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As filed with the Securities and Exchange Commission on January 18, 2001
Registration No. 333-47240
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Pre-effective Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FINDWHAT.COM
(Exact name of registrant as specified in its charter)
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NEVADA 7379 88-0348835
(State or other jurisdiction of (Primary standard industrial (IRS employer
incorporation or organization) Classification number) identification number)
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121 W. 27th Street
New York, New York 10001
(212) 255-1500
(Address and telephone number of principal executive offices)
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121 W. 27th Street
New York, New York 10001
(Address of principal place of business)
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Robert D. Brahms, Chief Executive Officer
FindWhat.com
121 W. 27th Street
New York, New York 10001
(212) 255-1500
(Name, address and telephone number of agent for service)
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Copies to:
John B. Pisaris, Esq.
M. Todd Taylor, Esq.
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
Telephone No. (614) 227-2000
Telecopier No. (614) 227-2100
[email protected]
[email protected]
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PRELIMINARY PROSPECTUS
2,382,648 SHARES
FINDWHAT.COM
COMMON STOCK
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This prospectus may be used only by the stockholders listed under the
section entitled "selling stockholders" in this prospectus for their resale of
up to 2,382,648 shares of our common stock. The 2,382,648 shares are shares of
our common stock held by these stockholders and shares which they will receive
upon exercise of warrants or non-plan options. The common stock offered by this
prospectus may be offered by the selling stockholders from time to time in
transactions reported on the NASDAQ SmallCap Market, in negotiated transactions,
or otherwise, or by a combination of these methods, at fixed prices which may be
changed, at market prices at the time of sale, at prices related to market
prices or at negotiated prices. We will not receive any proceeds from the sale
of the shares by the selling stockholders.
Our shares are traded on the Nasdaq SmallCap Market under the symbol
"FWHT." On January 17, 2001, the last reported sale of our common stock on the
Nasdaq SmallCap Market was $0.91 per share.
YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 4 BEFORE
PURCHASING OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is __________________, 2000
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY...........................................................2
RISK FACTORS.................................................................4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS........................13
USE OF PROCEEDS.............................................................14
PRICE RANGE OF COMMON STOCK.................................................15
DIVIDEND POLICY.............................................................15
DETERMINATION OF OFFERING PRICE.............................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS..........................17
BUSINESS....................................................................25
MANAGEMENT..................................................................34
SELLING STOCKHOLDERS........................................................43
PLAN OF DISTRIBUTION........................................................44
LEGAL MATTERS...............................................................45
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS...............................45
EXPERTS.....................................................................46
ADDITIONAL INFORMATION......................................................46
INDEX TO FINANCIAL STATEMENTS..............................................F-1
We have pending United States federal applications with the Patent and
Trademark Office for the marks F.A.S.T.(SM), SEARCH & WIN(SM), A BETTER SEARCH
RESULT(SM), PAY FOR PLACEMENT(SM), FIND WHAT YOU'RE LOOKING FOR(SM), and
FINDWHAT.COM(SM), as well as a Federal Registration for BE1ST(R). In addition,
we use and have common law rights in the mark "FindWhat Advanced Search
Technology."
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To understand
our business and this offering fully, you should read this entire prospectus
carefully, including the financial statements and the related notes beginning on
page F-1. When we refer in this prospectus to the "Company," "we," "us," and
"our," we mean FindWhat.com, a Nevada corporation, together with our
subsidiaries and their respective predecessors. This prospectus contains
forward-looking statements and information relating to FindWhat.com. See
"Cautionary Note Regarding Forward Looking Statements" on page 14.
FINDWHAT.COM
OUR BUSINESS
We are a developer and marketer of performance-based advertising services
for the Internet. Our clients pay us for each consumer we deliver to their web
sites. Currently, we offer two proprietary services: FindWhat.com, a
pay-for-position search engine, and BeFirst.com, a search engine optimization
service. Our focus is to:
- drive qualified traffic to Internet web sites, and
- 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 goods and
services.
OUR SERVICES
The FindWhat.com search engine allows Internet users to enter a word,
phrase or plain English query describing what they want. Our search engine then
displays a selection of web sites related to that query. Advertisers can
determine exactly where on the search results their web site link will appear
for any given query 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
bid order.
