<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT ON UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934
For the quarterly period ended September 30, 2000.
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from..................to....................
Commission file number: 0-27331
FINDWHAT.COM
(Exact name of registrant as specified in its charter)
Nevada 88-0348835
(State of Incorporation) (I.R.S. Employer Identification No.)
121 West 27th Street, Suite 903
New York, New York 10001
(212) 255-1500
(Address and telephone number of registrant's principal executive offices and
principal place of business)
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date. 15,039,453 shares of
common, $.001 par value as of September 30, 2000.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FindWhat.com
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,198,183 $ 906,931
Accounts receivable, net of allowance for doubtful accounts
of $11,050 and $0 at September 30, 2000 and December 31,
1999, respectively 137,901 97,675
Prepaid expenses and other current assets 17,019 17,250
------------ ------------
Total current assets 2,353,103 1,021,856
EQUIPMENT, FURNITURE AND FIXTURES - NET 777,422 242,429
OTHER ASSETS 42,240 2,595
------------ ------------
Total assets $ 3,172,765 $ 1,266,880
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 911,069 $ 134,773
Current portion of capital lease obligation 35,608 7,025
Deferred income 146,525 31,402
Due to affiliate 1,716 59,781
------------ ------------
Total current liabilities 1,094,918 232,981
Capital lease obligation, less current portion 21,022 6,363
------------ ------------
Total liabilities 1,115,940 239,344
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized, 500,000 shares;
None issued and outstanding
Common stock, $.001 par value; authorized, 50,000,000 shares; Issued and
outstanding, 15,039,453 shares at September 30, 2000 and 12,591,750
shares at December 31, 1999 15,040 12,592
Additional paid-in capital 23,054,219 3,273,267
Deferred service costs (7,719,500) (401,491)
Accumulated deficit (13,292,934) (1,856,832)
------------ ------------
Total stockholders' equity 2,056,825 1,027,536
------------ ------------
Total liabilities and stockholders' equity $ 3,172,765 $ 1,266,880
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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FindWhat.com
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------- ------------ ---------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 1,307,225 $ 330,429 $ 716,697 $ 112,925
Cost of revenues 724,751 304,419 313,287 247,975
----------- ----------- ---------- ----------
Gross profit (loss) 582,474 26,010 403,410 (135,050)
Operating expenses
Sales and marketing 8,945,084 161,162 3,953,677 89,399
General and administrative 2,754,638 721,001 727,070 414,537
Product development 355,133 100,808 102,925 39,500
----------- ---------- ---------- ---------
Total operating expenses 12,054,855 982,971 4,783,672 543,436
----------- -------- ---------- --------
Loss from operations (11,472,381) (956,961) (4,380,262) (678,486)
Interest income, net 36,279 31,918 4,588 27,977
------------ ----------- ------------ ---------
NET LOSS $(11,436,102) $(925,043) $(4,375,674) $(650,509)
=========== ======== ========== ========
Loss per share - basic and diluted $(0.83) $(0.09) $(0.31) $(0.05)
===== ===== ===== =====
Unaudited pro forma information (i):
Increase in officer salaries $ 180,000 $ 90,000
======== =========
Pro forma net loss after increase in officer $(1,105,043) $(740,509)
salaries ========== ========
Pro forma loss per share after increase
in officer salaries $(0.11) $(0.06)
===== =====
Weighted-average number of common
shares outstanding 13,731,626 10,192,308 14,138,387 12,500,000
========== ========== ========== ==========
</TABLE>
(i) The supplemental pro forma information is provided to show the impact of
the addition of salaries with three officers of the Company effective July
1, 1999. The pro forma adjustments reflect salary increases effective July
1, 1999 as if the salaries had been effective March 27, 1998 (date of
inception).
The accompanying notes are an integral part of these statements.
3
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FindWhat.com
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK,
$.001 PAR VALUE ADDITIONAL DEFERRED
----------------------- PAID-IN SERVICE ACCUMULATED
SHARES AMOUNT CAPITAL COST DEFICIT TOTAL
---------- ------ ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 12,591,750 $12,592 $3,273,267 $ (401,491) $(1,856,832) $ 1,027,536
Issuance of common stock in connection
with private placement 500,000 500 1,993,832 1,994,332
Issuance of common stock in connection
with private placement 1,302,500 1,303 2,603,697 2,605,000
Issuance of common stock for advertising
services 600,000 600 4,424,400 (2,564,516) 1,860,484
Issuance of warrants for metasearch
services 10,200,000 (5,100,000) 5,100,000
Issuance of common stock for consulting
and other advertising services 45,203 45 194,643 (31,250) 163,438
Fair value of stock options granted to
consultants and nonemployees 288,580 288,580
Fair value of options issued for services 75,800 (23,734) 52,066
Deferred service cost 401,491 401,491
Net loss (11,436,102) (11,436,102)
---------- ------- ----------- ---------- ------------- -----------
Balance at September 30, 2000 (unaudited) 15,039,453 $15,040 $23,054,219 $(7,719,500) $(13,292,934) $ 2,056,825
========== ====== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
4
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FindWhat.com
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000
(unaudited)
Cash flows from operating activities
Net loss $(11,436,102)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities
Allowance for doubtful accounts 11,050
Depreciation 207,920
Common stock and warrants issued for services, net 7,525,414
Stock options granted to nonemployees 288,580
Options issued for services, net 52,066
Changes in operating assets and liabilities
Accounts receivable (51,276)
Other current assets 231
Other assets (39,645)
Accounts payable and accrued expenses 776,296
Deferred income 115,123
Due to affiliate (58,065)
-----------
Net cash used in operating activities (2,608,408)
-----------
Cash flows from investing activities
Purchase of equipment (672,583)
-----------
Cash flows from financing activities
Gross proceeds from private placement 4,605,000
Payment of financing costs (5,669)
Payments made on capital leases (27,088)
-----------
Net cash provided by financing activities 4,572,243
-----------
(DECREASE) INCREASE IN CASH AND
EQUIVALENTS 1,291,252
Cash and cash equivalents at beginning of period 906,931
-----------
Cash and cash equivalents at end of period $ 2,198,183
===========
Supplemental noncash investing and financing activities
Capital lease obligations for purchase of equipment $ 70,330
The accompanying notes are an integral part of these statements.
