting goods merchandising and recreational sports participation, our sales could suffer and we could be required to mark down unsold inventory. This would depress our profit margins. In addition, any failure to keep pace with changes in consumers' recreational sports habits could allow our competitors to gain market share and could hurt our reputation. If we do not respond to rapid technological changes, our services could become obsolete and we could lose customers. To be competitive, we must continue to enhance and improve the functionality and features of our online store. The Internet and the online commerce industry are rapidly changing. If competitors introduce new products and services featuring new technologies, or if new industry standards and practices emerge, our existing web site and proprietary technology and systems may become obsolete. We may use new technologies ineffectively, or we may be unable to license or otherwise obtain new technologies from third parties. We may also experience difficulties in adapting our web site, the systems that we use to process customers' orders and payments, or our computer network to customer requirements, new technologies or emerging industry standards. Governmental regulation may slow the Internet's growth and increase our costs of doing business. Laws and regulations directly applicable to online commerce or Internet communications are becoming more prevalent. These laws and regulations could expose us to compliance costs and substantial liability, 28 which could materially harm our business, operating results and financial condition. In addition, the growth of the Internet, coupled with publicity regarding Internet fraud, may lead to the enactment of more stringent consumer protection laws. These laws would be likely to impose additional burdens on our business. The adoption of any additional laws or regulations may also inhibit the expansion of the Internet, which could reduce visits to our online store or otherwise harm our business. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as qualifications to do business, property ownership, sales tax, obscenity, employment, libel, intellectual property and personal privacy is uncertain and may take years to resolve. In order to comply with new or existing laws regulating online commerce, we may need to modify the manner in which we do business, which may result in additional expenses and could slow our growth. For instance, we may need to spend time and money revising the process by which we fulfill customer orders to ensure that each shipment complies with applicable laws. We may also need to revise our customer acquisition and registration processes to comply with increasingly stringent laws relating to dealing with minors online. We may need to hire additional personnel to monitor our compliance with applicable laws. We may also need to modify our software to further protect our customers' personal information. Regulations imposed by the Federal Trade Commission may adversely affect the growth of our Internet business or our marketing efforts. The Federal Trade Commission has proposed regulations regarding the collection and use of personal identifying information obtained from individuals when accessing web sites, with particular emphasis on access by minors. These regulations may include requirements that we establish procedures to disclose and notify users of privacy and security policies, obtain consent from users for collection and use of information and provide users with the ability to access, correct and delete personal information stored by us. These regulations may also include enforcement and remedial provisions. Even in the absence of those regulations, the Federal Trade Commission has begun investigations into the privacy practices of other companies that collect information on the Internet. One investigation resulted in a consent decree under which an Internet company agreed to establish programs to implement the principles noted above. We may become a party to a similar investigation or enforcement proceeding, or the Federal Trade Commission's regulatory and enforcement efforts may harm our ability to collect demographic and personal information from users, which could be costly or adversely affect our marketing efforts. Our inability to securely transmit confidential information over public networks may harm our business and cause our stock price to decline. A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. We rely upon encryption and authentication technology licensed from third parties to effect the secure transmission of confidential information, such as customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other events may result in a compromise or breach of the systems that we use to protect customer transaction data. A party who is able to circumvent our security measures may misappropriate proprietary information or customers' personal data such as credit card numbers, and could interrupt our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by these breaches. Credit card fraud could adversely affect our business. A failure to adequately control fraudulent credit card transactions could reduce our net revenues and our gross margin because we do not carry insurance against this risk. We have put in place technology to help us detect the fraudulent use of credit card information and have not suffered material losses to date. However, we may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder's signature. 29 If one or more states successfully assert that we should collect sales or other taxes on the sale of our merchandise, our business could be harmed. We do not currently collect sales or other similar taxes for physical shipments of goods into states other than California and Pennsylvania. However, one or more local, state or foreign jurisdictions may seek to impose sales tax collection obligations on us and other out-of-state companies that engage in online commerce. If one or more states or any foreign country successfully asserts that we should collect sales or other taxes on the sale of our merchandise, it could adversely affect our business. We may be subject to liability for content on our web site. As a publisher of online content, we face potential liability for defamation, negligence, copyright, right of publicity or privacy, patent or trademark infringement, or other claims based on the nature and content of materials that we publish or distribute. We have, in the past, received notices of such claims, and we expect to continue to receive such claims in the future. We may also be subject to claims based on the content on our bulletin boards. If we face liability, then our reputation and our business may suffer. In the past, plaintiffs have brought these types of claims and sometimes successfully litigated them against online services. Although we carry general liability insurance, our insurance currently does not cover claims of these types. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. Prior to December 31, 1999, we completed our Year 2000 compliance program. The program was directed by our information technology group. We have not experienced any material Year 2000 related difficulties in either our IT or non- IT systems, or otherwise. We may discover Year 2000 compliance problems in our systems in the future. In addition, third-party software, hardware or services incorporated into our business or used in our web site may need to be revised or replaced, all of which could be time-consuming and expensive and could adversely affect our business. Item 3. Quantitative and Qualitative Disclosures About Market Risk We currently market our merchandise in the United States and internationally. As a result, our financial results could be affected by factors including changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that there is no material risk exposure. Therefore, no quantitative tabular disclosures are required. PART II. OTHER INFORMATION Item 1. Legal Proceedings None 30 Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The 2000 Annual Meeting of Stockholders of the Company was held on May 25, 2000. The two persons named below were elected as proposed in the proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, to serve as directors until the 2003 Annual Meeting and until their successors are elected and qualified, or until a director's earlier death, resignation or removal. There were 23,984,913 votes cast in the election of directors. The voting regarding each nominee was as follows: Ralph Parks (for: 23,865,431/withheld: 119,482) and Donna de Varona (for: 23,863,001 /withheld: 121,912). The following directors' terms of office continued after the meeting: Lloyd D. Ruth, Warren J. Packard, Timothy P. Harrington and Ray A. Rothrock. Also at the 2000 Annual Meeting of Stockholders of the Company, the stockholders ratified the selection of PricewaterhouseCoopers LLP as independent accountants of the Company for its fiscal year ending December 31, 2000, with 23,586,808 votes for; 396,670 votes against; and 1,435 votes abstained. Finally, the stockholders approved an amendment to the 1999 Stock Incentive Plan that increased the number of shares of Common Stock reserved for issuance under the 1999 Plan by an additional One Million Five Hundred Thousand (1,500,000) shares, with 23,754,566 votes for; 227,334 votes against; and 3,013 votes abstained. Item 5. Other Information None. Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Exhibits (a) Exhibit Number Description - -------------- ----------- 2.1** Agreement and Plan of Reorganization, dated August 13, 1999, by and among the registrant, Fogdog Acquisition Corp., Sports Universe, Inc. and certain principal stockholders of Sports Universe, Inc. 3.1** Amended and Restated Certificate of Incorporation. 3.2** Amended and Restated Bylaws. 4.1** Form of registrant's Specimen Common Stock Certificate. 4.2** Third Amended and Restated Registration Rights Agreement, dated March 3, 1999, April 16, 1999, and September 23, 1999, by and among the registrant and the parties who are signatories thereto. 