Consumers access FindWhat.com's search results at our web site,
www.findwhat.com, and at other web sites with which we have affiliate
relationships. These affiliates include meta-search engines, which list
FindWhat.com's search results along with results from several other search
engines, and a network of web sites that either have integrated the FindWhat.com
search engine into their sites or contain links that direct consumers to
FindWhat.com's web site.
Our FindWhat.com search engine is an e-commerce aggregator designed to
improve the consumer search experience and link advertisers and consumers. We
distinguish the FindWhat.com search engine from the "portal" search engine model
- used by such sites as AltaVista, Excite, and Yahoo - by presenting an
extremely clean, uncluttered interface. Unlike portals, which seek to keep
consumers within their web site to view multiple graphical advertisements, our
search result pages load quickly and consist of a list of 25 results per page.
The top results for any keyword search are those companies that are most likely
to have what the consumer wants to find. Consequently, we believe our
FindWhat.com search engine offers consumers fast, simple and direct search
results. By eliminating extraneous content and advertising, we eliminate a
portal's inherent conflict between assisting consumers to locate relevant
information and attempting to keep them within the portal's web site. Like the
Yellow Pages, the FindWhat.com search engine is a commercial search tool for
people or businesses that are actively looking for information or for goods or
services to purchase.
Our BeFirst.com service, known as "search engine optimization," assists
web sites to achieve higher placements in search results on over 300 third-party
search engines. We are able to achieve this for our clients through our
understanding of search engine algorithms and constant monitoring of search
engine behavior. Our BeFirst.com service enhances the probability that our
clients' web sites will appear in search results served in response to a
consumer's inquiry on a particular keyword, as well as being placed higher in
the ranking in such search results.
OUR HISTORY AND STRUCTURE
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
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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 a result of the
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. In September 1999, we changed our corporate name to FindWhat.com.
Our principal executive offices are located at 121 W. 27th Street, New York, New
York 10001. Our telephone number is (212) 255-1500. Our principal Internet
addresses are www.findwhat.com and www.befirst.com. Information contained on
these web sites and our other web sites is not deemed part of this prospectus.
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Unless otherwise stated, the information in this prospectus does not give
effect to
- 2,329,646 shares reserved for issuance upon exercise of outstanding
warrants and non-plan options with a weighted average exercise price
of $3.71 per share, and
- 1,548,713 shares reserved for issuance upon exercise of outstanding
options under our stock incentive plan with a weighted average
exercise price of $2.60 per share.
THE OFFERING
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Common stock offered by the
selling stockholders........................................ 2,382,648 shares
Common stock outstanding
as of December 31, 2000..................................... 15,091,844 shares
Use of Proceeds............................................. We will not receive any proceeds from the sale
of the common stock.
Nasdaq SmallCap Market trading symbol....................... FWHT
Risk Factors................................................ An investment in our common stock is highly
speculative and involves a high degree of risk.
See "Risk Factors."
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RISK FACTORS
An investment in our common stock is highly speculative, involves a high
degree of risk, and should be made only by investors who can afford a complete
loss. You should carefully consider the following risk factors, together with
the other information in this prospectus, including our financial statements and
the related notes, before you decide to buy our common stock.
RISKS SPECIFIC TO FINDWHAT.COM
Our business is difficult to evaluate because we have a limited operating
history and have only recently launched our FindWhat.com search engine.
We began offering search engine optimization marketing services through
our BeFirst.com service in March 1998, and in September 1999 we commercially
launched FindWhat.com, our pay-for-position search engine. Accordingly, we have
a limited relevant operating history upon which an investor can make an
evaluation of the likelihood of our success. An investor in our securities must
consider the uncertainties, expenses and difficulties frequently encountered by
companies such as ours that are in the early stages of development. Our
operations may never generate significant revenues and we may never achieve
profitable operations. An investor should consider the likelihood of our future
success to be highly speculative in light of our limited operating history, as
well as the problems, limited resources, expenses, risks and complications
frequently encountered by similarly situated companies in the early stages of
development, particularly companies in new and rapidly evolving markets, such as
e-commerce. To address these risks, we must, among other things:
- maintain and increase our client base;
- implement and successfully execute our business and marketing
strategy;
- continue to develop and upgrade our technology;
- continually update and improve our service offerings and features;
- provide superior customer service;
- respond to industry and competitive developments; and
- attract, retain and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to do so,
our business, prospects, financial condition and results of operations would be
materially and adversely affected.
