<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: August 11, 2000
Date of earliest event reported: February 2, 2000
ASK JEEVES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-26521 94-3334199
(Commission File No.) (IRS Employer Identification No.)
5858 HORTON ST., SUITE 350, EMERYVILLE, CA 94608
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (510) 985-7400
--------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The undersigned registrant, Ask Jeeves, Inc. (the "Company"), hereby
amends its Current Report on Form 8-KA previously filed with the Commission
on April 11, 2000, relating to the Company's acquisition of Direct Hit
Technologies, Inc. ("Direct Hit") on February 2, 2000, by means of a merger
(the "Merger") among the Company, Direct Hit and Answer Acquisition Corp., a
wholly owned subsidiary of the Company. Such Current Report indicated that
the required financial statements and pro forma financial information have
been filed with the Commission by the Company in a registration statement as
set forth in Item 7 below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The required financial statements of Direct Hit were previously filed
with the Commission by the Company in the Registration Statement on Form S-1
(Registration No. 333-33586) on March 30, 2000 and are presented in this
amended current report as follows.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Direct Hit Technologies, Inc.
Natick, Massachusetts
We have audited the accompanying consolidated balance sheets of Direct Hit
Technologies, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from inception (April 27, 1998) to December 31, 1998 and for the year
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
period from inception (April 27, 1998) to December 31, 1998 and for the year
ended December 31, 1999 in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the consolidated financial statements, the Company
was acquired by Ask Jeeves, Inc. on February 2, 2000.
Deloitte & Touche LLP
Boston, Massachusetts
January 25, 2000
(February 2, 2000 as to Note 8)
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,557,673 $ 11,787,942
Short term investments.................................... -- 5,124,434
Accounts receivable, less allowances of $5,100 in 1998 and
$83,600 in 1999......................................... 162,846 1,008,870
Refundable advertising costs.............................. -- 2,065,556
Prepaid expenses and other current assets................. 20,830 155,402
------------ ------------
Total current assets.................................... 2,741,349 20,142,204
------------ ------------
Property and equipment, net................................. 170,046 1,753,446
------------ ------------
Restricted cash............................................. -- 150,000
Other assets................................................ 12,535 102,607
------------ ------------
Total Assets................................................ $ 2,923,930 $ 22,148,257
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 7,558 $ 1,364,122
Accrued marketing expenses................................ -- 2,240,621
Accrued professional fees................................. 31,805 639,800
Accrued compensation...................................... 28,646 156,227
Accrued expenses.......................................... -- 228,454
Other liabilities......................................... -- 45,791
Deferred revenue.......................................... 32,500 343,199
------------ ------------
Total current liabilities............................... 100,509 5,018,214
------------ ------------
Commitments (Note 3)
Stockholders' Equity:
Convertible Preferred Stock:
Series C, $.001 par value, 4,431,265 shares authorized,
4,431,263 issued and outstanding (liquidation
preference, $26,299,997).............................. -- 26,279,085
Series B, $.001 par value, 1,323,912 shares authorized,
issued and outstanding (liquidation preference,
$2,000,000)........................................... 1,993,110 1,993,110
Series A, $.001 par value, 5,187,501 shares authorized,
issued and outstanding (liquidation preference,
$1,383,334)........................................... 1,378,334 1,378,334
Common stock, $.001 par value; 35,000,000 shares
authorized; 9,624,684 and 9,863,892 shares issued and
outstanding............................................. 9,625 9,864
Additional paid-in capital................................ 733,319 9,319,903
Deferred compensation..................................... (498,727) (6,924,631)
Accumulated deficit....................................... (792,240) (14,925,622)
------------ ------------
Total stockholders' equity.......................... 2,823,421 17,130,043
------------ ------------
Total Liabilities and Stockholders' Equity.................. $ 2,923,930 $ 22,148,257
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998) FOR THE
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
----------------- -------------
<S> <C> <C>
Revenues:
OEM....................................................... $ 175,420 $ 1,625,153
Advertising............................................... -- 271,162
------------ ------------
Total revenues...................................... 175,420 1,896,315
Cost of revenues:...........................................