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FindWhat.com
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - NATURE OF BUSINESS
FindWhat.com ("FindWhat" or the "Company") was organized under the laws of
the State of Nevada under the name Collectibles America, Inc. and,
beginning June 17, 1999, conducted its operations through its wholly-owned
subsidiary, BeFirst Internet Corporation. On June 17, 1999, the Company
changed its name from Collectibles America, Inc. to BeFirst.com. In
September 1999, the Company changed its name from BeFirst.com to
FindWhat.com.
FindWhat.com is a developer and marketer of performance-based advertising
services for the Internet. FindWhat offers two services: FindWhat.com, a
pay-for-position search engine which launched in September 1999, and
BeFirst.com, a search engine optimization service. The Company operates in
one reportable business segment.
NOTE B - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly
FindWhat.com's financial position as of September 30, 2000 and the results
of its operations and its cash flows for the nine and three months ended
September 30, 2000 and 1999. Certain financial information which is
normally included in financial statements prepared in accordance with
generally accepted accounting principles, but which is not required for
interim reporting purposes, has been condensed or omitted. The accompanying
financial statements need to be read in conjunction with the audited
financial statements and notes for the year ended December 31, 1999, which
were included in the Company's Form 10-K, as filed with the Securities and
Exchange Commission (the "SEC") on March 30, 2000.
Results of the interim period are not necessarily indicative of results
that may be expected for the entire year. Any adjustments that have been
made to the financial statements are of a normal, recurring nature.
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FindWhat.com
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist of the following:
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
Computer equipment $ 821,689 $ 193,921
Furniture and fixtures 135,897 67,835
Leased equipment 61,500 14,418
---------- ----------
1,019,086 276,174
Less accumulated depreciation (241,664) (33,745)
---------- ----------
$ 777,422 $ 242,429
========== ==========
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
Accounts payable and other $ 224,020 $ 64,818
Professional fee 343,497 24,955
Database license 16,667 45,000
Internet costs 326,885
---------- ----------
$ 911,069 $ 134,773
========== ==========
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FindWhat.com
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - DEFERRED INCOME
Deferred income represents advance deposits made by the Company's clients
against future click-throughs for search listing advertisements on the
FindWhat.com search engine. Revenue will be recognized as click-throughs
are made to a client's website. Total deferred revenue recorded for the
nine-month period ended September 30, 2000 and for the year ended December
31, 1999 was approximately $968,000 and $35,000, respectively, of which
approximately $853,000 was recognized for the nine-month period ended
September 30, 2000.
NOTE F - DEFERRED SERVICE COSTS
Deferred service costs, which are shown as a reduction to stockholders'
equity, consist of the value of common stock and stock options issued for
services that will be provided to the Company in future periods.
NOTE G - PRIVATE PLACEMENTS
In February 2000, the Company completed a private placement to offer
500,000 shares of common stock for $2 million and a warrant to purchase an
additional 125,000 shares of common stock at a price of $5.50 per share.
These warrants expire on February 11, 2005 and have a fair value of
$628,750.
In September 2000, the Company completed a series of private placements to
offer 1,302,500 shares of common stock for approximately $2.6 million and
warrants to purchase an additional 1,302,500 shares of common stock at a
weighted average exercise price of $2.78 per share. These warrants expire
in August and September 2005, and have a fair value of $3,830,425.
NOTE H - COMMON STOCK AND STOCK OPTIONS ISSUED FOR SERVICES
In January 2000, the Company entered into an advertising agreement with
Beasley Internet Ventures LLC ("Beasley") whereby the Company issued
600,000 shares of common stock to Beasley. Under the terms of the contract,
Beasley will provide $3,000,000 of advertising to the Company over a
two-year period. The Company recorded the noncash advertising charge of
$4,425,000 over the term of the contract.
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FindWhat.com
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE H (CONTINUED)
In March 2000, the Company entered into an agreement with Go2Net, Inc.
("Go2Net") whereby Go2Net will provide metasearch services to the Company
through its network of web sites. The term of the agreement is for one
year. Pursuant to the agreement, Go2Net will receive warrants to purchase
725,000 shares of the Company's common stock at a price of $5.50 per share.