We may not successfully commercialize our FindWhat.com search engine.
We launched our FindWhat.com search engine in September 1999, and may not
be able to successfully commercialize it, which would have a material adverse
effect on our business, prospects, financial condition and results of
operations. Moreover, upon widespread commercial introduction, we may find that
our search engine will not be able to perform satisfactorily all of the
functions for which it has been designed or that it is not reliable or durable
in extensive applications.
We have limited marketing experience; the success of our FindWhat.com search
engine is dependent upon our ability to establish online marketing
relationships.
We have limited marketing experience and limited financial, personnel and
other resources to undertake extensive marketing activities. Our ability to
generate revenue from our FindWhat.com search engine is dependent upon our
ability to attract advertisers and generate traffic to our site. If we are
unable to enter into additional agreements to generate significant traffic to
our FindWhat.com web site on commercially acceptable terms, or are unable to
implement successfully current agreements which drive traffic to the
FindWhat.com web site, our operations may never generate significant revenues
and we may never achieve profitable operations. Our failure to further develop
our marketing capabilities and successfully market our products and services
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
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Our principal competitor may have patent rights which could prevent us from
operating our FindWhat.com search engine in its present form.
Our principal competitor, GoTo, has advised us of a pending patent
application with respect to our current pay-for-position business model, but has
refused to provide to us the details of its application. Accordingly, we have
not been able to determine whether the operation of our FindWhat.com search
engine would violate any proprietary rights of GoTo. Additionally, GoTo has
announced its plans to acquire an issued patent that may apply to our current
pay-for-position business model. However, we believe that the issued patent does
not prohibit us from operating our current business. If a patent is issued to
GoTo.com or another competitor which would interfere or prevent us from using
the pay-for-position business model, or if the issued patent is found to be
applicable to our current business model, our business, prospects, financial
condition and results of operations could be materially and adversely affected.
Moreover, although GoTo has indicated that it will monitor our activities, they
have not commenced or threatened to commence any legal action against us. If we
are required to participate in litigation we may not have the resources to fund
the required litigation costs, which may adversely affect our business,
prospects, financial condition and results of operations.
In the event that the patent application of GoTo is approved and a patent
is issued, or if the issued patent is found to be applicable to our current
business model, we may be required to obtain a license to the covered
intellectual property or substantially revise our business model in order to
continue operations. We can offer no assurance that a license would be available
on acceptable terms or at all, or that we will be able to revise our business
model economically, efficiently or at all.
We partially depend on third parties for certain software and Internet services
for our FindWhat.com search engine.
We partially depend on third-party software to operate our FindWhat.com
search engine. Although we believe that several alternative sources for this
software are available, any failure to obtain and maintain the rights to use
such software would have a material adverse effect on our business, prospects,
financial condition and results of operations. We also are dependent upon third
parties to provide Internet services to allow us to connect to the Internet with
sufficient capacity and bandwidth so that our FindWhat.com search engine can
function properly and our FindWhat.com web site can handle current and
anticipated traffic. We currently have contracts with Sprint, UUNet, KMC
Telecom, @Work and Michigan Internet Communications Association for these
services. Any restrictions or interruption in our connection to the Internet
would have a material adverse effect on our business, prospects, financial
condition and results of operations.
We rely on internally developed systems which may put us at a competitive
disadvantage.
We use internally developed systems for a portion of our search engine
request processing software. We developed these systems primarily to increase
the number of appropriate search results for each search request made on our web
site and for customer service. A significant amount of manual effort may be
required to update these systems if our competitors develop superior search
methods. This manual effort is time-consuming and costly and may place us at a
competitive disadvantage when compared to competitors with more efficient
systems. We intend to upgrade and expand our search request processing systems
and to integrate newly-developed and purchased modules with our existing systems
in order to improve the efficiency of our search methods and support increased
transaction volume, although we are unable to predict whether these upgrades
will improve our competitive position when compared to our competitors.