OEM....................................................... 51,595 630,232
Advertising............................................... -- 73,187
------------ ------------
51,595 703,419
------------ ------------
Gross profit................................................ 123,825 1,192,896
------------ ------------
Operating Expenses:
Selling and marketing..................................... 90,332 9,950,451
Research and development.................................. 471,598 2,552,420
General and administrative................................ 150,260 1,622,868
Equity related compensation............................... 231,775 1,792,115
------------ ------------
Total operating expenses............................ 943,965 15,917,854
------------ ------------
Loss from operations........................................ (820,140) (14,724,958)
------------ ------------
Interest/other income....................................... 27,900 591,576
------------ ------------
Net loss.................................................... $ (792,240) $(14,133,382)
============ ============
Net loss per share--basic and diluted....................... $ (0.45) $ (3.88)
============ ============
Shares used in per share calculation basic and diluted...... 1,772,864 3,638,886
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 27, 1998) TO DECEMBER 31, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ -------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ----------- --------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION (APRIL 27, 1998)....... -- -- -- -- -- --
Issuance of common stock to founders...... -- -- 7,849,998 $7,850 $ 542,150 $ (550,000)
Issuance of Series A preferred stock, net
of issuance costs of $5,000............. 5,187,501 $ 1,378,334 -- -- -- --
Issuance of Series B preferred stock, net
of issuance costs of $6,890............. 1,323,912 1,993,110 -- -- -- --
Exercise of stock options for cash........ -- -- 1,774,686 1,775 10,667 --
Deferred compensation related to grant of
stock options........................... -- -- -- -- 180,502 (180,502)
Amortization of deferred compensation..... -- -- -- -- -- 231,775
Net loss.................................. -- -- -- -- -- --
---------- ----------- --------- ------ ---------- -----------
BALANCE, DECEMBER 31, 1998.................. 6,511,413 3,371,444 9,624,684 9,625 733,319 (498,727)
Repurchase of common stock................ -- -- (22,500) (23) (577) --
Exercise of stock options for cash........ -- -- 261,708 262 369,142 --
Issuance of Series C preferred stock, net
of issuance costs of $20,895............ 4,431,263 26,279,085 -- -- -- --
Deferred compensation related to grant of
stock options........................... -- -- -- -- 7,993,019 (7,993,019)
Transfer of shares to employees........... -- -- -- -- 225,000 --
Amortization of deferred compensation..... -- -- -- -- -- 1,567,115
Net loss.................................. -- -- -- -- -- --
---------- ----------- --------- ------ ---------- -----------
BALANCE, DECEMBER 31, 1999.................. 10,942,676 $29,650,529 9,863,892 $9,864 $9,319,903 $(6,924,631)
========== =========== ========= ====== ========== ===========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- --------------
<S> <C> <C>
BALANCE AT INCEPTION (APRIL 27, 1998)....... -- --
Issuance of common stock to founders...... -- --
Issuance of Series A preferred stock, net
of issuance costs of $5,000............. -- $ 1,378,334
Issuance of Series B preferred stock, net
of issuance costs of $6,890............. -- 1,993,110
Exercise of stock options for cash........ -- 12,442
Deferred compensation related to grant of
stock options........................... -- --
Amortization of deferred compensation..... -- 231,775
Net loss.................................. (792,240) (792,240)
------------ ------------
BALANCE, DECEMBER 31, 1998.................. (792,240) 2,823,421
Repurchase of common stock................ -- (600)
Exercise of stock options for cash........ -- 369,404
Issuance of Series C preferred stock, net
of issuance costs of $20,895............ -- 26,279,085
Deferred compensation related to grant of
stock options........................... -- --
Transfer of shares to employees........... -- 225,000
Amortization of deferred compensation..... -- 1,567,115
Net loss.................................. (14,133,382) (14,133,382)
------------ ------------
BALANCE, DECEMBER 31, 1999.................. $(14,925,622) $ 17,130,043
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (792,240) $(14,133,382)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 21,665 250,185
Equity-related compensation............................. 231,775 1,792,115
Changes in operating assets and liabilities:
Accounts receivable................................... (162,846) (846,024)
Prepaid expenses and other current assets............. (20,830) (2,200,128)
Accounts payable and accrued expenses................. 68,009 4,607,006
Deferred revenue...................................... 32,500 310,699
------------ ------------
Total adjustments................................... 170,273 3,913,853
------------ ------------
Net cash used in operating activities............... (621,967) (10,219,529)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets.................................. (12,535) (90,072)
Purchases of short-term investments....................... -- (20,291,434)
Maturities of short-term investments...................... -- 15,167,000
Restricted cash deposits.................................. -- (150,000)
Purchases of property and equipment....................... (191,711) (1,833,585)
------------ ------------
Net cash used in investing activities............... (204,246) (7,198,091)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock upon exercise of stock options... 12,442 369,404
Repurchase of common stock................................ -- (600)
Issuance of Series A preferred stock...................... 1,278,334 --
Issuance of Series B preferred stock...................... 1,993,110 --
Issuance of Series C preferred stock...................... -- 26,279,085
Proceeds from issuance of note payable.................... 100,000 --
------------ ------------
Net cash provided by financing activities........... 3,383,886 26,647,889
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 2,557,673 9,230,269
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 2,557,673
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 2,557,673 $ 11,787,942
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Conversion of note payable to Series A preferred stock.... $ 100,000 --
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS--Direct Hit Technologies, Inc. (the "Company") provides
technology that aggregates and organizes online content to enable users to
quickly find relevant and accurate information, products and services. The
Company was incorporated on April 27, 1998.