These warrants have a fair value of $10,200,000 and will be expensed over a
one-year period.
In April 2000, the Company issued 7,000 shares of common stock for services
at a closing market price of $9.00 per share. In June 2000, the Company
issued 5,000 shares and 8,000 shares of common stock for services at a
closing market price of $3.00 per share and $2.8125 per share,
respectively.
In August 2000, the Company issued 13,848 shares of common stock for
services at a closing market price of $2.125 per share. In September 2000,
the Company issued 5,046 shares and 2,696 shares of common stock for
services at a closing market price of $3.375 per share and $3.00 per share,
respectively, and issued warrants to purchase 25,000 shares of the
Company's common stock at a price of $2.50 per share. These warrants have a
fair value of $50,500 and will be expensed over a three-month period.
NOTE I - STOCK INCENTIVE PLAN
In January 2000, the Board of Directors of the Company amended its 1999
Stock Incentive Plan to increase the total number of shares reserved and
available for distribution to the Company's key employees, officers,
directors, consultants and other agents to 1,975,000 shares, which was
approved by the shareholders in July 2000.
NOTE K - SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion No. 25. FIN
44 clarifies the application of Opinion No. 25 for (a) the definition of
employee for purposes of applying Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000.
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FindWhat.com
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE K (CONTINUED)
In March 2000, the Emerging Issues Task Force reached a consensus on Issue
No. 00-02, "Accounting for Web Site Development Costs." The consensus
states that web site software costs should be accounted for under SOP 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, unless the entity has a plan at the time the software is
being developed to market the software externally or is developing such a
plan. Issue No. 00-02 is effective for web site development costs incurred
in fiscal quarters beginning after June 30, 2000, including costs incurred
after that date on projects already in process.
NOTE L - LIQUIDITY
The Company has incurred substantial losses from operations and had used,
rather than provided, cash in its operations during the nine months ended
September 30, 2000.
The Company's principal sources of liquidity consisted of approximately
$2.2 million of cash and cash equivalents as of September 30, 2000.
Although the Company has no material long-term commitments for capital
expenditures, it anticipates an increase in capital expenditures consistent
with anticipated growth of operations, infrastructure and personnel. The
Company will require additional financing to meet anticipated liquidity
needs over the next 12 months. There can be no assurance that any
anticipated or future financing arrangements will be available in amounts
or on terms acceptable, if at all.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This management's discussion and analysis of financial condition
contains forward-looking statements, the accuracy of which involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify
forward-looking statements. This management's discussion and analysis also
contains forward-looking statements attributed to certain third parties relating
to their estimates regarding the growth of the Internet, Internet advertising
and online commerce markets and spending. Prospective investors should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this report. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons.
OVERVIEW
We are a developer and marketer of performance-based advertising
services for the Internet. Currently, we offer two proprietary services:
FindWhat.com, a pay-for-performance search engine and BeFirst.com, a search
engine optimization service. Our focus is:
- to drive qualified traffic to Internet Web sites and
- to ensure that Internet users find what they are looking for when
"surfing the Web."
Our services are designed to connect consumers who are most likely to purchase
specific goods and services to businesses that provide those specific goods and
services.
The FindWhat.com search engine, which launched in September 1999,
allows Internet users to enter a word or phrase describing what they want,
called a keyword or search word, and click on "Find." Our search engine then
displays a selection of Web sites related to that keyword. Advertisers can
determine where on the results page their Web site link will appear on any given
keyword search through an open, automated bidding process. Advertisers submit
bids for the amount they will pay for each consumer who clicks-through to their
Web sites. Advertisers can change their bids at any time. The highest bidder
receives the first listing with all other bidders listed in descending order.
Each advertiser pays us the amount of its bid whenever a consumer clicks on the
advertiser's listing in the FindWhat.com search results. Advertisers must pay
for each click-through, so they bid only on keywords relevant to their
offerings. We believe that the FindWhat.com search engine is an efficient system
for advertisers - they pay only for prospects that come to their site. They can
insure that those prospects are qualified by picking only those keywords that
are most relevant to their business. Advertisers can choose exactly how much
they are willing to pay per prospect, thereby maintaining precise control over
the placement of their listings in the FindWhat.com search results and their
cost of customer acquisition.
While we only launched our FindWhat.com search engine in September
1999, we have made significant progress in growing the number of advertisers
bidding to be listed on our search engine. As of September 30, 2000, advertisers
had opened over 8,000 accounts, and had placed over 5.0 million bids on search
keywords or key phrases, up from approximately 2,350 advertiser accounts and 1.4
million bids at the end of March 2000, and approximately 5,000 advertiser
accounts and 3.2 million bids at the end of June 2000. FindWhat.com ended 1999
with approximately 1,200 advertiser accounts and 750,000 bids. It is important
to note that some advertiser accounts are managed by advertising agencies, or
other agents for multiple advertisers, which prefer to manage more than one
advertiser in a single account, rather than open a separate account for each
advertiser. As a result, we believe 8,000 advertiser accounts as of September
30, 2000 actually represent a larger number than 8,000 advertisers.
We have also substantially increased the number of consumers accessing
our search results and clicking on our paid listings. The number of searches
accessing our database doubled to approximately 4.5 million per day in the third
quarter of 2000, up form more than 2.2 million per day in the second quarter of
2000 and 525,000 in the first quarter of 2000. For the quarter ending September
30, 2000, the FindWhat.com search engine had approximately 5.6 million paid
click-throughs with an average price per paid click-through of $0.11, up from
approximately 3.8 million paid click-throughs with an average price per paid
click-through of $0.07 in the second quarter of 2000, and approximately 1.2
million paid click-throughs with an average price per paid click-through of
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$0.06 in the first quarter of 2000. In all of 1999, the FindWhat.com search
engine had approximately 35,000 paid click-throughs.
The FindWhat.com search engine generates revenue consisting of search
listing paid click-through fees and banner advertising. For the year ended
December 31, 1999, revenue from the FindWhat.com search engine was immaterial.
In order to generate significant revenues, we must continue to increase
substantially the number of advertisers we service and the volume of
click-throughs to our clients' Web sites. FindWhat.com search listing paid
click-through revenue is determined by multiplying the number of click-throughs
on paid search results by the amounts bid for applicable keywords. Search
listing paid click-through revenue is recognized when earned based on
click-through activity to the extent that the advertiser has deposited
sufficient funds with us or collection is probable. FindWhat.com banner
advertisement revenue is recognized when earned under the terms of the
contractual arrangement with the advertiser or advertising agency, provided that
collection is probable.
We believe that our FindWhat.com search engine will be more attractive
to advertisers as more consumers access our listings while searching the
Internet, and our paid listings will be more relevant to consumers as more
advertisers bid for placement in our search results. A significant component of
our expenses consists of costs incurred to attract consumers to our search
listings. To date, we have primarily attracted consumers through our affiliates,
who list some or all of our search listings on their Web sites, as well as
through marketing to attract consumers to our Web site, including radio and
outdoor advertising as well as advertising on the Internet. We expect to
continue to rely upon these sources for a significant proportion of consumer
searches conducted on our service. Our future success is dependent upon reducing
our consumer acquisition costs and increasing the revenue we derive from this
traffic. In order to significantly increase revenues we will be required to
incur a significant expansion of our operations, including hiring additional
management and staff. These actual and proposed increases in marketing and
personnel will significantly increase our operating expenses.
Our BeFirst.com search engine optimization service generates revenue
from initial set-up fees charged to new clients and from click-through fees our
clients pay for consumers who get to their Web sites as a result of our efforts.
BeFirst.com set-up fee charges are recognized at the time a new client signs up
for the service and pays such fee. BeFirst.com click-through fees are determined
by multiplying the number of click-throughs to a client's Web sites as a result
of our efforts by the amount we charge per click-through. BeFirst.com's clients
include eBay and Avenue A.
We were organized under the laws of the State of Nevada under the name
Collectibles America, Inc. in October 1995. We discontinued our business
operations and transferred our assets to satisfy liabilities in 1997. In June
1999, we acquired 1,000 shares of common stock of BeFirst Internet Corporation,
which was organized under the laws of the State of Delaware in March 1998,
representing all of its outstanding capital stock. These shares were acquired
from the holders of such stock in exchange for our issuance to such stockholders
of 8,750,000 shares of our common stock. As the result of such exchange of
stock, the stockholders of BeFirst Internet Corporation acquired control of us
and BeFirst Internet Corporation became our wholly owned subsidiary. We changed
our corporate name to BeFirst.com at the time of the acquisition. Therefore, the
following discussion is a discussion of the business of BeFirst Internet
Corporation through the time of the acquisition. In September 1999, we changed
our corporate name to FindWhat.com.
We have a limited operating history. We began offering our BeFirst.com
service in March 1998. Our FindWhat.com search engine was commercially launched
in September 1999, but generated immaterial revenues in the fiscal year ended
December 31, 1999. Our services have achieved only limited market acceptance to
date. Our limited operating history and the uncertain nature of the markets we
address or intend to address make prediction of our future results of operations
difficult. Our operations may never generate significant revenues and we may
never achieve profitable operations.
RESULTS OF OPERATIONS
Our fiscal year runs from January 1 through December 31. We began
offering our BeFirst.com(SM) search engine optimization service in March 1998
and we commercially launched our FindWhat.com(SM) search engine in
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September 1999. As a result of these factors, comparisons between the three and
nine months ended September 30, 2000 and the three and nine months ended
September 30, 1999 have limited meaning.
REVENUE
Revenue for the three months ended September 30, 2000 increased to
$716,697 compared to $112,925 for the three months ended September 30, 1999.
Revenue for the nine months ended September 30, 2000 increased to $1,307,225
compared to $330,429 for the nine months ended September 30, 1999. The increase
was primarily the result of revenue from the FindWhat.com search engine, which
was commercially launched in September 1999 and which did not generate revenue
during the first nine months of 1999. Revenue from the FindWhat.com search
engine represented approximately 85% of total revenue for the three months ended
September 30, 2000, and approximately 72% of total revenue for the nine months
ended September 30, 2000. We expect that revenue from the FindWhat.com search
engine will represent an increasing percentage of total revenue in future
periods.
COST OF REVENUES
Cost of revenues consists primarily of costs associated with designing
and maintaining our Web sites and providing the BeFirst.com service, fees paid
to outside service providers like Inktomi that provide our unpaid listings,
credit card processing fees, and fees paid to telecommunications carriers for
Internet connectivity. Costs associated with maintaining our Web sites include
salaries of related personnel, depreciation of Web site equipment, co-location
charges for our Web site equipment and software license fees. Costs associated
with providing the BeFirst.com service include salaries of related personnel,
payments to consultants, and Web site domain registration expenses for clients.
Cost of revenues increased to $313,287 for the three months ended
September 30, 2000 from $247,975 for the three months ended September 30, 1999.
Cost of revenues was $724,751 for the nine months ended September 30, 2000,
compared to $304,419 for the nine months ended September 30, 1999. The increase
was primarily due to the launch of the FindWhat.com search engine in September
1999. We anticipate cost of revenues will continue to increase as our traffic
and number of advertisers increase.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily
of:
- revenue-sharing or other arrangements with our FindWhat.com
affiliates,
- advertising expenditures for the FindWhat.com search engine, such
as radio, outdoor and banner advertising campaigns and
sponsorships,
- promotional expenditures, including proprietary contests to
attract consumers to the FindWhat.com Web site and sponsorships
of seminars, trade shows and expos,
- tele-marketing and other expenses to attract advertisers to our
services,
- fees to marketing and public relations firms, and
- payroll and related expenses for personnel engaged in marketing,
customer service and sales functions.
With the exception of sales personnel salaries, most of our sales and marketing
expenses relate to the FindWhat.com search engine.
Our sales and marketing expense was $3,953,677 for the three months
ended September 30, 2000 compared to $89,399 for the three months ended
September 30, 1999. Sales and marketing expense was $8,945,084 for the nine
months ended September 30, 2000 compared to $161,162 for the nine months ended
September 30, 1999. Until June 30, 1999, an affiliate employed our sales force
and we reimbursed the affiliate by paying a commission. As of July 1, 1999, the
members of our sales force became our direct employees. The increase in sales
and marketing expense was related primarily to an increase in sales force
compensation due to hiring our sales force directly and expanding the number of
marketing, customer service, and sales employees, along with expenses not
incurred during the nine months ended September 30, 1999, including spending to
advertise and promote the
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FindWhat.com search engine, costs to attract advertisers to our services, fees
to our public relations firm, and revenue-sharing and other fees paid to
affiliates. Revenue-sharing and other fees paid to affiliates represents the
largest component of our operating expenses. We have issued shares of common
stock or warrants to purchase shares of common stock to several of our
advertising vendors and affiliates in lieu of cash payments. We record non-cash
charges over the terms of our contracts with these vendors and affiliates. These
non-cash charges, along with non-cash stock compensation expense, totaled
$3,421,748 for the three months ended September 30, 2000, and $7,318,550 for the
nine months ended September 30, 2000, consisting primarily of warrant grants to
our largest affiliate, Go2Net, Inc., as well as stock grants to national outdoor
and radio companies for billboards and radio commercial time during the period,
and option grants to individuals who have assisted us with relationships with
affiliates and media companies. We did not have any non-cash charges for the
nine months ended September 30, 1999, except for $38,300 in non-cash stock
option compensation expense, which was expensed in the month of June 1999. We
believe that continued investment in sales and marketing, including attracting
consumers and advertisers to utilize the FindWhat.com search engine and
attracting affiliates to display our search engine's results, is critical to
attaining our strategic objectives. As a result, we expect these costs to
continue increasing in the future.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; costs related to leasing, maintaining and operating our facilities;
insurance; recruiting fees; bad debt; fees for professional services, including
consulting, legal, and accounting fees; expenses and fees associated with the
reporting and other obligations of a public company; travel costs; depreciation
of furniture and equipment for non-technical employees; non-cash stock
compensation expense for the issuance of stock and stock options to
non-employees, and other general corporate expenses; as well as fees to
affiliates which provide office space and other general and administrative
services. Our Chairman and our Chief Executive Officer did not receive salaries
until July 1, 1999. General and administrative expenses increased to $727,070
for the three months ended September 30, 2000 from $414,537 for the three months
ended September 30, 1999. General and administrative expenses increased to
$2,754,638 for the nine months ended September 30, 2000 from $721,001 for the
nine months ended September 30, 1999. The increase in general and administrative
expenses was primarily due to increases in administrative and executive
headcount and salaries along with related expenses associated with the hiring of
personnel; increased rent, insurance and professional services; increased costs
associated with being a public company, including the cost of investor public
relations and the cost of directors' and officers' liability insurance expense;
increases in general corporate expenses; increased non-cash stock compensation
expense; increased depreciation; and increased services provided by our
affiliates. We have issued shares of common stock or warrants to purchase shares
of common stock to several of our general and administrative service providers
in lieu of cash payments. We record non-cash charges over the terms of our
contracts with these service providers or at the time they are engaged. These
non-cash charges, along with non-cash stock compensation expense, totaled
$66,124 for the three months ended September 30, 2000, and $189,405 for the nine
months ended September 30, 2000, consisting primarily of warrant and option
grants to financial advisors and an investor public relations firm. We also
recorded $217,580 in other non-cash stock option compensation expense for the
nine months ended September 30, 2000, which was expensed in the month of January
2000. We did not have any such non-cash charges for the nine months ended
September 30, 1999, except for $172,700 in non-cash stock option compensation
expense, which was expensed in the month of June 1999. We expect general and
administrative expenses to continue to increase as we expand our staff and incur
additional costs related to the growth of our business and compliance with the
reporting obligations of a public company.
Product Development. Product development expenses consist primarily of
payroll and related expenses for personnel responsible for development of
features and functionality for our FindWhat.com and BeFirst.com services,
consulting fees to a technical consultant, depreciation for related equipment,
and license fees for software used in product development. Product development
was $102,925 for the three months ended September 30, 2000 compared to $39,500
for the three months ended September 30, 1999. Product development was $355,133
for the nine months ended September 30, 2000 compared to $100,808 for the nine
months ended September 30, 1999. The increase was a result of increases in
compensation expense, as well as expenses not incurred during the nine months
ended September 30, 1999, including technical consulting services and
depreciation. In November 1999, we issued shares of common stock to a technical
consultant. As a result, we recorded $46,875 in non-cash product development
charges for the three months ended September 30, 2000 and $140,625 in non-cash
product development charges for the nine months ended September 30, 2000. We
believe that continued investment in product development is critical to
attaining our strategic objectives and as a result, expect product development
expenses to continue increasing in the future.
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INTEREST INCOME, NET
Interest income, net, consists primarily of earnings on our cash and
cash equivalents, net of interest expense attributable to equipment leases and
any taxes. Net interest income was $4,588 for the three months ended September
30, 2000 compared to $27,977 for the three months ended September 30, 1999. The
decrease in our interest income was due to lower average cash and cash
equivalent balances, and interest payments on capital leases. Net interest
income was $36,279 for the nine months ended September 30, 2000 compared to
$31,918 for the nine months ended September 30, 1999. The increase was primarily
due to an increase in our average cash and cash equivalent balances offset by
interest payments on capital leases. Our interest expense during the first nine
months of 2000 consisted of interest on leases of computer, telephone and copier
equipment. We did not have interest expense during the first nine months of
1999.
NET LOSS
As a result of the factors described above, we incurred a net loss of
$4,375,674 for the three months ended September 30, 2000 compared to a net loss
of $650,509 for the three months ended September 30, 1999. The net loss for the
three months ended September 30, 2000 included $3,534,747 of non-cash stock
option compensation expense and non-cash charges described above (there were no
similar non-cash charges for the three months ended September 30, 1999). Without
these non-cash charges, our net loss for the three months ended September 30,
2000 would have been $840,927. We incurred a net loss of $11,436,102 for the
nine months ended September 30, 2000 compared to a net loss of $925,043 for the
nine months ended September 30, 1999. The net loss for the nine months ended
September 30, 2000 included $7,866,160 of non-cash stock option compensation
expense and non-cash charges described above, compared to $211,000 in similar
non-cash charges for the nine months ended September 30, 1999. Without these
non-cash charges, our net loss would have been $3,569,942 for the nine months
ended September 30, 2000 and $714,043 for the nine months ended September 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through
private placements of equity securities and the reliance on affiliated
businesses owned by our executive officers. Through September 2000, we have
raised $7.1 million through private equity financings. To date, space and
support services in New York City have been provided to us by WPI Advertising,
Inc., an affiliate of our Chief Executive Officer, Robert D. Brahms. We have
been billed for these services at competitive rates.
Net cash used in operating activities totaled approximately $2,608,408
for the nine months ended September 30, 2000. The net cash used in the nine
months ended September 30, 2000 was primarily attributable to cash used in
marketing and sales efforts as well as for general and administrative and
product development expenses, partially offset by decreases in accounts
receivable, other assets, and amounts owed to affiliates, and increases in
accounts payable, deferred income, and non-cash charges, including non-cash
stock option compensation.
Net cash used in investing activities totaled approximately $672,583
for the nine months ended September 30, 2000, and consisted of capital
expenditures for equipment.
Net cash provided by financing activities totaled approximately
$4,572,243 for the nine months ended September 30, 2000. In February 2000, the
Company completed a private placement of our common stock with an accredited
investor. The Company issued 500,000 shares of common stock for $4.00 per share
and received gross proceeds of $2.0 million. We also issued the investor 125,000
warrants to purchase our common stock at an exercise price of $5.50 per share.
