<PAGE> 1
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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 SEPTEMBER 30, 1999
[ ] 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 000-26521
--------------------------------
ASK JEEVES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3334199
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
5858 HORTON ST., SUITE 350, EMERYVILLE, CA 94608
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(510) 985-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
918 PARKER STREET, BERKELEY, CA 94710
(FORMER ADDRESS)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock as of
October 31, 1999 was 26,805,404.
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ASK JEEVES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Financial Statements:
Condensed Balance Sheets September 30, 1999 and December 31,
1998........................................................ 3
Condensed Statements of Operations three and nine months
ended September 30, 1999 and 1998........................... 4
Condensed Statements of Cash Flows nine months ended
September 30, 1999 and 1998................................. 5
Notes to Condensed Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 2. Change in Securities........................................ 17
Item 3. Defaults Upon Senior Securities............................. 17
Item 4. Submission of Matters to a Vote of Securities Holders....... 17
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signature............................................................ 18
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
ASK JEEVES, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (SEE NOTE)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 32,516,473 $ 5,587,883
Short-term investments.................................... 22,279,913 --
Accounts receivable, net.................................. 6,748,847 236,258
Prepaid expenses and other current assets................. 2,198,559 148,545
------------ -----------
Total current assets.............................. 63,743,792 5,972,686
Property and equipment, net................................. 5,395,390 835,486
Intangibles, net and other long-term assets................. 1,260,457 --
Long-term investments....................................... 1,997,913 --
------------ -----------
Total assets...................................... $ 72,397,552 $ 6,808,172
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,054,989 $ 605,283
Accrued compensation and related expenses................. 3,571,741 253,062
Other accrued liabilities................................. 3,403,098 160,000
Deferred revenue.......................................... 2,647,823 149,842
Current portion of long-term liabilities.................. 660,609 28,220
------------ -----------
Total current liabilities......................... 12,338,260 1,196,407
Long-term liabilities....................................... 2,196,462 45,945
------------ -----------
Total liabilities................................. 14,534,722 1,242,352
Commitments
Stockholders' equity:
Convertible preferred stock, no par value; (5,000,000
shares authorized)..................................... -- 6,088,222
Common Stock, no par value; 150,000,000 shares authorized;
26,805,404 and 11,358,077 shares issued and outstanding
at September 30, 1999 and December 31, 1998,
respectively........................................... 88,596,152 4,771,781
Deferred stock compensation................................. (1,737,376) (476,984)
Accumulated deficit......................................... (28,995,946) (4,817,199)
------------ -----------
Total stockholders' equity........................ 57,862,830 5,565,820
------------ -----------
Total liabilities and stockholders' equity........ $ 72,397,552 $ 6,808,172
============ ===========
</TABLE>
Note: The December 31, 1998 balance sheet data is derived from the December 31,
1998 audited financial statements.
See accompanying notes to financial statements.
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ASK JEEVES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------------
1999 1998 1999 1998
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue
Consumer.............................. $ 4,243,231 $ 105,265 $ 7,201,116 $ 155,386
Corporate........................... 2,209,098 7,500 3,100,329 7,500
----------- --------- ------------ -----------
Total revenues.............. 6,452,329 112,765 10,301,445 162,886
Cost of revenues:
Consumer............................ 1,803,526 169,144 3,664,856 285,249
Corporate........................... 1,742,582 60,878 3,695,118 111,585
----------- --------- ------------ -----------
Total cost of revenues...... 3,546,108 230,022 7,359,974 396,834
Gross profit/(loss)................... 2,906,221 (117,257) 2,941,471 (233,948)
Operating expenses:
Product development.............. 1,572,745 226,188 3,460,618 524,423
Sales and marketing.............. 9,107,473 323,828 19,269,005 588,043
General and administrative....... 1,646,133 260,565 3,678,456 495,524
Amortization of deferred stock
compensation................... 561,316 -- 1,470,558 --
Write-off of in-process
technology acquired............ -- -- 360,697 --
----------- --------- ------------ -----------
Total operating expenses.... 12,887,667 810,581 28,239,334 1,607,990
----------- --------- ------------ -----------
Operating loss........................ (9,981,446) (927,838) (25,297,863) (1,841,938)
Interest income, net.................. 692,781 9,643 1,119,116 14,733
----------- --------- ------------ -----------
Net loss.............................. $(9,288,665) $(918,195) $(24,178,747) $(1,827,205)
=========== ========= ============ ===========
Basic and diluted net loss per
share............................... $ (0.37) $ (0.09) $ (1.49) $ (0.24)
=========== ========= ============ ===========
Weighted average shares outstanding
used in computing basic and diluted
net loss per share.................. 25,268,421 9,933,461 16,244,563 7,468,860
=========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
ASK JEEVES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(24,178,747) $(1,827,205)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 663,695 49,221
Loss on disposal of assets................................ 10,608 --
Issuance of stock options to consultants.................. 28,500 --
Issuance of common stock to consultants................... -- 7,521
Issuance of common stock warrants to consultants.......... 8,750 11,210
Contribution of assets and services by stockholders....... -- 225,000
Compensation charge related to grants of stock options.... 174,500 38,312
Amortization of deferred stock compensation............... 1,470,558 --
Amortization of intangibles............................... 199,150 --