The Company has a single operating segment, aggregation and organization of
online content. The Company has no organizational structure dictated by product
lines, geography or customer type. Revenues have been primarily derived from
popularity-based search products.
The Company has experienced net losses since its inception and, as of
December 31, 1999, had an accumulated deficit of approximately $14.9 million.
Such losses and accumulated deficit resulted from both the Company's lack of
substantial revenue, the recent brand promotion campaign, costs incurred in the
development of the Company's service and in the establishment of the Company's
Web site. For the foreseeable future, the Company expects to continue to
experience significant growth in its operating expenses in order to execute its
current business plan, particularly those related to sales and marketing and
research and development.
STOCK SPLIT--On July 9, 1999, prior to the Series C investment, the
Company's Board of Directors approved a three-for-one stock split of the
Company's common and preferred stock. Shareholders of record on July 14, 1999
(the record date) received two additional shares for every share held on that
date. All share and per share amounts in these consolidated financial statements
and notes hereto for all periods presented have been adjusted to reflect the
three-for-one stock split.
BASIS OF PRESENTATION--The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary Direct Hit
Securities Corporation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS--The Company invests its
cash in money market accounts, in debt securities of U.S. Government agencies,
in municipal auction rate securities and in commercial paper from high quality
corporate issuers. All highly liquid instruments with an original maturity of
ninety days or less are considered cash equivalents and those with original
maturities greater than ninety days and less than one year are considered short
term investments. The municipal auction rate securities have an original
maturity of thirty years (ranging from August 2026 to July 2029); however, these
securities reset their rates every 28 days and allow for liquidity at this time.
Based on this liquidity provision, the Company has classified these securities
as cash equivalents, as management intends to utilize this liquidity provision
rather than hold to maturity. The Company's short term investments in marketable
securities are classified as available-for-sale and are reported at fair value,
with unrealized gains and losses, if any, net of tax, recorded in stockholders'
equity. Such unrealized gains and losses to date have been immaterial. Realized
gains or losses and permanent declines in value, if any, on available-for-sale
securities will
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
be reported in interest/other income as incurred. At December 31, 1999,
effectively, all of the Company's available-for-sale debt securities mature
within one year.
RESTRICTED CASH--The Company is required to maintain a $150,000 compensating
balance with a bank to support an outstanding letter of credit which is issued
in favor of the Company's landlord in lieu of a deposit on leased office space.
REVENUE RECOGNITION--Revenues are comprised of OEM revenues and advertising
revenues. OEM revenues are generated through a variety of contractual
arrangements, which include per-query fees and advertising revenue sharing
arrangements with OEM customers. Per-query fees are recognized in the period
earned, and revenues from advertising revenue sharing arrangements are
recognized in the period that the advertisement is displayed through the OEM
customer's Web site. When the OEM contract calls for payments based on per-query
fees, revenues are recognized based on the number of Web pages accessed as
reported by the OEM customer or as determined by the Company, depending on the
contract. When the OEM contact provides for minimum monthly fees, such fees are
recognized monthly as earned.
Advertising revenues are derived primarily from the sale of banner
advertisements on Web pages. Revenues are recognized over the term the
advertisements are displayed.
Deferred revenue is primarily comprised of payments and billings in excess
of recognized revenue relating to customer contracts.
CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Company to significant concentration of credit risk consist primarily of
cash and cash equivalents, short term investments and accounts receivable.
Substantially all of the Company's cash and cash equivalents are managed by two
financial institutions. At December 31, 1998 and 1999, the Company had cash
balances at certain financial institutions in excess of federally insured
limits. However, the Company does not believe that it is subject to unusual
credit risk beyond the normal credit risk associated with commercial banking
relationships.
Accounts receivables are typically unsecured and are derived from revenues
earned from customers primarily located in the United States. The Company
performs ongoing credit evaluations of its customers. The Company maintains an
allowance for potential credit losses. Accordingly, the Company has provided
$5,100 and $78,500 for such allowances in 1998 and 1999, respectively. The
Company has not recorded any write-offs in 1998 or 1999.
For the period from inception (April 27, 1998) through December 31, 1998,
two customers accounted for 78% and 22%, respectively, of total revenues and 82%
and 18%, respectively, of total receivables, at December 31, 1998. Two customers
accounted for 45% and 12%, respectively, of total revenues for the year ended
December 31, 1999. Three customers accounted for 37%, 13% and 12%, respectively,
of total receivables at December 31, 1999.
DEPRECIATION AND AMORTIZATION--Property and equipment, including leasehold
improvements, are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets. The Company periodically
evaluates the recoverability of its long-lived assets based on expected
undiscounted cash flows and recognizes impairments, if any, based on expected
discounted future cash flows.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES--Deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on currently available evidence, are not expected to be realized.
COST OF REVENUES--Cost of revenues consist primarily of expenses associated
with the ongoing maintenance and support of our products, including compensation
and employee-related expenses, consulting fees, equipment costs, networking,
bandwidth, adserving and other related indirect costs. These costs are allocated
between OEM and advertising based on pageviews served for the respective Web
sites. The Company enters into contracts for bandwidth with third-party network
providers.
RESEARCH AND DEVELOPMENT--Research and development expenses consist
primarily of compensation and employee-related expenses, equipment costs, and
fees for professional services related to the continued development and
enhancement of our product offerings.
Costs incurred in the engineering and development of the Company's product
are expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility (as defined by of Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed") and capitalized
thereafter.
The Company also has incurred expenditures on software used to both
facilitate internal processes and create and maintain its Web site. The Company
has adopted Statement of Position ("SOP") 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. Costs
eligible for, and capitalized under SFAS No. 86 and SOP 98-1 have been
insignificant to date.
MARKETING AND ADVERTISING COSTS--Selling and marketing expenses consist
primarily of advertising and other marketing-related expenses, compensation and
employee-related expenses, sales commission and travel costs. Advertising costs
are expensed as incurred and totaled $0 and $6.4 million for the period from
inception (April 27, 1998) through December 31, 1998 and for the year ended
December 31, 1999, respectively. During 1999 the Company paid, in advance,
certain advertising costs related to programs that were subsequently cancelled.
Pursuant to the terms and conditions of these advertising arrangements, the
Company is entitled to a refund and, accordingly, the Company has recorded the
refunds due in current assets. Pursuant to other terms and condition of other
advertising arrangements entered into by the Company, obligations to pay certain
advertising costs have been incurred and recorded as liabilities at
December 31, 1999.
STOCK-BASED COMPENSATION--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB 25, compensation cost is
recognized on a straight line basis over the vesting period based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the exercise price.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NET LOSS PER SHARE--Basic net loss per share is computed using the weighted
average number of common shares outstanding during the period adjusted for those
restricted shares that are contingently returnable. Diluted net loss per share
is computed using the weighted average number of common shares outstanding
during the period, plus the dilutive effect of potential common stock. Potential
common stock consists of convertible preferred stock, restricted common stock
that is contingently returnable, and stock options. For the period from
inception (April 27, 1998) to December 31, 1998 and for the year ended
December 31, 1999, options to purchase 72,510 and 1,437,646 shares of common
stock, respectively, restricted common stock of 7,071,093 and 5,036,311 shares,
respectively, that is contingently returnable and preferred stock convertible
into 6,511,413 and 10,942,676 shares of common stock, respectively, were
excluded from the calculation since their inclusion would be antidilutive.
FINANCIAL INSTRUMENTS--The Company's financial instruments include cash,
accounts receivable, accounts payable, and accrued expenses. At December 31,
1998 and December 31, 1999, the fair values of these instruments approximated
their financial statement carrying amounts.
COMPREHENSIVE LOSS--Comprehensive loss is the same as net loss for all
periods presented.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement, as amended, is
effective for fiscal years beginning after June 15, 2000. The Company has
evaluated the impact of adopting SFAS No. 133 and, based on its current business
activities, believes that it will not have a material effect on its consolidated
financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, DECEMBER 31,
LIVES 1998 1999
---------- ------------- -------------
<S> <C> <C> <C>
Property and equipment:
Computer equipment and software 3 years $ 149,298 $1,717,569
Furniture and fixtures.............................. 7 years 39,788 122,704
Office equipment.................................... 5 years 2,625 67,049
Leasehold improvements.............................. lease term -- 117,974
---------- ----------
Total......................................... 191,711 2,025,296
Less: accumulated depreciation (21,665) (271,850)
---------- ----------
Property and equipment, net................... $ 170,046 $1,753,446
========== ==========
</TABLE>
3. COMMITMENTS
The Company leases office space under operating leases expiring through
October 2002. Certain of the leases contain renewal options. Some of the leases
provide for increasing rents over
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS (CONTINUED)
the terms of the leases; total rent under these leases is being spread ratably
over the lease terms. The Company has sublet certain office space over the
remainder its lease term at an amount that approximates the Company's obligation
under the lease.