Our management team is relatively new; many of our employees have recently
joined us and must be integrated into our operations.
Some of our officers have no prior senior management experience in public
companies. In three years we have grown to approximately 50 employees; our new
employees include a number of key managerial, technical, financial, marketing
and operations personnel who have not yet been fully integrated into our
operations; and we expect to add additional key personnel in the near future.
Our failure to fully integrate our new employees into our operations could have
a material adverse effect on our business, prospects, financial condition and
results of operations.
We may have difficulty attracting and retaining qualified, highly skilled
personnel.
We expect the expansion of our business to place a significant strain on
our limited managerial, operational and financial resources. We will be required
to expand our operational and financial systems significantly and to expand,
train and manage our work force in order to manage the expansion of our
operations. We will need to attract and retain highly qualified, technical
personnel in order to maintain and update our products and services and meet our
business objectives. Competition for such personnel is intense. We may not be
successful in attracting and retaining such qualified technical personnel on a
timely basis, on competitive terms, or at all. If we are unable to
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attract and retain the necessary technical personnel, it would have a material
and adverse effect on our business, prospects, financial condition and results
of operations.
We depend on third parties to provide us with supplemental search data.
In order to provide high quality search results in response to search
queries by consumers, we display supplemental search results be displayed in
addition to the search results paid for by our clients. Supplemental search data
constitutes a very high percentage of the search results displayed by our
FindWhat.com search engine. Although numerous alternatives are available,
Inktomi Corporation is currently our sole source of supplemental search results
displayed by FindWhat.com. Any disruption of supplemental search results
services could have a material and adverse effect on our business, prospects,
financial condition and results of operations.
Current capacity constraints may require us to expand our network infrastructure
and customer support capabilities.
Our ability to provide high-quality customer service largely depends on
the efficient and uninterrupted operation of our computer and communications
systems in order to accommodate any significant increases in the numbers of
consumers and advertisers using our services. We may be required to expand our
network infrastructure and customer support capabilities to support an
anticipated expanded customer base. Any such expansion will require us to make
significant upfront expenditures for servers, routers, computer equipment and
additional Internet and intranet equipment and to increase bandwidth for
Internet connectivity. Any such expansion or enhancement will need to be
completed and integrated without system disruptions. Failure to expand our
network infrastructure or customer service capabilities either internally or
through third parties, if and when necessary, would materially adversely affect
our business, prospects, financial condition and results of operations.
Our technical systems are vulnerable to interruption and damage.
A disaster could interrupt our services for an indeterminate length of
time and severely damage our business, prospects, financial condition and
results of operations. Our systems and operations are vulnerable to damage or
interruption from fire, floods, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, penetration of our network by
unauthorized computer users and "hackers" and similar events. The occurrence of
a natural disaster or unanticipated problems at our technical operations
facility could cause material interruptions or delays in our business, loss of
data or render us unable to provide services to customers. Failure to provide
the data communications capacity we require, as a result of human error, natural
disaster or other operational disruptions could cause interruptions in our
service and web sites. The occurrence of any or all of these events could
adversely affect our business, prospects, financial condition and results of
operations.
We may be unable to obtain the Internet domain names that we hope to use.
The Internet domain name we are using for our search engine web site is
"FindWhat.com." We believe that this domain name is an extremely important part
of our business. We may desire, or it may be necessary in the future, to use
other domain names in the United States and abroad. Governmental authorities in
different countries may establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. These new domains may allow combinations and similar domain names that
may be confusingly similar to our own. Also, we may be unable to acquire or
maintain desired and relevant domain names in all countries in which we will
conduct business. In addition, there are other substantially similar domain
names which are registered by companies which may compete with us. There can be
no assurance that potential users and advertisers will not confuse our domain
name with other similar domain names. If that confusion occurs,
- we may lose business to a competitor,
- have to adjust our advertising rates and service fees accordingly,
and
- some users of our services may have negative experiences with other
companies on their web sites that those users erroneously associate
with us.
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We may be unable to promote and maintain our brands.
We believe that establishing and maintaining the brand identities of our
services is a critical aspect of attracting and expanding a large client base.
Promotion and enhancement of our brands will depend largely on our success in
continuing to provide high quality service. If businesses do not perceive our
existing services to be of high quality, or if we introduce new services or
enter into new business ventures that are not favorably received by businesses,
we will risk diluting our brand identities and decreasing their attractiveness
to existing and potential customers.
In order to attract and retain customers and to promote and maintain
brands in response to competitive pressures, we may also have to increase
substantially our financial commitment to creating and maintaining a distinct
brand loyalty among our customers. If we incur significant expenses in an
attempt to improve our services or to promote and maintain our brands, our
business, prospects, financial condition and results of operations could be
materially adversely affected. Moreover, any brand identities we establish may
be diluted as a result of any inability to protect our service marks or domain
names, which could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Our intellectual property rights may not be protectable or of significant
value in the future.
We depend upon confidentiality agreements with certain of our employees,
consultants and subcontractors to maintain the proprietary nature of our
technology. These measures may not afford us sufficient or complete protection,
and others may independently develop know-how and services similar to ours,
otherwise avoid our confidentiality agreements or produce patents and copyrights
that would materially and adversely affect our business, prospects, financial
condition, and results of operations.
Legal standards relating to the validity, enforceability and scope of
protection of certain intellectual property rights in Internet-related
industries are uncertain and still evolving. The steps we take to protect our
intellectual property rights may not be adequate to protect our future
intellectual property. Third parties may also infringe or misappropriate any
copyrights, trademarks, service marks, trade dress and other proprietary rights
we may have. Any such infringement or misappropriation could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
We own a federal service mark registration for "Be1st." We have also filed
an application to register "FindWhat.com" as a servicemark. If other companies
also claim the words "Be1st" or "FindWhat.com," we may be required to become
involved in litigation or incur additional expense. Effective service mark,
copyright and trade secret protection may not be available in every country in
which our services are distributed or made available through the Internet.
The process and technology we use to operate the FindWhat.com search
engine is critical to the success of our business. In February 2000, we filed a
patent application for our FindWhat.com search engine with the United States
Patent and Trademark Office. This application is currently pending. Our patent
application may be rejected and we may be unable to prevent third parties from
infringing on our proprietary rights. Further, our principal competitor has
filed a patent application which may cover our business model and has announced
its plans to acquire an issued patent that may be applicable to our business
model. See "Risk Factors - Our principal competitor may have patent rights which
could prevent us from operating our FindWhat.com search engine in its present
form."
In addition, the relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear. We may
be unable to prevent third parties from acquiring domain names that are similar
to, infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights, which may result in the dilution of the brand identity of
our services. See "Risk Factors - We may be unable to promote and maintain our
brands."
Our current and future business activities may infringe upon the
proprietary rights of others, and third parties may assert infringement claims
against us. Any such claims and resulting litigation could subject us to
significant liability for damages and could result in the invalidation of our
proprietary rights. Even if not meritorious, such claims could be
time-consuming, expensive to defend and could result in the diversion of our
management's time and attention. In addition, this diversion of managerial
resources could have a material adverse effect on our business, prospects,
financial condition and results of operations.
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Providers of Internet search engines could act to impede the operation of our
BeFirst service.
The success of our BeFirst service depends on our ability to stay current
with changes in search engine technologies. The providers of Internet search
engines could alter the configuration of their search engines in new ways to
make it more difficult for providers of optimization services to modify their
systems to accommodate rapid changes in search engine technology. Our
proprietary software programs track the historical patterns of change in the
search engine technologies of various providers of Internet search engines. If
these providers were to alter significantly and continually these historical
patterns, and our software was unable to track effectively these changes, our
ability to provide this service could be materially and adversely affected. The
inability to provide this service could materially adversely effect our
business, prospects, financial condition and results of operations.
We depend on the efforts of our key personnel.
Our success is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends
substantially on the continued efforts of Craig A. Pisaris-Henderson, our
President and Chief Technical Officer, Robert D. Brahms, our Chief Executive
Officer, and Courtney P. Jones, Chairman of our Board of Directors. