SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________.
COMMISSION FILE NUMBER 000-27065
APTIMUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1809146
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
95 SOUTH JACKSON STREET
SUITE 300
SEATTLE, WASHINGTON 98104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 441-9100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. Yes [X] No [ ]
The number of outstanding shares of common stock, no par value, of the
Registrant at September 30, 2000 was 15,722,792.
<PAGE>
APTIMUS, INC.
INDEX TO THE FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance sheets as of December 31, 1999 and
September 30, 2000 (unaudited).....................................................1
Statements of Operations (unaudited) for the three and nine
months ended September 30, 1999 and 2000...........................................2
Condensed Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1999 and 2000...........................................3
Notes to Financial Statements (unaudited).............................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................................6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.............................10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.....................................................................10
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................11
ITEM 5. OTHER INFORMATION.....................................................................11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................11
SIGNATURES.........................................................................................12
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APTIMUS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
DECEMBER 31, SEPTEMBER 30,
1999 2000
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................... $ 33,795 $ 21,210
Accounts receivable, net..................................... 3,472 5,931
Prepaid expenses and other assets............................ 382 1,005
Short-term investments....................................... 13,952 13,402
---------- ----------
Total current assets................................ 51,601 41,548
Property and equipment, net.................................. 2,250 4,039
Intangible assets, net....................................... 1,922 1,187
Long-term investments - 321
Deposits..................................................... 43 47
---------- ----------
4,215 5,594
---------- ----------
$ 55,816 $ 47,142
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................. $ 1,370 $ 2,272
Accrued and other liabilities................................ 3,390 3,841
Current portion of capital lease obligations................. 105 53
Current portion of note payable.............................. - 800
---------- ----------
Total current liabilities........................... 4,865 6,966
---------- ----------
Capital lease obligations, net of current portion............ 40
Note payable, net of current portion......................... - 1,000
---------- ----------
Total liabilities............................................ 4,905 7,966
Shareholders' equity
Common stock, no par value; 100,000 shares
authorized, 15,524 and 15,722 (unaudited) issued
and outstanding at December 31, 1999 and September 30,
2000, respectively...................................... 66,587 66,756
Additional paid-in capital................................ 2,858 2,816
Deferred stock compensation............................... (1,466) (732)
Accumulated deficit....................................... (17,068) (29,664)
---------- ----------
Total shareholders' equity.......................... 50,911 39,176
---------- ----------
$ 55,816 $ 47,142
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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APTIMUS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
---------------------------- ----------------------------
1999 2000 1999 2000
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Net revenues......................................... $ 2,386 $ 5,602 $ 4,450 $ 16,626
Cost of revenues..................................... 149 720 339 1,735
--------- ---------- --------- -----------
Gross profit......................................... 2,237 4,882 4,111 14,891
--------- ---------- --------- -----------
Operating expenses
Sales and marketing............................... 4,640 7,333 8,782 23,355
Research and development.......................... 254 636 576 1,612
General and administrative........................ 310 640 772 2,339
Equity-based compensation......................... 235 191 856 691
Depreciation and amortization..................... 366 503 626 1,406
--------- ---------- --------- -----------
Total operating expenses.................... 5,805 9,303 11,612 29,403
-------- --------- -------- ----------
Operating loss....................................... (3,568) (4,421) (7,501) (14,512)
Interest expense..................................... 9 54 32 65
Other income, net.................................... (69) (627) (156) (1,942)
--------- ---------- --------- -----------
Net loss............................................. $ (3,508) $ (3,848) $ (7,377) $ (12,635)
========= ========== ========= ==========
Basic and diluted net loss per share................. $ (0.42) $ (0.25) $ (0.90) $ (0.81)
========= ========== ========= ==========
Weighted-average shares used in computing basic
and diluted net loss per share.................... 8,350 15,682 8,239 15,630
========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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APTIMUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
September 30,
1999 2000
----------- ----------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (7,377) $ (12,635)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization............................................... 669 1,491
Bad debt expense............................................................ 126 1,247
Amortization of deferred compensation....................................... 450 691
Compensation on shares sold to an employee by a principle shareholder....... 406
(Gain) loss on disposal of property and equipment........................... (10) (4)
Amortization of discount on short-term investments.......................... (14) (98)
Changes in assets and liabilities, net of impact of acquisitions:
Accounts receivable....................................................... (1,805) (3,706)
Prepaid expenses and other assets......................................... (46) (627)
Accounts payable.......................................................... 164 902
Accrued and other liabilities............................................. 576 451
----------- ----------
Net cash used in operating activities..................................... (6,861) (12,288)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............................................. (1,042) (2,547)
Proceeds from disposal of property and equipment................................ - 7
Payments for business combinations.............................................. (1,666) -
Purchase of short-term investments.............................................. (1,536) (13,352)
Sale of short-term investments.................................................. 1,500 14,000
Purchase of long-term investments............................................... - (321)
----------- ----------
Net cash used in investing activities..................................... (2,744) (2,213)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital leases......................................... (82) (92)
Proceeds from note payable...................................................... - 2,000
Principal paid on note payable.................................................. - (200)
Repurchase of common stock...................................................... (400) (130)
Issuance of common stock, net of issuance costs................................. 109 338
Issuance of series B convertible preferred stock................................ 8,615 -
----------- ----------
Net cash provided by financing activities................................. 8,242 1,916
----------- ----------
Net increase in cash and cash equivalents......................................... (1,363) (12,585)
Cash and cash equivalents at beginning of period.................................. 2,892 33,795
----------- ----------
Cash and cash equivalents at end of period........................................ $ 1,529 $ 21,210
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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APTIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim condensed financial statements are unaudited and have been
prepared on the same basis as the annual financial statements. In the
opinion of management, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary to present fairly
the Company's financial position as of September 30, 2000, results of
operations for the three and nine months ended September 30, 1999 and 2000
and cash flows for the nine months ended September 30, 1999 and 2000.
The unaudited financial statements should be read in conjunction with the
Company's audited financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000. The results of operations for the
three and nine months ended September 30, 2000 are not necessarily
indicative of the results to be expected for any subsequent quarter or the
entire year ending December 31, 2000.
2. REVENUE RECOGNITION
The Company has several revenue sources from its online marketing service
activities, including lead generation, advertising, list rental, barter and
transaction fees.
Lead generation revenues consist of fees received, generally on a per
inquiry basis, for delivery of leads to clients. Revenue is recognized in
the period the leads are provided to the client.
Advertising revenues consist of email newsletter sponsorships, banner
advertising, and anchor positions. Newsletter sponsorship revenues are
derived from a fixed fee or a fee based on the circulation of the
newsletter. Newsletter sponsorship revenues are recognized in the period in
which the newsletter is delivered. Banner advertising and anchor positions
can be based on impressions, fixed fees, or click throughs. Fixed fee
contracts, which range from three months to two years, are recognized
ratably over the term of the agreement, provided that no significant
Company obligations remain. Revenue from impressions or click through based
contracts is recognized based on the proportion of impressions or click
throughs delivered, to the total number of guaranteed impressions or click
throughs provided for under the related contracts.
List rental revenues are received from the rental of customer names to
third parties through the use of list brokers. Revenue from list rental
activities is recognized in the period the names are delivered by the list
broker to the third party.
Also included in net revenues are barter revenues generated from exchanging
lead generation and advertising services for advertising services. Such
transactions are recorded at the lower of the estimated fair value of the
advertisements received or delivered. Revenue from barter transactions is
recognized when advertising or lead generation is provided, and services
received are charged to expense when used. For the three months ended
September 30, 2000 and 1999 barter revenues were $593,000 and $130,000,
respectively. For the nine months ended September 30, 2000 and 1999 barter
revenues were $1,266,000 and $376,000, respectively.
3. NET LOSS PER SHARE
Basic net loss per share amounts are computed by dividing the net loss by
the weighted average number of shares of common stock outstanding during
the period. Diluted net loss per share represents the net loss divided by
the weighted-average number of shares outstanding, including the
potentially dilutive impact of common stock options and warrants. Basic and
diluted net loss per share are equal for all periods presented because the
impact of common stock equivalents is antidilutive.
4
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The following table sets forth the computation of the numerators and
denominators in the basic and diluted net loss per share calculations for
the periods indicated and those common stock equivalent securities not
included in the diluted net loss per share calculation:
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
------------------------------- -------------------------------
(UNAUDITED) (UNAUDITED)
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net loss....................................... $ (3,508) $ (3,848) $ (7,377) $ (12,635)
========= ========== ========= ==========
Denominator:
Weighted average shares used in computing
net loss per share........................... 8,350 15,682 8,239 15,630
========= ========== ========= ==========
Potentially dilutive securities consist of
the following:
Options to purchase common stock............. 958 1,546 958 1,546
Warrants to purchase common stock............ 28 16 28 16
Series B convertible preferred stock......... 1,890 - 1,890 -
Warrants to purchase Series B convertible
preferred stock............................ 1,621 - 1,621 -
--------- ---------- --------- ----------
4,497 1,562 4,497 1,562
========= ========== ========= ==========
</TABLE>
4. LONG-TERM INVESTMENTS
Long-term investments consist of minority equity investments in non-public
companies. These investments are being accounted for on the cost basis and
will be evaluated for impairment each quarter.