Write-off of in-process technology........................ 360,697 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (6,512,589) (164,142)
Prepaids and other current assets...................... (1,892,514) (48,569)
Accounts payable....................................... 1,449,706 119,676
Accrued compensation and related expenses.............. 3,318,679 (16,934)
Accrued marketing expenses............................. 854,825 --
Other accrued liabilities.............................. 2,618,274 188,064
Deferred revenue....................................... 2,497,981 109,499
------------ -----------
Net cash used in operating activities....................... (18,927,927) (1,308,347)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (4,306,165) (290,266)
Purchases of investments.................................... (24,277,826) --
Purchase of intangibles..................................... (750,000) --
Purchase of long-term assets................................ (282,804) --
------------ -----------
Net cash used in investing activities....................... (29,616,795) (290,266)
FINANCING ACTIVITIES
Issuance of common stock for cash, net of issuance costs.... 42,980,188 2,747,500
Issuance of common stock upon exercise of stock options..... 4,413,094 6,761
Issuance of preferred stock for cash, net of issuance
costs..................................................... 26,455,166 --
Proceeds from capital lease financing....................... 1,808,810 --
Repayment of capital lease obligations...................... (183,946) (8,799)
------------ -----------
Net cash provided by financing activities................... 75,473,312 2,745,462
------------ -----------
Increase in cash and cash equivalents....................... 26,928,590 1,146,849
Cash and cash equivalents at beginning of period............ 5,587,883 521,247
------------ -----------
Cash and cash equivalents at end of period.................. $ 32,516,473 $ 1,668,096
============ ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligations incurred........................ $ 928,042 $ 89,176
============ ===========
Common stock issued in payment of intangibles............. $ 787,500 $ --
============ ===========
Preferred stock converted to common stock................. $ 32,535,201 $ --
============ ===========
Common stock warrants issued.............................. $ 157,500 $ --
============ ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
ASK JEEVES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Ask Jeeves ("Ask Jeeves" or "the Company") is a provider of
natural-language question and answering service on the Internet for consumers
and companies. The Company's services provide users a fast, easy and intuitive
way to find information, products and services on the Internet. The Company
combines proprietary tools and technologies with editorial judgment to let users
ask questions in plain English and to direct them to a small selection of
relevant destinations on the Internet. The Company was incorporated in
California in June 1996 and reincorporated in Delaware in June 1999.
Public Offering of Common Stock
On June 30, 1999, the Company completed its initial public offering (IPO)
of 3,450,000 shares of common stock at a purchase price per share of $14.00. Net
proceeds to the Company aggregated approximately $45 million (net of
underwriters' commission and offering expenses of $3.3 million). As of the
effective date of the offering, all of the convertible preferred stock
outstanding was converted into 9,485,690 shares of common stock.
Unaudited Interim Financial Information
The accompanying financial statements at September 30, 1999 and for the
three and nine months ended September 30, 1999 and September 30, 1998 are
unaudited but include all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair statement of the
financial position and the operating results and cash flows for the interim date
and periods presented. Results for the interim periods ended September 30, 1999
and September 30, 1998 are not necessarily indicative of results for the entire
fiscal year or future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ materially
from those estimates.
Computation of Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive earnings per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options and warrants (using the treasury stock method). The shares outstanding
exclude those shares that are subject to repurchase as a result of unvested
early exercises. Common equivalent shares are excluded from the calculation if
their effect is anti-dilutive.
6
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ASK JEEVES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1999 1998 1999 1998
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net loss.................................... $(9,288,665) $ (918,195) $(24,178,747) $(1,827,205)
Weighted-average shares outstanding basic
and diluted................................. 25,268,421 9,933,461 16,244,563 7,468,860
Basic and diluted net loss per share........ $ (0.37) $ (0.09) $ (1.49) $ (0.24)
</TABLE>
Commitments and Contingencies
On April 30, 1999 the Company entered into a five-year lease for its
headquarters in Emeryville, California. The lease was amended on September 10,
1999 to accommodate future growth needs. The Company's total obligation under
the lease $11.9 million.
Capital lease obligations for equipment represent the present value of
future lease payments under the lease agreements with COMDISCO, Inc. The Company
has options to purchase the leased assets at the end of the lease terms.
The Company is a party to a legal proceeding and claim. In the opinion of
management, the amount of the ultimate liability with respect to this action
will not materially affect the financial position, results of operations or cash
flows of the Company.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, this overview and
the following discussion contain forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the Company's Registration
Statement on Form S-1 filed April 30, 1999, as amended and effective June 30,
1999.
OVERVIEW
We have two principal businesses based on the same underlying technology.
The Consumer Question Answering Service, or Consumer Service, allows users to
obtain answers to frequently asked questions on the Internet. The Corporate
Question Answering Service, or Corporate Service, helps companies provide a
human-like online interface for their customers. The demand for our Corporate
Service is greater than previously anticipated and we believe we must be more
aggressive in capturing significant market share in the near-term. As a result,
we plan to increase our investments in sales, marketing, infrastructure, and
product development in an effort to capture market share faster and create
greater long-term value for our shareholders.