Total rent expense was $32,417 for the period from inception (April 27,
1998) through December, 31, 1998, and $272,766 for the year ended December 31,
1999. Rental income from the sublease amounted to $25,706 for the year ended
December 31, 1999 and is recorded, net of expense, in general and administrative
expense.
Future minimum annual lease payments under noncancelable operating leases,
net of sublease income, as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $747,413
2001........................................................ 753,086
2002........................................................ 406,395
</TABLE>
4. PREFERRED STOCK
CONVERTIBLE PREFERRED STOCK--The authorized preferred stock of the Company
consists 10,942,678 shares of preferred stock with a par value of $0.001, of
which 5,187,501 shares are designated as Series A convertible preferred stock
("Series A preferred stock"), 1,323,912 shares are designated as Series B
convertible preferred stock ("Series B preferred stock"), and 4,431,265 shares
are designated as Series C convertible preferred stock ("Series C preferred
stock").
SERIES A CONVERTIBLE PREFERRED STOCK--On May 22, 1998, the Company issued
5,187,501 shares of Series A preferred stock at $0.2667 per share to investors
for total consideration, including the conversion of two 8% promissory notes
amounting to $100,000, of $1,378,334 (net of offering costs of $5,000). The
Series A preferred stock is convertible into common stock, on a one-for-one
basis, at any time by the holders. The holders of the Series A preferred stock
have voting rights equivalent to the number of shares of common stock into which
their shares of Series A preferred stock convert. The Series A preferred stock
earns non-cumulative dividends when and if declared in the amount of $0.0213 per
share. Upon liquidation, after setting apart or paying in full the preferential
amounts due the holders of Series C preferred stock, holders of Series A
preferred stock are entitled to receive, out of funds then generally available,
in conjunction with holders of Series B preferred stock and prior to any payment
with respect to the holders of common stock, $0.2667 per share, plus any
declared and unpaid dividends, thereon. Following payment to holders of all
other classes of preferred stock to which the Series A preferred stock is
subordinate, holders of Series A preferred stock are then entitled to share in
remaining available funds on an "as-if converted" basis with holders of common
stock.
SERIES B CONVERTIBLE PREFERRED STOCK--On November 12, 1998, the Company
issued 1,323,912 shares of Series B preferred stock at $1.51067 per share to
investors for total consideration of $1,993,110 (net of offering costs of
$6,890). The Series B preferred stock is convertible into common stock, on a
one-for-one basis, at any time by the holders. The holders of the Series B
preferred stock have voting rights equivalent to the number of shares of common
stock into which their shares of Series B preferred stock convert. The Series B
preferred stock earns non-cumulative dividends when and if declared in the
amount of $0.121 per share. Upon
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PREFERRED STOCK (CONTINUED)
liquidation, after setting apart or paying in full the preferential amounts due
the holders of Series C preferred stock, holders of Series B preferred stock are
entitled to receive, out of funds then generally available, in conjunction with
holders of Series A preferred stock and prior to any payment with respect to the
holders of common stock, $1.51067 per share, plus any declared and unpaid
dividends, thereon. Following payment to holders of all other classes of
preferred stock to which the Series B preferred stock is subordinate, holders of
Series B preferred stock are then entitled to share in remaining available funds
on an "as-if converted" basis with holders of common stock.
In addition, as long as any shares of Series B preferred stock are
outstanding, the Company shall not, without first obtaining approval by vote or
written consent of the holders of at least a majority of the total number of
shares of Series B preferred stock outstanding, voting together as a class,
undertake or effect any reorganization event (as defined) in which the value of
the consideration to be received per share of Series B preferred stock in such
transaction is less than 150% of the original Series B issue price of $1.51067
per share.
SERIES C CONVERTIBLE PREFERRED STOCK--On July 16, 1999, the Company issued
4,431,263 shares of Series C preferred stock at $5.9351 per share to investors
for total consideration of $26,279,085 (net of offering costs of $20,895). The
Series C preferred stock is convertible into common stock, on a one-for-one
basis, at any time by the holders. The holders of the Series C preferred stock
have voting rights equivalent to the number of shares of common stock into which
their shares of Series C preferred stock convert. The Series C preferred stock
earns non-cumulative dividends when declared in the amount of $0.4748 per share.