4.3** Warrant to Purchase Series A Preferred Stock, dated December 24, 1997, by and between the registrant and Imperial Bank. 4.4** Warrant to Purchase Series C Preferred Stock, dated September 23, 1999, by and between the registrant and Nike USA, Inc. 10.1** Registrant's 1999 Stock Incentive Plan. 10.2** Registrant's 1999 Employee Stock Purchase Plan. 10.3** Form of registrant's Directors and Officers' Indemnification Agreement. 10.4+** Agreement, dated June 30, 1999, by and between the registrant and America Online Inc. 10.5** Amended and Restated Loan Agreement, dated September 16, 1998, by and between the registrant and Imperial Bank. 10.6** Sublease, dated July 14, 1999, by and between the registrant and Ampex Corporation. 10.7** Letter Agreement, dated December 9, 1997, by and between the 31 registrant and Robin Smith. 10.8** Amended and Restated Employment Agreement, effective September 17, 1999, by and between the registrant and Timothy Harrington. 10.9** Employment Agreement, dated June 12, 1998, by and between the registrant and Robert Chea. 10.10** Amended and Restated Employment Agreement, dated April 5, 1999, by and between the registrant and Brett Allsop. 10.11** Letter Agreement, dated August 23, 1999, by and between the registrant and Timothy Joyce. 10.12+** Order Fulfillment Services Agreement, dated September 17, 1999, by and between the registrant and Keystone Fulfillment, Inc. 10.13+** Letter Agreement dated September 17, 1999, by and between the registrant and Nike USA, Inc. 10.14** Letter Agreement, dated November 1, 1999, by and between, the registrant and Mark Garrett. 21.1** Subsidiaries of the Registrant. 27.1** Financial Data Schedule for Sports Universe, Inc. (In EDGAR format only) 27.2 Financial Data Schedule for Fogdog, Inc. (In EDGAR format only) - -------- ** Previously filed + Confidential Treatment Requested (b)Reports on Form 8-K No reports on Form 8-K were filed during the quarter covered by this Form 10-Q 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. Fogdog, Inc. (Registrant) By: /s/ Bryan LeBlanc ----------------------- Bryan LeBlanc Vice President, Chief Financial Officer August 11, 2000 32 EXHIBIT INDEX Exhibit Number Description of Document - ------- ----------------------- 2.1** Agreement and Plan of Reorganization, dated August 13, 1999, by and among the registrant, Fogdog Acquisition Corp., Sports Universe, Inc. and certain principal stockholders of Sports Universe, Inc. 3.1** Amended and Restated Certificate of Incorporation. 3.2** Amended and Restated Bylaws. 4.1** Form of registrant's Specimen Common Stock Certificate. 4.2** Third Amended and Restated Registration Rights Agreement, dated March 3, 1999, April 16, 1999, and September 23, 1999, by and among the registrant and the parties who are signatories thereto. 4.3** Warrant to Purchase Series A Preferred Stock, dated December 24, 1997, by and between the registrant and Imperial Bank. 4.4** Warrant to Purchase Series C Preferred Stock, dated September 23, 1999, by and between the registrant and Nike USA, Inc. 10.1** Registrant's 1999 Stock Incentive Plan. 10.2** Registrant's 1999 Employee Stock Purchase Plan. 10.3** Form of registrant's Directors and Officers' Indemnification Agreement. 10.4+** Agreement, dated June 30, 1999, by and between the registrant and America Online Inc. 10.5** Amended and Restated Loan Agreement, dated September 16, 1998, by and between the registrant and Imperial Bank. 10.6** Sublease, dated July 14, 1999, by and between the registrant and Ampex Corporation. 10.7** Letter Agreement, dated December 9, 1997, by and between the registrant and Robin Smith. 10.8** Amended and Restated Employment Agreement, effective September 17, 1999, by and between the registrant and Timothy Harrington. 10.9** Employment Agreement, dated June 12, 1998, by and between the registrant and Robert Chea. 10.10** Amended and Restated Employment Agreement, dated April 5, 1999, by and between the registrant and Brett Allsop. 10.11** Letter Agreement, dated August 23, 1999, by and between the registrant and Timothy Joyce. 10.12+** Order Fulfillment Services Agreement, dated September 17, 1999, by and between the registrant and Keystone Fulfillment, Inc. 10.13+** Letter Agreement dated September 17, 1999, by and between the registrant and Nike USA, Inc. 10.14** Letter Agreement, dated November 1, 1999, by and between, the registrant and Mark Garrett. 21.1** Subsidiaries of the Registrant. 27.1** Financial Data Schedule for Sports Universe, Inc. (In EDGAR format only) 27.2 Financial Data Schedule for Fogdog, Inc. (In EDGAR format only) - -------- ** Previously filed + Confidential Treatment Requested EX-27.2 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR QUARTER ENDED 6/30/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 27,313 0 24,815 0 398 0 216 0 3,501 0 60,506 0 4,874 0 1,302 0 84,677 0 10,726 0 0 0 0 0 0 0 37 0 73,814 0 84,677 0 5,844 10,550 5,844 10,550 5,223 9,782 24,317 44,770 0 0 0 0 16 34 (17,586) (32,333) 0 0 (17,586) (32,333) 0 0 0 0 0 0 (17,586) (32,333) (0.49) (0.90) (0.49) (0.90)
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