5
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company contains forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. The Company's actual results and the timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors including, but not limited to, those
described in connection with the forward looking statement and the factors
listed on Exhibit 99 to this report, which factors are hereby incorporated by
reference in this report.
In some cases, you can identify forward-looking statements by our use of
words such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although we believe the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements or other future events. Moreover, neither
we nor anyone else assumes responsibility for the accuracy and completeness of
forward-looking statements. We are under no duty to update any of our
forward-looking statements after the date of this filing. You should not place
undue reliance on forward-looking statements.
OVERVIEW
Aptimus is an online direct marketing service that generates sales leads,
creates product awareness, and initiates consumer purchases through multiple
online marketing vehicles, including free and trial offers, banner advertising,
email newsletter sponsorships, and others. Our services are provided through our
network of Web sites at www.freeshop.com, www.desteo.com, and
www.catalogsite.com, and through direct email communications.
We began our direct marketing business in 1994 as the FreeShop division of
Online Interactive, Inc. In June 1997, Online Interactive transferred the
FreeShop division to FreeShop International, Inc., a newly formed, wholly owned
subsidiary, and spun off FreeShop International through a distribution to its
shareholders. On February 19, 1999, FreeShop International changed its name to
FreeShop.com, Inc. Subsequently, on October 16, 2000 FreeShop.com, Inc. changed
its name to Aptimus, Inc.
We derive our revenues primarily from online lead generation and
advertising contracts. We receive lead generation revenues when we deliver
customer information to a marketer in connection with an offer on our Web site.
We receive advertising revenues from sales of banner advertising, site
sponsorships and newsletter sponsorships. We also derive a small portion of our
lead generation revenues from the rental of customer names and street addresses
to third parties. Lead generation pricing is based on cost per lead and varies
depending on the type of offer. Generally, pricing of advertising is based on
cost per impression or cost per click through. The services we deliver are
primarily sold under short-term agreements that are subject to cancellation. We
recognize revenues in the period in which we deliver the service.
In the quarters ended September 30, 1999 and 2000 our ten largest clients
accounted for 37.4% and 54.8% of our revenues, respectively. During the quarter
ended September 30, 1999 no client accounted for more than 10% of our revenues.
In the quarter ended September 30, 2000 two clients accounted for more than 10%
of revenues. The Financial Cafe, LLC accounted for 15.0% and Topica, Inc.
accounted for 13.4% of our revenues. In the nine months ended September 30, 1999
and 2000 our ten largest clients accounted for 30.1% and 37.8% of our revenues,
respectively. No single client accounted for more than 10% of our revenues in
the nine months ended September 30, 1999 and 2000.
Our business has been operating at a loss and generating negative cash
flows from operations since inception. As of September 30, 2000, we had an
accumulated deficit of approximately $29.7 million. We plan to continue the
level of our investment in marketing and promotion, development of technology
and expansion of our business. As a result, our losses and negative cash flows
are likely to continue. We have experienced rapid growth and have a limited
operating history. Because of this we believe period-to-period comparison of our
operating results is not meaningful and the results for any period should not be
relied upon as an indication of future performance.
6
<PAGE>
RESULTS OF OPERATIONS
Revenues
We derive our revenues primarily from online lead generation and
advertising contracts. Our revenues increased by $3.2 million, or 135%, to $5.6
million in the quarter ended September 30, 2000 compared to $2.4 million in the
same quarter of 1999. On a year to date basis net revenues have increased by
$12.2 million or 274% to $16.6 million, compared to $4.4 million in the first
nine months of 1999. This growth in revenue was primarily attributable to
continued increases in the size of our email newsletter list, an increase in the
number of visits to our Web sites and an increase in the number of emails sent
to each club member. An increase in visits to our Web sites provides more banner
and anchor inventory and increased lead generation revenues. Revenues from
advertising services were $2.9 million in the quarter ended September 30, 2000,
compared to $1.1 million in the same quarter of the prior year.