Upon liquidation, holders of Series C preferred stock are entitled to receive,
out of funds then generally available dividends previously declared or accrued
and a per share amount as follows: i) $8.90265 per share if the consideration
received in a liquidation is $2.99 per fully diluted share of common stock or
less ii) $10.386425 per share if the consideration received in a liquidation is
between $3.00 and $8.96 per fully diluted share of common stock iii) $11.8702
per share if the consideration received in a liquidation is between $8.97 and
$11.96 per fully diluted share of common stock or iv) $5.9351 per share if the
consideration received in a liquidation is over $11.96 per fully diluted share
of common stock.
AUTOMATIC CONVERSION--The preferred stock will automatically be converted
into shares of common stock upon the closing of a public offering of common
stock at an offering price of at least $11.8702 per share that values the
Company at not less than $253 million and results in gross proceeds to the
Company of at least $20 million.
5. COMMON STOCK
The Company's Certificate of Incorporation was amended on July 14, 1999 to
increase the number of authorized shares of common stock from 10,000,000 to
35,000,000 shares.
The Company's Certificate of Incorporation precludes the payment of
dividends to shareholders of common stock so long as any shares of Series A, B
or C preferred stock are issued and outstanding.
FOUNDERS SHARES--On April 28, 1998 the Company issued to the two founders of
the Company 2,943,750 and 4,906,248 shares of restricted common stock (the
"Founders Shares"), respectively, at a per share price of $0.0003.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK (CONTINUED)
The Founder Stock Purchase Agreement relating to 2,943,750 shares of common
stock provided for vesting of 10% of the shares upon the issuance of the
Series A preferred stock and the remaining 90% vest ratably over four years.
The Founder Stock Purchase Agreement relating to 4,906,248 shares of common
stock were issued to a founder as part of the initial capitalization of the
Company including his contribution and development of certain technology
pursuant to the terms of an Exclusive Patent License Agreement. Upon issuance of
the Series A preferred stock 25% of his shares became immediately vested. The
remaining balance of these Founder Shares vest ratably over four years. On
July 6, 1999 the founder transferred 60,000 of his restricted Founders shares to
two employees for past services rendered. The fair value of these shares,
approximating $225,000, was charged to expense.
The Company has determined that the measurement date for the founders shares
coincided with the issuance of the Series A preferred stock. During 1998, the
Company recognized deferred compensation of $550,000, based on the fair value of
the common shares on that day, to be amortized over the vesting period.
Accordingly, the Company has recorded compensation expense of approximately
$174,000 and $111,000 for the period from inception (April 27, 1998) through
December, 31, 1998 and the year ended December 31, 1999, respectively.
The Company has the right to repurchase unvested shares at the amount paid.
The Company's right to repurchase the unvested shares terminates if the founder
is terminated by the Company without cause, upon a change in control or upon the
effectiveness of the Company's initial public offering.
Restricted shares include the Founders Shares and shares purchased pursuant
to the Company's 1998 and 1998-A stock Option Plans (the "Option Plans").
Restricted shares activity since inception follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PURCHASE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at inception (April 27, 1998)............. -- --
Issued for Founders Shares and stock option
exercises......................................... 9,624,684 $ 0.001
Repurchased......................................... -- --
Lapse of restriction due to vesting................. (2,553,591) 0.001
----------
Outstanding at December 31, 1998...................... 7,071,093 0.001
Issued for stock option exercises................... 261,708 1.403
Repurchased......................................... (45,000) (0.027)
Issued from treasury shares......................... 22,500 0.027
Lapse of restriction due to vesting................. (2,273,990) 0.011
----------
Outstanding at December 31, 1999...................... 5,036,311 $ 0.070
========== =======
</TABLE>
STOCK OPTIONS--The Company's Option Plans provided for the granting of stock
options to purchase up to 1,962,501 shares of the Company's common stock. In
1998, the Company's shareholders ratified and approved to increase the number of
shares available for grant by 225,000 to a total of 2,187,501 for the Option
Plans. In 1999 the Company's shareholders ratified and
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK (CONTINUED)
approved to increase the number of shares available for grant by 1,600,000, to a
total of 3,787,501 for the Option Plans. Options may be granted to employees,
officers, directors and consultants of the Company with terms of up to
10 years. The options can be granted at such prices and vesting schedules as the
Board of Directors (the "Board") may determine; however ISO's cannot be granted
at less than 100% and nonqualified options cannot be granted at less than 85% of
the stock's fair market value at the date of grant.