In September, the Company completed private placements of our common stock with
accredited investors. The Company issued 1,302,500 shares of common stock for
$2.00 per share and received gross proceeds of $2.6 million. We also issued to
the investors 1,302,500 warrants to purchase our common stock at a weighted
average exercise price of $2.78 per share
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Our principal sources of liquidity consisted of approximately $2.2
million of cash and cash equivalents as of September 30, 2000. Although we have
no material long-term commitments for capital expenditures, we anticipate an
increase in capital expenditures consistent with anticipated growth of
operations, infrastructure and personnel. We will require additional financing
to meet our anticipated liquidity needs over the next 12 months. If such
financing is not available when required or is not available on acceptable
terms, we may be unable to develop or enhance our products and services, take
advantage of business opportunities, respond to competitive pressures, meet
payment obligations to third parties, or satisfy the business obligations of our
company, any of which could have a material adverse effect on our business,
financial condition and results of operations. The sale of additional equity or
other securities convertible into equity will result in additional dilution to
existing stockholders. Our future liquidity and capital requirements will depend
upon numerous factors. The pace of expansion of our operations will affect our
capital requirements. We may also have increased capital requirements in order
to respond to competitive pressures. In addition, we may need additional capital
to fund acquisitions of complementary products, technologies or businesses.
There can be no assurance that any anticipated or future financing arrangements
will be available in amounts or on terms acceptable to us, if at all. Our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties and actual results could vary materially as a result of
the factors described above.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis or Plan of Operation contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting the financial condition of our business. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including, among other things:
- general economic and business conditions, both nationally and in
our markets,
- our history of losses,
- our expectations and estimates concerning future financial
performance, financing plans and the impact of competition,
- our ability to implement our growth strategy,
- anticipated trends in our business,
- advances in technologies, and
- other risk factors set forth in our filings with the
Securities and Exchange Commission, which are incorporated
herein by reference.
In addition, in this Management's Discussion and Analysis or Plan of
Operation, the words "believe", "may", "will", "estimate", "continue",
"anticipate", "intend", "expect", "plan" and similar expressions, as they relate
to us, our business or our management, are intended to identify forward-looking
statements.
We undertake no obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this prospectus. In light of these risks
and uncertainties, the forward-looking events and circumstances discussed in
this prospectus may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the
numbers of shares of common stock sold by FindWhat.com, the number of options
and warrants issued by FindWhat.com, the consideration received by FindWhat.com
for such shares, options and warrants and information relating to the section of
the Securities Act or rules of the Securities and Exchange Commission under
which exemption from registration was claimed during the period covered by this
report. None of these securities was registered under the Securities Act.
In January 2000, we entered into an agreement to issue 600,000 shares
of our common stock to Beasley Broadcast Group in consideration of $3,000,000
worth of radio and on-line advertising. The certificates representing the shares
of common stock were appropriately legended. In the opinion of FindWhat.com the
issuance of these shares was exempt pursuant to Section 4(2) of the Securities
Act and the rules promulgated thereunder.
In January 2000, we issued Cyber Networks, Inc., a strategic partner, a
warrant to purchase 5,000 shares of our common stock at a purchase price of
$5.50 per share. The warrant was appropriately legended. In the opinion of
FindWhat.com, the issuance of the warrant was exempt pursuant to Section 4(2) of
the Securities Act and the rules promulgated thereunder.
In February 2000, we entered into an agreement to issue 500,000 shares
of our common stock to Andrew Lessman and issued Mr. Lessman a warrant to
purchase up to 125,000 shares of our common stock at a purchase price of $5.50
per share in consideration of a $2,000,000 cash investment. The certificates
representing the shares of common stock and the warrant were appropriately
legended. In the opinion of FindWhat.com the issuance of these shares and the
warrant was exempt pursuant to Section 4(2) of the Securities Act and the rules
promulgated thereunder.
In March 2000, we issued a warrant to Go2Net, Inc. to purchase up to
725,000 shares of our common stock at a purchase price of $5.50 per share in
connection with a strategic alliance. The warrant was appropriately legended. In
the opinion of FindWhat.com the issuance of the warrant was exempt pursuant to
Section 4(2) of the Securities Act and the rules promulgated thereunder.
In March 2000, we entered into an agreement to issue 3,613 shares of
our common stock to Van Wagner Communications LLC in consideration of $43,250 of
advertising space. The certificates representing the shares of common stock were
appropriately legended. In the opinion of FindWhat.com, the issuance of these
shares was exempt pursuant to Section 4(2) of the Securities Act and the rules
promulgated thereunder.
In April 2000, we entered into an agreement to issue 7,000 shares of
our common stock to Mamma.com in consideration of an outstanding account payable
of $63,000. The certificates representing the shares of common stock were
appropriately legended. In the opinion of FindWhat.com, the issuance of these
shares was exempt pursuant to Section 4(2) of the Securities Act and the rules
promulgated thereunder.
In June 2000, we entered into an agreement to issue 8,000 shares of our
common stock to Van Wagner Communications LLC in consideration of $40,000 of
advertising space. The certificates representing the shares of common stock were
appropriately legended. In the opinion of FindWhat.com, the issuance of these
shares was exempt pursuant to Section 4(2) of the Securities Act and the rules
promulgated thereunder.
In June 2000, we entered into an agreement to issue 5,000 shares of our
common stock to Millenium Capital Resources LLC in consideration of an
outstanding account payable of $15,000. The certificates representing
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<PAGE> 18
the shares of common stock were appropriately legended. In the opinion of
FindWhat.com, the issuance of these shares was exempt pursuant to Section 4(2)
of the Securities Act and the rules promulgated thereunder.