Cost of Revenues
Cost of revenues consists of expenses associated with the maintenance and
usage of the Company's Web sites, including Internet connection charges, email
delivery costs, banner ad serving fees, equipment and software depreciation and
personnel costs. Cost of revenues increased to $0.7 million in the quarter ended
September 30, 2000 from $0.1 million in the same quarter of 1999. On a year to
date basis cost of revenues increased to $1.7 million from $0.3 million in the
first nine months of 1999. The increase was primarily due to additional email
delivery costs, depreciation of additional equipment and personnel costs to
support our growth. Gross margin decreased to 87.1% in the quarter ended
September 30, 2000, from 93.8% in the same quarter of 1999. On a year to date
basis gross margin decreased to 89.6% in the first nine months of the year in
2000 from 92.4% for the same period in 1999. The decline in gross margin is
primarily attributable to the increased email delivery costs. We expect gross
margin to remain at these levels in the short-term as we continue to increase
our Internet connection capacity, hardware, email delivery and software
investments, and personnel costs in order to support our growth.
Sales and Marketing
Sales and marketing expenses consist primarily of marketing and promotional
costs related to developing our brands and generating visits to our Web sites,
as well as personnel and other costs. Sales and marketing expenses increased by
$2.7 million to $7.3 million, or 131% of revenues, in the quarter ended
September 30, 2000 compared to $4.6 million, or 195% of revenues, in the same
quarter of 1999. On a year to date basis sales and marketing expenses have
increased by $14.5 million to $23.3 million, or 141% of revenues, compared to
$8.8 million, or 197% of revenues, in the first nine months of 1999. The
increase in absolute dollars was due primarily to increases in advertising and
brand awareness spending and increases in personnel costs. The decrease as a
percentage of revenue was primarily due to sales and marketing expenses, other
than advertising spending, increasing at a lesser rate than revenues. On an
absolute basis, we expect to maintain our advertising and brand awareness
spending in the future at comparable levels.
Research and Development
Research and development expenses primarily include personnel costs related
to maintaining and enhancing the features, content and functionality of our Web
site and related systems. Research and development expenses increased by $0.3
million to $0.6 million, or 11% of revenues, in the quarter ended September 30,
2000 compared to $0.3 million, or 11% of revenues, in the same quarter of 1999.
On a year to date basis research and development expenses have increased by $1.0
million to $1.6 million, or 10% of revenues, compared to $0.6 million, or 13% of
revenues, in the first nine months of 1999. The increase in absolute dollars was
primarily due to hiring additional staff to support our growth, continued
improvements in our internal systems and enhancements and modification to our
Web site. Research and development as a percentage of revenues remained
relatively consistent.
General and Administrative
General and administrative expenses primarily consist of management,
financial and administrative personnel expenses and related costs and
professional service fees. General and administrative expenses increased by $0.3
7
<PAGE>
million to $0.6 million, or 11% of revenues, in the quarter ended September 30,
2000 compared to $0.3 million, or 13% of revenues, in the same quarter of 1999.
On a year to date basis general and administrative expenses have increased by
$1.6 million to $2.3 million, or 14% of revenues, compared to $0.7 million, or
17% of revenues, in the first nine months of 1999. The increase in absolute
dollars was primarily due to a one-time write-off of costs associated with the
Company's cancelled secondary offering, increased personnel costs and
professional service fees necessary to support our growth. The decrease as a
percentage of revenue is primarily due to revenues increasing at a faster rate
than general and administrative expenses.
Equity-Based Compensation
Equity-based compensation expenses consist of amortization of unearned
compensation recognized in connection with stock options and recognition of
expenses when our principal shareholders sell our stock to employees and
directors at a price below the then estimated fair market value of our common
stock. Unearned compensation is recorded based on the intrinsic value when we
issue stock options to employees and directors at an exercise price below the
estimated fair market value of our common stock at the date of grant. Unearned
compensation is also recorded based on the fair value of the option granted as
calculated using the Black-Scholes option pricing model when options or warrants
are issued to non-employees. Unearned compensation is amortized over the vesting
period of the option or warrant. Equity-based compensation expenses remained
consistent at $0.2 million, or 3% of revenues, in the quarter ended September
30, 2000 compared to $0.2 million, or 10% of revenues, in the same quarter of
1999. On a year to date basis equity-based compensation expenses have decreased
by $0.2 million to $0.7 million, or 4% of revenues, compared to $0.9 million, or
19% of revenues, in the first nine months of 1999. The decrease in absolute
dollars and as a percentage of revenue resulted primarily from recognition of
$0.4 million of expense associated with the sale of shares by a principle
shareholder to an employee in April of 1999. This has been offset by increases
in expense due to issuing options with exercise prices lower than the closing
price on the date granted. We expect equity-based compensation to remain
relatively consistent over the next few quarters.