Options generally vest over 48 months as follows: (i) 25% 12 months from the
date of grant and (ii) the remaining 75% thereafter at 2.0833% per month. In the
event of a change of control of the Company (as defined in the Option Plan), the
vesting of 25% of the remaining unvested shares will automatically be
accelerated. In the event of termination after change in control (as defined in
the Option Plans), the vesting of 25% of the remaining unvested shares will
automatically be accelerated. Certain of the Company's senior management team
have a special provision related to termination after change in control that
automatically accelerates the vesting of 100% of the remaining unvested shares.
Generally, the Option Plans provide that the option holders may exercise
their stock options immediately. Shares issued upon exercise of such options are
restricted and will continue to vest under the terms of the option agreement.
Stock option activity since inception is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding at inception.................................... -- --
Granted................................................... 1,929,372 $0.02
Exercised................................................. (1,774,686) 0.01
Canceled, forfeited or expired............................ (82,176) 0.27
---------- -----
Outstanding and exercisable, December 31, 1998.............. 72,510 $0.10
Granted................................................... 1,672,500 1.88
Exercised................................................. (284,208) 1.29
Canceled, forfeited or expired............................ (23,156) 0.49
---------- -----
Outstanding and exercisable, December 31, 1999.............. 1,437,646 $1.94
========== =====
</TABLE>
Included in options granted for the period from inception (April 27, 1998)
through December 31, 1998, and for the year ended December 31, 1999 are options
to purchase 218,748 and 95,500 shares, respectively, granted to consultants,
resulting in deferred compensation of approximately $59,000 and $1,995,000 in
1998 and 1999, respectively. Compensation expense is being recognized over the
vesting period based on fair value pursuant to SFAS No. 123 and EITF No. 96-18.
Accordingly, the total amount of compensation expense to be recognized, for
stock options granted to consultants, will increase or decrease over the vesting
period based on changes in the fair value of such stock options. Total expense
for the period from inception (April 27, 1998) through December 31, 1998 and for
the year ended December 31, 1999, related to these options is approximately
$36,000 and $960,000, respectively.
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK (CONTINUED)
For financial reporting purposes, the deemed fair value of the common stock
at the dates of stock option grants to employees resulted in deferred
compensation of approximately $122,000 for the period from inception (April 27,
1998) through December 31, 1998 and $5,998,000 for the year ended December 31,
1999. These charges are being recognized ratably over the vesting period.
Compensation expense for options to employees was approximately $22,000 for the
period from inception (April 27, 1998) through December 31, 1998 and
approximately $496,000 for the year ended December 31, 1999.
The weighted average fair value of options granted for the period from
inception (April 27, 1998) through December 31, 1998 and the year ended
December 31, 1999 were $0.07 and $5.75, respectively. The following table
summarizes information about stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
VESTED
WEIGHTED ---------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE AVERAGE
EXERCISE OF OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE OF OPTIONS PRICE
--------------------- ----------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$0.03 3,000 8.51 $0.03 3,000 $0.03
0.17 207,000 9.12 0.17 13,833 0.17
0.30 90,000 9.35 0.30 8,500 0.30
0.45 108,000 9.51 0.45 1,417 0.45
1.78 315,646 9.60 1.78 -- --
2.30 338,000 9.67 2.30 500 2.30
2.82 115,000 9.72 2.82 875 2.82
3.34 33,500 9.84 3.34 500 3.34
3.86 204,500 9.92 3.86 -- --
4.38 20,500 9.96 4.38 -- --
7.52 2,500 9.99 7.52 -- --
--------------------- --------- ---- ----- ------ -----
$.03--$7.52 1,437,646 9.59 $1.94 28,625 $0.38
===================== ========= ==== ===== ====== =====
</TABLE>
The weighted average remaining contractual life of the options at
December 31, 1998 was 9.75 years.
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models. For purposes of determining
the disclosure required by SFAS No. 123, the Black Scholes valuation method was
used with the following assumptions: expected life, 5 years, a risk-free rate of
return of 5.5%, expected volatility of 107% and no expected dividends.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
---------------- -------------
<S> <C> <C>
Net loss as reported........................... $ (792,240) $(14,133,382)
Net loss pro forma............................. $ (811,187) $(14,224,652)
</TABLE>
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
The components of the Company's net deferred tax accounts consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Current assets:
Deferred compensation..................................... $ 95,028 $ 479,028
Research and development credits.......................... 30,553 202,257
----------- -----------
125,581 681,285
----------- -----------
Long-term assets (liabilities):
Net operating loss carryforwards.......................... 319,035 5,065,488
Depreciation.............................................. (2,499) (46,499)
----------- -----------
316,536 5,018,989
----------- -----------
Net deferred tax assets before valuation allowance........ 442,117 5,700,274
Less: valuation allowance................................. (442,117) (5,700,274)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>
A valuation allowance is established if it is more likely than not that all
or a portion of the deferred tax asset will not be realized. Accordingly,
because of the Company's limited operating history, management has provided a
valuation allowance for the full amount of the deferred tax asset due to the
uncertainty of realization.