Revenues from the Consumer Service consist primarily of two components:
- advertising revenues; and
- knowledge base licensing fees.
We earn advertising revenues from short-term advertising contracts by
delivering impressions to users over a specified period of time. Advertising
rates, measured on a cost per thousand impressions (CPM) basis, are dependent on
whether the impressions are displayed in general rotation throughout our Web
site or are directed to targeted audiences or channels within Ask Jeeves, such
as the computer, entertainment, family, health, money, shopping and travel
channels. Revenues are based upon actual impressions delivered as measured by
our third party advertising delivery provider, Doubleclick, Inc. We currently
license the Ask Jeeves knowledge base to three companies that provide
Internet-wide navigation services. These companies are AltaVista Company,
Netscape Communications, Inc., and Infonautics Corporation. Knowledge base
licensing fees consist of a fixed fee that is recognized ratably over the
contract term, generally a twelve month period. In the future, we expect that
licensing of the knowledge base will not be a significant part of our business
model. We also expect to generate a portion of our revenues from a third
component, the facilitation of electronic commerce. We are currently in a pilot
phase of our electronic commerce program and revenues from the facilitation of
electronic commerce from inception through September 30, 1999 have not been
significant. We expect to generate revenues from electronic commerce
transactions through arrangements with our electronic commerce merchants.
Typically, we receive payment only if the user clicks on the answer that links
to such electronic commerce merchant's Web site a cost per click (CPC) basis.
Revenues from the Corporate Service consist of three components:
- knowledge base customization;
- maintenance and information service fees; and
- per-answer fees.
We recognize knowledge base customization and maintenance and information
service fees ratably over the contract term, generally twelve months. We
recognize per-answer fees based on answers delivered at contractual per-answer
rates. Payments received prior to delivering the knowledge base or providing
maintenance and information services are recorded as deferred revenues and are
recognized ratably over the contract term.
Cost of revenues for our Consumer Service consists primarily of salaries
and personnel costs associated with the content development and maintenance of
Ask Jeeves and providing data analysis and testing. Cost of
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revenues for our Corporate Service consists primarily of salaries and related
personnel costs and other direct costs to provide knowledge base information and
maintenance services to corporate customers. Cost of revenues also includes
amortization charges from the acquisition of assets from Lumina Design Systems,
Inc. We believe that ongoing content development is required to remain
competitive, and we expect that our production and content expenses will
continue to increase in absolute dollars in the future.
Product development expenses consist primarily of salaries and related
personnel costs, consultant fees and expenses related to the design,
development, testing and enhancement of our technology and services. To date all
software development costs have been expensed as incurred. We believe that
continued investment in product development is critical to attaining our
strategic product objectives and, as a result, we expect these expenses to
increase in absolute dollars in the future.
Sales and marketing expenses consist primarily of salaries, commissions and
related personnel expenses as well as advertising and promotional expenditures.
We intend to pursue aggressive sales and marketing campaigns and expand our
sales and marketing organization, which will result in an increase in absolute
dollars in our sales and marketing expenses in the future.
General and administrative expenses consist primarily of salaries and
related personnel costs and other related costs for general corporate functions,
including executive management, business development, finance, facilities
administration, legal, recruiting and fees for other professional services. We
expect general and administrative expenses to increase in absolute dollars in
the future as we add personnel and incur additional costs related to the growth
of our business and our operation as a public company.
Interest income and expense includes income on our cash and short-term
investments net of expenses related to the Company's financing obligations.
Proceeds from our initial public offering are expected to increase the interest
income generated in the near term, partially offset by an expected increase in
interest expense.
For the nine months ended September 30, 1999, in connection with the grant
of certain stock options to employees, we recorded deferred stock compensation
totaling $2.2 million representing the difference between the deemed fair value
of our common stock on the date such options were granted and the exercise
price. Such amount is included as a reduction of stockholders' equity and is
being amortized by charges to operations on a graded vesting method. We recorded
amortization of deferred stock compensation expense of $1.1 million for the nine
months ended September 30, 1999. At September 30, 1999, we had a total of $1.6
million remaining to be amortized over the corresponding vesting periods of the
options, generally four years. Due to the graded vesting method of amortization,
most of the deferred compensation charge will be incurred over the first two
years of the vesting of the options.
Additionally, for the nine months ended September 30, 1999, in connection
with the grant of stock options to Roger A. Strauch and Daniel H. Miller, who
served as our consultants, we recorded deferred stock compensation of $511,000.
This amount represents the difference between the deemed fair value of our
common stock on the date such options were granted and the exercise price and is
being amortized by charges to operations over the service period which concludes
in December 1999. We recorded amortization of deferred stock compensation
expense of $351,000 in the nine months ended September 30, 1999.
We have incurred significant net losses and negative cash flows from
operations since our inception, and at September 30, 1999, we had an accumulated
deficit of approximately $29.0 million. These losses have been funded primarily
through the issuance of preferred and common equity securities. We believe that
we will continue to incur operating and net losses and negative cash flows from
operations for the foreseeable future and that the rate at which we will incur
such losses may increase from current levels.