In August 2000, we entered into agreements to issue an aggregate of
13,848 shares and a warrant to purchase up to 100,000 shares of our common stock
at an exercise price of $2.50 per share to consultants. In the opinion of
FindWhat.com, the issuance of these shares was exempt pursuant to Section 4(2)
of the Securities Act and the rules promulgated thereunder.
In September 2000, we entered into agreements to issue an aggregate of
7,742 shares of our common stock to consultants. In the opinion of FindWhat.com,
the issuance of these shares was exempt pursuant to Section 4(2) of the
Securities Act and the rules promulgated thereunder. We also concluded private
placements to twenty-three accredited investors of 1,302,500 shares of our
common stock at $2.00 per share, accompanied by warrants to purchase an
additional 1,302,500 shares at an average exercise price of $2.78 per share. In
the opinion of FindWhat.com, the issuance of these shares was exempt pursuant to
Section 4(2) of the Securities Act and the rule 506 promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) FindWhat.com held its Annual Meeting of Stockholders on July 11,
2000, for the purposes of electing seven directors and amending the
1999 Stock Incentive Plan.
(b) At the Annual Meeting of Stockholders, all directors nominated were
elected and the 1999 Stock Incentive Plan was amended.
(c) The table below shows the voting tabulation for each matter voted
upon at the Annual Meeting of Stockholders:
Proposal No. 1: The election of the following persons as Directors of the
Company:
NUMBER OF SHARES
FOR ABSTAIN
Courtney P. Jones 10,018,712 4,600
Craig A. Pisaris-Henderson 10,018,712 4,600
Robert D. Brahms 10,018,712 4,600
David M. Medinis 10,018,712 4,600
Lee S. Simonson 10,018,712 4,600
Kenneth E. Christensen 10,018,712 4,600
Martin Berger 10,018,712 4,600
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Proposal No. 2: To ratify and approve an amendment to the Company's 1999
Stock Incentive Plan as described in the Proxy Statement.
Number of Shares Voted
-------------------------------------------------------------------------------
FOR AGAINST ABSTAINED NOT VOTED
-------------------------------------------------------------------------------
8,908,037 52,750 600 1,061,925
-------------------------------------------------------------------------------
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
Number Exhibit
2.1* Agreement and Plan of Reorganization dated June 17, 1999 by and
among BeFirst Internet Corporation, Collectibles America, Inc.
and Mick Jardine.
3.1* Articles of Incorporation of FindWhat.com (f/k/a Collectibles
America, Inc.)
3.2* By-laws of FindWhat.com
3.3*** Audit Committee Charter
10.1* Portal Services Agreement dated June 18, 1999 between Inktomi
Corporation and BeFirst Internet Corporation.
10.2* Lease Agreement by and between Cambridge Management Associates
and BeFirst.com Inc.
10.3* Agreement dated August 18, 1999 between Michigan Internet
Communication Association and BeFirst.com Inc.
10.4* BeFirst 1999 Stock Incentive Plan
10.5* Form of Incentive Stock Option Agreement
10.6* Form of Non-Qualified Stock Option Agreement
10.7(R)**** Search Result Agreement, dated March 29, 2000, between the
Registrant and Mamma.com.
10.8(R)*** Search Services Agreement, dated March 15, 2000, between the
Registrant and Go2Net, Inc.
10.9*** Advertising Agreement, dated January 14, 2000, between the
Registrant and Beasley Internet Ventures, LLC.
10.10*** Merchant Agreement, dated July 13, 1999, between the Registrant
and LinkShare Corporation.
10.11**** Executive Employment Agreement between FindWhat.com and Phillip
R. Thune.
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10.12**** Executive Employment Agreement between FindWhat.com and Peter
Neumann.
27 Financial Data Schedule
* Incorporated by reference to the exhibit previously filed on September 14,
1999 with prior Form 10 of FindWhat.com (file no. 0-27331).
** Incorporated by reference to the exhibit previously filed on November 1, 1999
with Amendment No. 1 to FindWhat.com's prior Form 10 (file no 0-27331).
*** Incorporated by reference to the exhibit previously filed on March 30, 2000
with Amendment FindWhat.com's Form 10-K for the fiscal year ended December 31,
1999.
****Incorporated by reference to the exhibit previously filed on May 15, 2000 to
FindWhat.com's Form 10-QSB for the fiscal quarter ended March 31, 2000.
(R) Please note that certain confidential commercial information has been
redacted from some of the exhibits incorporated into this Form 10-QSB in order
to preserve the confidentiality of such information. All of the confidential
information which has been redacted is on file with the Securities and Exchange
Commission. Exhibits to this Form 10-QSB which have had confidential information
redacted are indicated as follows on the exhibit list above: (R). Within the
exhibits to this Form 10-QSB, redacted material is indicated by the following
sign where such redacted text would have appeared in the relevant exhibit:
(**REDACTED**)
(b) Reports on Form 8-K
Report dated August 14, 2000 reporting second quarter earnings.
Report dated September 25, 2000 reporting completion of $2.6 million
private placement.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FINDWHAT.COM
Date: November 13, 2000 By: /s/ Phillip R. Thune
-----------------------------------
Phillip R. Thune, Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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