The Company has available for future periods federal and state tax net
operating loss carryforwards and research and development credits of
approximately $13.2 million and $202,000, respectively, as of December 31, 1999.
The net operating loss carryforwards expire beginning in 2013 and 2003 for
federal and state tax purposes, respectively. The federal research and
development credits begin to expire in 2013. The Company did not pay any income
taxes in 1998 or 1999.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss carryforwards which could be utilized annually
to offset future taxable income and income tax liabilities. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.
7. BENEFIT PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "Plan") for its
full-time employees. Each participant in the Plan may elect to contribute from
1% to 20% of his or her annual compensation to the Plan. The Company does not
match employee contributions. Under the Plan, all participants are fully vested
and all benefits and accounts can not be forfeited for any reason.
8. SUBSEQUENT EVENT
On January 25, 2000, the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Merger") to be acquired by Ask Jeeves, Inc.
("Ask Jeeves") for consideration
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENT (CONTINUED)
of 4,751,878 shares of Ask Jeeves common stock for substantially all of the
outstanding common and preferred stock of the Company and 331,596 shares to be
issued upon exercise of outstanding stock options of the Company assumed as part
of the Merger. Ask Jeeves develops and deploys natural-language corporate and
consumer service on the Internet for consumers and companies. The closing of the
Merger occurred on February 2, 2000.
* * * * * *
<PAGE>
(b) PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (UNAUDITED)
The required pro forma condensed combined financial information
relating to the Merger was previously filed with the Commission by the Company
in the Registration Statement on Form S-1 (Registration No. 333-33586) on March
30, 2000.
(c) EXHIBITS
The following Exhibit is filed as part of this report:
*2.1 Agreement and Plan of Merger and Reorganization, dated
February 2, 2000, by and among Ask Jeeves, Inc., a
Delaware corporation, Answer Acquisition Corp., a Delaware
corporation, and Direct Hit Technologies, Inc., a Delaware
corporation (included as Exhibit 2.1 to the Company's
Current Report on Form 8-K as filed with the Commission on
February 14, 2000)
*99.1 Press Release dated as of January 25, 2000, entitled "Ask
Jeeves to Acquire Direct Hit Technologies, Adding
Automated Search Technology to Connect Customers to
Answers" (previously filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K as filed with the
Commission on February 14, 2000).
*99.2 Press Release dated as of February 10, 2000, entitled "Ask
Jeeves, Inc. Completes Acquisition of Direct Hit
Technologies, Inc." (previously filed as Exhibit 99.2 to
the Company's Current Report on Form 8-K as filed with the
Commission on February 14, 2000).
*Previously filed with the Securities and Exchange Commission on
February 14, 2000 on the Company's Current Report on Form 8-K.
<PAGE>
SIGNATURE
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.
ASK JEEVES, INC.
Dated: August 11, 2000 By: /s/ Cynthia Pevehouse
-----------------------------------
Cynthia Pevehouse
General Counsel and Secretary
<PAGE>
INDEX TO EXHIBITS
*2.1 Agreement and Plan of Merger and Reorganization, dated
February 2, 2000, by and among Ask Jeeves, Inc., a
Delaware corporation, Answer Acquisition Corp., a Delaware
corporation, and Direct Hit Technologies, Inc., a Delaware
corporation (included as Exhibit 2.1 to the Company's
Current Report on Form 8-K as filed with the Commission on
February 14, 2000)
*99.1 Press Release dated as of January 25, 2000, entitled "Ask
Jeeves to Acquire Direct Hit Technologies, Adding
Automated Search Technology to Connect Customers to
Answers" (previously filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K as filed with the
Commission on February 14, 2000).
*99.2 Press Release dated as of February 10, 2000, entitled "Ask
Jeeves, Inc. Completes Acquisition of Direct Hit
Technologies, Inc." (previously filed as Exhibit 99.2 to
the Company's Current Report on Form 8-K as filed with the
Commission on February 14, 2000).
*Previously filed with the Securities and Exchange Commission on
February 14, 2000 on the Company's Current Report on Form 8-K.