Depreciation and Amortization
Depreciation and amortization expenses consist of depreciation on leased
and owned computer equipment, software, office equipment, and office furniture
and amortization on intellectual property, non-compete agreements and goodwill
from acquisitions. Depreciation and amortization expenses increased by $0.1
million to $0.5 million, or 9% of revenues, in the quarter ended September 30,
2000 compared to $0.4 million, or 15% of revenues, in the same quarter of 1999.
On a year to date basis depreciation and amortization expenses have increased by
$0.8 million to $1.4 million, or 9% of revenues, compared to $0.6 million, or
14% of revenues, in the first nine months of 1999. The increase resulted from
the depreciation of approximately $4.0 million in equipment, software, furniture
and leasehold improvements acquired from October 1999 through September 2000 and
the amortization of approximately $2.7 million in intangible assets related to
the acquisition of substantially all of the assets of Commonsite, LLC and Travel
Companions International, Inc. in May of 1999. We are amortizing the intangible
assets over varying periods up to a maximum period of five years. As of
September 30, 2000, $1.2 million of intangible assets remain to be amortized.
Interest Expense
Interest expense primarily relates to a $2 million note payable used to
purchase capital equipment and capital equipment leases, and totaled $54,000 in
the quarter ended September 30, 2000 and $9,000 in the same quarter of 1999. On
a year to date basis interest expense totaled $65,000 and $32,000 in the first
nine months of 2000, and 1999, respectively. Interest expense for the quarter
and on a year to date basis increased as a result of interest related to a $2.0
million note payable with Imperial Bank, the proceeds of which have been used by
the Company to purchase equipment, software, furniture and leasehold
improvements.
Other Income, Net
Other income, net consists primarily of interest income. Other income, net
increased by $0.5 million to $0.6, or 11% of revenues, in the quarter ended
September 30, 2000 compared to $0.1 million, or 3% of revenues, in the same
quarter of 1999. On a year to date basis other income, net has increased by $1.7
million to $1.9 million, or 12% of revenues, compared to $0.2 million, or 4% of
revenues, in the first nine months of 1999. The increase in other
8
<PAGE>
income, net was due to higher cash balances resulting from our IPO. We expect
interest income to decline slightly over the next several quarters as cash is
used in operating, investing and financing activities.
Income Taxes
No provision for federal income taxes has been recorded for any of the
periods presented due to the Company's current loss position.
LIQUIDITY AND CAPITAL RESOURCES
Since we began operating as an independent company in June 1997, we have
financed our operations primarily through the issuance of equity securities.
Gross proceeds from the issuance of stock through September 30, 2000 totaled
approximately $65.4 million, including $21.5 million raised from Fingerhut
Companies, Inc. and $41.1 million raised in our initial public offering. As of
September 30, 2000, we had approximately $34.6 million in cash and cash
equivalents and short-term investments and working capital of $34.6 million.
Net cash used in operating activities was $12.3 million and $6.9 million in
the nine months ended September 30, 2000 and 1999, respectively. Cash used in
operating activities for each period resulted primarily from net losses and
increases in accounts receivable and prepaid expenses, which were partially
offset by increases in accounts payable and accrued liabilities.
Net cash used in investing activities was $2.1 million and $2.7 million in
the nine months ended September 30, 2000 and 1999, respectively. In the nine
months ended September 30, 2000, $14 million was received from the maturity of
commercial paper purchased in 1999, $13.4 million was used to purchase
commercial paper; $2.5 million was used to purchase equipment, software,
leasehold improvements and furniture and $0.3 million was invested in long-term
investments. In the nine months ended September 30, 1999, $1.0 million was used
for purchases of equipment, software, leasehold improvements and furniture, $1.7
million was used in the acquisitions of Catalog Site and World Wide Brochures
and $1.5 million was used to purchase short-term investments which matured in
the first quarter of 2000.
Net cash provided by financing activities was $1.9 million and $8.2 million
in the nine months ended September 30, 2000 and 1999, respectively. In the nine
months ended September 30, 2000, net cash provided by financing activities
resulted primarily from proceeds of a $2.0 million note payable. In the nine
months ended September 30, 1999, net cash provided by financing activities
resulted primarily from $8.6 million received from the sale of preferred stock
pursuant to the exercise of warrants.
We believe our current cash and cash equivalents and short-term investments
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. Although we have increased
revenues, our expenses also have continued to increase, and we expect this trend
to continue in the near future. Although we believe we have sufficient cash and
cash equivalents and short-term investments to fund our operations for at least
the next 12 months, our cash requirements depend on several factors, including
without limitation, the level of expenditures on advertising and brand
awareness, the rate of market acceptance of our services, the level of
investment to improve and expand our technological capabilities and the extent
to which we use cash for acquisitions and strategic investments. Unanticipated
expenses, poor financial results or unanticipated opportunities that require
financial commitments could give rise to earlier financing requirements. If we
raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our shareholders would be reduced, and
these securities might have rights, preferences or privileges senior to those of
our common stock. Additional financing may not be available on terms favorable
to the Company, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our expansion, take advantage
of business opportunities, develop or enhance services or products or otherwise
respond to competitive pressures would be significantly limited, and we might
need to significantly restrict our operations.
YEAR 2000 ISSUES
Because many computer applications have been written using two digits
rather than four to define the applicable year, some date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. The
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year 2000 issue could result in system failures or miscalculations causing
disruptions of operations, including disruptions of our Web sites.
To our knowledge, we have not experienced any systems failures or
disruptions of our operations or Web sites resulting from the year 2000 issue,
although we continue to monitor our systems.
To date, we have spent approximately $40,000 on year 2000 compliance. At
this time, we do not expect to incur future expenditures relating to year 2000
compliance matters.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Substantially all of our cash equivalents, short-term securities and
capital lease obligations are at fixed interest rates, and therefore the fair
value of these instruments is affected by changes in market interest rates.
However, as of September 30, 2000, all of our cash equivalents and all of our
short-term securities mature within three months. As of September 30, 2000, we
believe the reported amounts of cash equivalents, short-term securities and
capital lease obligations to be reasonable approximations of their fair values.
As a result, we believe that the market risk arising from our holding of
financial instruments is minimal.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company is a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Changes in Securities
There were no changes in the Company's securities during the three months
ended September 30, 2000.
(b) Use of proceeds
On September 27, 1999, the Securities and Exchange Commission declared
effective the Company's Registration Statement, on Form S-1 (333-81151).
Pursuant to this Registration Statement, on October 1, 1999 the Company closed
its initial public offering of 3,200,000 shares of the Company's common stock at
an initial public offering price of $12.00 per share (the "Offering"). Net
proceeds to the Company, after calculation of the underwriters' discount and
commissions, from the Offering totaled $35,712,000. In addition, on October 25,
1999, the Company sold 480,000 additional shares under the underwriters'
overallotment option. Total net proceeds from the overallotment were $5,356,800.
As of September 30, 2000, approximately $35.2 million of the proceeds from these
transactions had been used, primarily for marketing and other working capital
and approximately $5.9 million had been used to purchase computers, software,
furniture and leasehold improvements. Until the proceeds are used they will be
invested in short-term commercial paper.
(c) Sales of Unregistered Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 23, 2000, the Company held its annual meeting of shareholders
wherein the four directors identified below were elected to serve on the
Company's Board of Directors until the next annual meeting of shareholders and
until their respective successor is elected and qualified. The results of the
election were as follows:
Director Votes For Votes Withheld
---------------------- --------- --------------
Timothy C. Choate 14,325,423 11,785
Kirk M. Loevner 14,325,233 11,975
John P. Ballantine 14,325,533 11,675
John B. Balousek 14,325,233 11,975
In addition, the shareholders approved the adoption of an Employee Stock
Purchase Plan ("Plan"), which Plan provides for a means by which employees of
the Company can purchase shares of the Company's common stock pursuant to
planned payroll deductions. The results of the vote on approval of the Plan were
as follows:
<TABLE>
Matter Votes For Votes Against Abstentions Broker Non-Votes
---------------------- --------- ------------- ----------- ------------------
<S> <C> <C> <C> <C>
Employee Stock 11,868,339 122,149 3,012 2,343,708
Purchase Plan
</TABLE>
ITEM 5. OTHER INFORMATION
(a) Name Change.
On October 16, 2000, the Company changed its name from FreeShop.com, Inc.
to Aptimus, Inc. In conjunction with this change, the Company's trading symbol
on the Nasdaq National Market was changed from FSHP to APTM.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule.
99.1 Analysis of Risk Factors
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREESHOP.COM, INC.
Date: November 14, 2000 By: /s/ JOHN A. WADE
---------------------------------
Name: John A. Wade
Title: Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule.
99.1 Analysis of Risk Factors