RESULTS OF OPERATIONS
Revenues
Total revenues were $6.5 million for the three months ended September 30,
1999. Of this total, revenues from the Consumer Service were $4.2 million for
the three months ended September 30, 1999 and were
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primarily generated from banner advertisement revenues. Revenues from the
Corporate Service were $2.2 million for the three months ended September 30,
1999, of which $1.1 million was generated from knowledge base creation fees and
$1.1 million from ongoing services. Revenues from Consumer and Corporate
Services for the three months ended September 30, 1998 were $105,000 and $8,000,
respectively.
For the nine months ended September 30, 1999 total revenues were $10.3
million. Of this total, revenues from the Consumer and Corporate Services were
$7.2 million and $3.1 million, respectively, compared to $155,000 and $8,000 for
the nine months ended September 30, 1998, respectively. The revenue growth over
the respective prior year periods is primarily attributable to increased
advertising revenue due to increased use of the Internet by consumers and
acceptance of the Internet as an advertising and commerce medium, increased
viewer traffic on our web-sites (ASK.com and AJKids.com), and the launching of
our Corporate Service. For the three months ended September 30, 1999, Ask.com
received 134 million questions, representing an increase of 46 percent from 92
million questions in the three months ended June 30, 1999. Revenue per thousand
page views, or RPMs, increased to $10.07, representing a 34 percent increase
over the three months ended June 30, 1999. The increases reflect our performance
in connecting advertisers with targeted customers. The network of companies that
subscribe to our Corporate Service increased from fourteen to twenty-five during
the three months ended September 30, 1999 as Ask Jeeves signed new business in
targeted technology, financial services and e-tail vertical markets. The
questions Ask Jeeves' handled for its Corporate Service customers during the
three months ended September 30, 1999 grew to 2.5 million, representing a 59
percent increase from the three months ended June 30, 1999 of 1.6 million
questions.
Cost of Revenues
Cost of revenues for our Consumer Service were $1.8 million for the three
months ended September 30, 1999 compared to $169,000 for the three months ended
September 30, 1998. Cost of revenues for our Corporate Service were $1.7 million
for the three months ended September 30, 1999 compared to $61,000 for the same
period a year ago. The increase in cost of revenues during these periods is
related to increased third party advertising management fees, hosting costs, and
additional personnel and related personnel costs associated with development of
our public site to support the increase in revenues, specifically in the areas
of content development, maintenance, data analysis, and testing. We also
incurred higher costs associated with personnel and related personnel costs
required to provide knowledge base information and maintenance services to our
Corporate Services customers. Cost of revenues for the three months ended
September 30, 1999 includes $109,000 of amortization charges related to the
acquisition of assets from Lumina Design Systems, Inc. We expect our hosting,
third party advertising management fees, content development and web site costs
will continue to increase to meet the demands for web services and to provide
additional services to users of our Consumer Service and our Corporate Service
customers.
Product Development Expenses
Product development expenses increased to $1.6 million for the three months
ended September 30, 1999, from $226,000 for the same period a year ago and
increased to $3.5 million for the nine months ended September 30, 1999, from
$524,000 for the same period a year ago. The primary reasons for the increases
were the hiring of additional personnel and related personnel costs and
consultant fees and expenses related to the design, development, testing and
enhancement of our technology and services. We believe the development of
additional features and tools are vital for us to remain competitive in our
industry. We anticipate that we will continue to devote substantial resources to
product development. These costs are expected to continue to increase in dollar
amount in future periods.
Sales and Marketing Expenses
Sales and marketing expenses increased to $9.1 million and $19.3 million
for the three and nine months ended September 30, 1999, respectively, from
$324,000 and $588,000 for the same periods a year ago. The increase was
primarily due to increases in advertising expenses related to our branding
campaign, the hiring of additional sales and marketing personnel and commissions
paid to support the increase in revenues. We intend to continue pursuing an
aggressive brand-enhancement strategy, which will include mass market and
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<PAGE> 11
multimedia advertising, promotional programs and public relations activities.
Consequently, these costs are expected to continue to increase in dollar amount
in future periods.
General and Administrative Expenses
General and administrative expenses increased to $1.6 million and $3.7
million for the three and nine months ended September 30, 1999, respectively,
from $261,000 and $495,000 for the same periods a year ago. The increase in
general and administrative expenses was primarily due to increased depreciation
on our property and equipment and an increase in the number of finance, legal,
business development, and information systems personnel to support the growth of
our business, and recruiting costs related to filling key executive positions.
Interest Income, Net
Net interest income totaled $693,000 and $1.1 million for the three and
nine months ended September 30, 1999, respectively, compared to net interest
income of $10,000 and $15,000 in the comparable periods in 1998. This increase
was primarily generated from interest income on proceeds from our equity
financings, partially offset by increased interest charges on capital lease
obligations.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private placement of equity securities and our initial public offering. As of
September 30, 1999, we had $56.8 million in cash, cash equivalents and
investments. Net cash used in operating activities was $19.1 million for the
nine months ended September 30, 1999. The net cash used in operating activities
resulted primarily from net operating losses and increases in accounts
receivable and prepaid expenses, partially offset by the timing of accounts
payable settlements, accrued compensation, deferred revenue, and accrued
expenses. Net cash used in investing activities was $29.6 million for the nine
months ended September 30, 1999. Net cash used in investing activities related
to purchases of $4.3 million of property and equipment and $24.3 million of
short-term and long-term investments for the nine months ended September 30,
1999. Net cash provided by financing activities was $75.6 million for the nine
months ended September 30, 1999 and related primarily to net proceeds from the
sale of preferred equity securities of $26.5 million, net proceeds from our
initial public offering of $43.0 million, proceeds from the exercise of stock
options under the Company's stock incentive plans of $4.4 million, and proceeds
from a sale leaseback transaction of $1.8 million.
We have no material commitments or obligations other than those under
capital and operating leases. In June 1999, we entered into a leasing agreement
with Comdisco, Inc. to finance equipment and software purchases up to a maximum
amount of $3.5 million. As of October 31, 1999, we have utilized approximately
$3 million of the total credit line. Our capital requirements depend on numerous
factors, including market acceptance of our services and the amount of resources
we invest in site and content development, marketing and selling our services,
and our brand promotions. We have experienced a substantial increase in our
expenditures since our inception consistent with growth in our operations and
staffing, and we anticipate that this will continue for the foreseeable future.
Additionally, we will continue to evaluate possible investments in businesses
and technologies, and we plan to expand our sales and marketing programs and
conduct more aggressive brand promotions.
We currently anticipate that our available cash resources will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next nine months. At the end of such period, we
will need to generate sufficient cash flow from operations to meet our
anticipated needs for working capital and capital expenditures, or we will need
to raise additional capital. However, if during that nine month period or
thereafter, we are not successful in generating sufficient cash flow from
operations or in raising additional capital when required in sufficient amounts
and on terms acceptable to us, these failures could have a material adverse
effect on our business, results of operations and financial condition. If we
raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced.
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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 software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have made an assessment of the Year 2000 readiness of all our relevant
operating, financial and administrative systems, including the hardware and
software that support our information technology ("IT") and non-IT systems. Our
assessment plan consists of:
- quality assurance testing of our internally developed proprietary
software;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our services to our users;
- contacting vendors of third-party systems;
- assessing repair or replacement requirements;
- implementing repair or replacement;
- implementation of the plan; and
- creating contingency plans in the event of Year 2000 failures.
All of our third party software and hardware vendors have provided written
statements, which were obtained at our request or from their public Web sites,
indicating that they are Year 2000 compliant. We performed a Year 2000
simulation on our material IT and non-IT systems during the first half of 1999
to test system readiness. Simulation tests have been performed on all but the
router system provided by Cisco Systems, Inc. Our business would experience an
interruption of service if simulation tests were conducted on this router system
and therefore we are relying on Cisco's Year 2000 Compliance Statement, which is
on its Web site. We had three hardware and software non-compliant systems which
were retired this quarter. All of our material third party service providers
have represented in writing that they are expected to be Year 2000 compliant in
the fourth quarter of 1999.
RISKS OF YEAR 2000 ISSUES
We are not currently aware of any Year 2000 compliance problems relating to
our software or our IT or non-IT systems that would have a material adverse
effect on our business, results of operations and financial condition,
notwithstanding our efforts to detect and correct such problems. There can be no
assurance that we will not discover Year 2000 compliance problems in our
software that will require substantial revisions or replacements. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into our material IT and material non-IT systems will not need to
be revised or replaced, which could be time consuming and expensive. Our failure
to fix our software, if necessary, or to fix or replace third-party software,
hardware or services, if necessary, on a timely basis could result in lost
revenues, increased operating costs and other business interruptions, any of
which could have a material adverse effect on our business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in our IT and non-IT systems could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend. In addition,
there can be no assurance that governmental agencies, utility companies,
Internet access companies, third-party service providers and others outside our
control will be Year 2000 compliant. The failure by such entities to be Year
2000 compliant could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could
prevent us from operating our Web site.
12
<PAGE> 13
Because our needs for additional hardware and software change, we are
engaged in an ongoing Year 2000 assessment. We have not developed any
contingency plans. The completion of our Year 2000 simulation testing and the
responses received from third-party vendors and service providers will be taken
into account in determining the need for and nature and extent of any
contingency plans.
COSTS TO DATE
Costs associated with Year 2000 compliance matters have been approximately
$150,000 to date and the Company anticipates additional costs of $50,000. Most
of our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation and
testing process and Year 2000 compliance matters generally. Such costs, if
higher than anticipated, could have a material adverse effect on our business,
results of operations and financial condition.
13
<PAGE> 14
BUSINESS RISKS
OUR BUSINESS IS EXTREMELY DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS
LIMITED
Because of our limited operating history, it is extremely difficult to
evaluate our business and prospects. Our revenue and income potential is
unproven and our business model is constantly evolving. Because the Internet is
constantly changing, we may need to change our business model and organizational
structure again to adapt to those changes. Frequent changes in organizational
structure could impose significant burdens on our management and our employees
and could result in loss of productivity or even increased employee attrition.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES
We expect to have increasing net losses and negative cash flows for the
foreseeable future. The size of these net losses will depend, in part, on the
rate of growth of our revenues from our advertisers, corporate customers and
electronic commerce merchants and on our expenses. It is critical to our success
that we continue to expend financial and management resources to develop our
brand loyalty through marketing and promotion, enhancement of our services and
expansion of our other services. As a result, we expect that our operating
expenses will increase significantly for the foreseeable future. With increased
expenses, we will need to generate significant additional revenues to achieve
profitability. Consequently, it is possible that we may never achieve
profitability, and even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis in the future. If we do
not achieve or sustain profitability in the future, then we will be unable to
continue our operations.
OUR QUESTION ANSWERING SERVICES ARE NOVEL AND UNPROVEN
Our question answering services are novel and unproven. We will be
successful only if Internet users adopt our natural-language services on Ask
Jeeves and on the Web sites of our corporate customers. It is difficult to
predict the extent and rate of user adoption of our services. We cannot assure
you that widespread acceptance of our question and answering services will
occur. Visitors to our service may use it once or twice and then revert to
traditional search techniques to navigate the Internet.
OUR METHODS OF GENERATING REVENUE ARE RELATIVELY NEW AND LARGELY UNTESTED
Revenues from Internet advertising will make up a significant amount of our
revenues for the foreseeable future. Since the Internet advertising market is
new and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media. Advertisers that have traditionally relied on
other advertising media may be reluctant to advertise on the Internet believing
that Internet advertising is less effective than traditional advertising media
for promoting their products and services. Consequently, they may allocate only
limited portions of their advertising budgets to Internet advertising. Our
business could be materially adversely affected if Internet advertising does not
continue to grow or if we are unsuccessful in increasing our advertising
revenues.
In addition, a portion of our revenues for the foreseeable future are
expected to be derived from the facilitation of electronic commerce
transactions. The market for Internet products and services has only recently
begun to develop and is rapidly changing. Therefore, the success of our business
depends upon the adoption of the Internet as a medium for commerce by a broad
base of customers. If this market fails to develop or develops more slowly than
expected, or if our electronic commerce services do not achieve market
acceptance, our business may suffer.
Furthermore, we expect sales to corporate customers to constitute a growing
percentage of our revenues. Our service has only been recently implemented onto
corporate Web sites. As such, we cannot yet determine the effectiveness of our
Corporate Service compared to traditional methods of customer relationship
management, such as e-mail, call centers and other traditional Web solutions. If
we cannot demonstrate to corporate customers that our Corporate Service
increases the rate at which browsers become purchasers,
14
<PAGE> 15
improves customer satisfaction on their Web sites and reduces expensive support
costs, such as those associated with call centers, our ability to attract and
retain corporate customers may be impaired.
OUR GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND
We believe that broader brand recognition and a favorable consumer
perception of the Ask Jeeves brand are essential to our future success.
Accordingly, we intend to continue pursuing an aggressive brand-enhancement
strategy, which will include mass market and multimedia advertising, promotional
programs and public relations activities. These expenditures may not result in a
sufficient increase in revenues to cover such advertising and promotional
expenses. In addition, even if brand recognition increases, the number of new
users may not increase. Further, even if the number of new users increases, the
amount of traffic on Ask Jeeves and the number of corporate customers may not
increase sufficiently to justify the expenditures.
TO MANAGE OUR GROWTH, WE NEED TO IMPROVE OUR SYSTEMS, CONTROLS AND PROCEDURES
AND COORDINATE OUR QUESTION ANSWERING SERVICES
We have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. This growth will place a significant strain
on our personnel, management systems and resources. We expect that the number of
our employees, including management-level employees, will continue to increase
for the foreseeable future. We must continue to improve our operational and
financial systems and managerial controls and procedures, and we will need to
continue to expand, train and manage our workforce. We must also maintain close
coordination between our Consumer Service and Corporate Service, as well as our
technical, accounting, finance, marketing, sales and editorial organizations. We
cannot assure you that our systems, procedures or controls will be adequate to
support our operations or that we will be able to manage any growth effectively.
WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE AGAINST OUR CURRENT AND POTENTIAL
COMPETITORS
Many of our existing competitors, as well as potential new competitors,
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than we
do. This may allow them to devote greater resources than we can to the
development and promotion of their services. Many of these competitors offer a
wider range of services than we do. These services may attract users to our
competitors' sites and, consequently, result in a decrease of traffic to our
site. These competitors may also engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, advertisers and electronic
commerce merchants. Our competitors may develop products and services that are
equal or superior to ours or that achieve greater market acceptance. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to better
address the needs of advertisers and businesses engaged in electronic commerce.
As a result, it is possible that new competitors may emerge and rapidly acquire
significant market share.
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT
You should not rely on our results of operations during any particular
quarter as an indication of our future results for a full year or any other
quarter. Our quarterly revenues and operating results have varied significantly
in the past and may vary significantly in the future.
FAILURE TO RETAIN CUSTOMERS OR ADD NEW CUSTOMERS TO OUR CORPORATE SERVICE MAY
HAVE AN ADVERSE EFFECT ON OUR REVENUES
To date, a significant portion of our revenues has been attributable to a
limited number of customers. If we are unable to offer value to our customers
during the term of these contracts, or if our customers choose a competitor's
service over our service, or if such customers decide to use their own
proprietary technology to develop services to ours, such customers may not renew
their contracts. In addition, in the coming year we expect that our expenses
associated with the sales, marketing, and development of the Corporate Service
will
15
<PAGE> 16
increase and revenues associated with the Corporate Service will be heavily
dependent on a limited number of customers, comprised primarily of corporations
with large, difficult-to-navigate Web sites. As a result of our additional
expenses, if we do not complete sales to a sufficient number of customers, our
future revenues will be adversely affected.
THE OPERATING PERFORMANCE OF OUR SYSTEMS AND SERVERS IS CRITICAL TO OUR BUSINESS
AND REPUTATION
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in responsiveness of Ask
Jeeves could result in reduced user traffic on Ask Jeeves and reduced revenues.
Our network and server equipment is located at Frontier Global Center in Palo
Alto, California and Exodus in Santa Clara, California. Although we believe that
our current back-up methods are adequate, we cannot assure you that the back-up
servers will not fail or cause an interruption in our service.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business. In addition, we do not know whether we will be able to defend our
proprietary rights since the validity, enforceability and scope of protection of
proprietary rights in Internet-related industries is uncertain and still
evolving. Because we are devoting significant resources to building our brands
through media advertising campaigns, if we are unable to register the trade and
service marks for which we have applied, or if we are unable to defend our
intellectual property rights, our business may be materially and adversely
affected.
Third parties may assert infringement claims against us. From time to time
in the ordinary course of business we have been, and we expect to continue to
be, subject to claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. These claims and any resultant
litigation, should it occur, could subject us to significant liability for
damages. In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into agreements with the third parties making these claims.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for interest rate changes relates
primarily to its investment portfolio. The Company had no derivative financial
instruments as of September 30, 1999 or December 31, 1998. The Company places
its investment portfolio in high credit quality instruments and the amount of
credit exposure to any one issue, issuer and type of instrument is limited. The
Company does not expect any material loss with respect to its investment
portfolio.
The Company's investments are principally confined to our cash and cash
equivalents and available-for-sale securities, which have short maturities and,
therefore, minimal market risk.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 8, 1999, IP Learn, LLC filed a lawsuit in the United States
District Court for the Northern District of California (Case No. 99-3352)
against Ask Jeeves alleging that Ask Jeeves infringes a patent that generally
relates to natural language database query systems. IP Learn is seeking
unspecified damages, including attorney's fees, as well as an injunction. Ask
Jeeves answered the complaint on August 30, 1999 and the parties have begun
discovery. Ask Jeeves believes that allegations of the complaint are without
merit and intends to contest them vigorously. We believe the amount of the
ultimate liability with respect to this action will not materially affect the
financial position, results of operations or cash flows of Ask Jeeves.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UNDER SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT
10.1 First Amendment to Office Lease Between Emery Station Associates LLC
(Landlord) and Ask Jeeves, Inc. (Tenant)
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1999.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto dully authorized.
ASK JEEVES, INC.
November 12, 1999 By: /s/ Robert W. Wrubel
--------------------------------------
Robert W. Wrubel
President and Chief
Executive Officer
(Principal Executive Officer)
November 12, 1999 By: /s/ M. Bruce Nakao
--------------------------------------
M. Bruce Nakao
Chief Financial Officer
(Principal Financial Officer)
November 12, 1999 By: /s/ Christine M. Davis
--------------------------------------
Christine M. Davis
Corporate Controller
(Principal Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
10.1 First Amendment to Office Lease Between Emery Station
Associates LLC (Landlord) and Ask Jeeves, Inc. (Tenant)
27.1 Financial Data Schedule
</TABLE>
19
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT
to
OFFICE LEASE BETWEEN
EMERY STATION ASSOCIATES LLC (LANDLORD)
And
ASK JEEVES, INC. (TENANT)
EMERYSTATION PROJECT
Emeryville, California
That certain Lease dated April 29, 1999 by and between Emery Station Associates
LLC, as Landlord, and Ask Jeeves, Inc, as Tenant, is hereby amended effective
this _____ day of August, 1999 as
follows:
I. The Premises shall be expanded to include that additional space on the
fourth floor more specifically depicted on Exhibit Al attached hereto.
This space, hereinafter referred to as the "Expansion Space", measures
35,900 rentable square feet (31,524 usable square feet). The Expansion
space will be built-out with tenant improvements and added to Tenant's
base space in two phases, called the "First Expansion Space" and the
"Second Expansion Space", respectively. These spaces are indicated on
Exhibit A1. The First Expansion Space measures 23,112 rentable square
feet (20,295 usable square feet); the Second Expansion Space measures
12,788 rentable square feet (11,229 usable square feet).
II. Landlord's architect will diligently prepare detailed plans and
specifications (the "Construction Drawings") of the First Expansion
Space pursuant to the space plan approved by Tenant and attached hereto.
Landlord will construct the Tenant Improvements in accordance with the
construction procedures established by, and the terms and conditions
established in, the Work Letter. Landlord will provide an allowance of
$35 per usable square foot on the First Expansion Space. It is
Landlord's and Tenant's goal to achieve substantial completion of the
First Expansion Space by October 22, 1999.
III. Rent on the First Expansion Space will commence upon substantial
completion of the Tenant Improvements, subject to Tenant Delay (the
"First Expansion Space Commencement Date"), and will be pursuant to the
schedule of Base Monthly Rent then in effect under the base Lease. The
Base Year for the First Expansion Space shall be calendar year 2000,
although Tenant's obligation to pay increases above the Base Year amount
shall not commence until 12 months after substantial completion of the
First Expansion Space (subject to Tenant Delay). Upon delivery of the
First Expansion Space to Tenant, it shall be considered Premises,
subject to all terms and conditions of the Lease.
IV. Tenant agrees that the Second Expansion Space shall be added to the then
existing Premises no later than July 1, 2000, regardless of whether
tenant improvements have been completed therein. Tenant may notify
Landlord of its intent to build-out tenant improvements for the Second
Expansion Space at any time by written notice to Landlord ("Tenant's
Notice"). Upon such notice to Landlord, Tenant and Landlord will work
diligently together and with Landlord's architect to create Construction
Drawings for the Second Expansion Space within 30 days of Tenant's
Notice. Landlord will then diligently construct the Tenant Improvements
in accordance with the construction procedures established by, and the
terms and conditions established in, the Work Letter, making
commercially reasonable efforts to substantially complete the Tenant
Improvements within 60 days. Landlord will provide an allowance of $35
per usable square foot on the Second Expansion Space.
<PAGE> 2
V. Rent on the Second Expansion Space will commence upon the earlier to
occur of: a) substantial completion of the Tenant Improvements (subject
to Tenant Delay), and b) July 1, 2000 (this date to be called the
"Second Expansion Premises Commencement Date"). Rent on the Second
Expansion Space will be pursuant to the schedule of Base Monthly Rent
then in effect under the base Lease. The Base Year for the. Second
Expansion Space shall be calendar year 2000. Upon delivery of the Second
Expansion Space to Tenant, it shall be considered Premises, subject to
all terms and conditions of this Lease.
VI. Within ten (10) days after the mutual execution of this First Amendment,
Tenant shall increase its Security Deposit by $57,548.88 to reflect the
addition of the First Expansion Space ($2.49 * rentable square footage
of First Expansion Premises). Within ten (10) days of Tenant's Notice
(defined above) to Landlord of its intent to build-out tenant
improvements for the Second Expansion Space, Tenant shall increase its
Security Deposit by $31,842.12 ($2.49 * rentable square footage of
Second Expansion Space) to reflect the addition of the Second Expansion
Space.
VII. The Expiration Date of the Lease is hereby extended to be the earlier
of: 1) 60 months following the Second Expansion Space Commencement Date,
or 2) June 30,2005.
VIII. Landlord and Tenant acknowledge that the First and Second Expansion
Spaces described above represent Tenant's invocation of all of its
expansion options initially outlined in the original Lease. Therefore,
Sections 2 (First Expansion Option), 3 (Second Expansion Option), 4
(Third Expansion Option), 5 (Space Availability), and 6 (Termination of
Third Expansion Option) of the Lease Addendum are hereby deleted in
their entirety.
IX. Effective August 15, 1999, the rent described in Section 8 (c) of the
Lease Addendum for the temporary premises in 5915 Hollis Street shall be
increased to $2.00 per rentable square foot per month. Tenant
acknowledges that, absent any written agreement otherwise by Landlord,
it will vacate the temporary space upon substantial completion of the
First Expansion Space.
X. Except for those terms outlined above, all other terms and conditions of
the base Lease and Work Letter remain in full force and effect.
In witness hereof, the parties have executed this First Amendment as of the date
noted below.
TENANT: LANDLORD:
Ask Jeeves, Inc., a Delaware Emery Station Associates LLC, a
Corporation California Limited Liability
Company
By:________________________________ By:________________________________
Print Name:________________________ Print Name:________________________
Its:_______________________________ Its:_______________________________
Dated:_____________________________ Dated:_____________________________
<PAGE> 3
[Image]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 32,516,473
<SECURITIES> 24,277,826
<RECEIVABLES> 7,087,130
<ALLOWANCES> 338,283
<INVENTORY> 0
<CURRENT-ASSETS> 63,743,792
<PP&E> 6,163,985
<DEPRECIATION> 768,595
<TOTAL-ASSETS> 72,397,552
<CURRENT-LIABILITIES> 12,338,260
<BONDS> 0
0
0
<COMMON> 88,596,152
<OTHER-SE> (30,733,322)
<TOTAL-LIABILITY-AND-EQUITY> 72,397,552
<SALES> 0
<TOTAL-REVENUES> 10,301,445
<CGS> 0
<TOTAL-COSTS> 7,359,974
<OTHER-EXPENSES> 3,460,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,716
<INCOME-PRETAX> (24,178,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,178,747)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,178,747)
<EPS-BASIC> (1.49)
<EPS-DILUTED> (1.49)
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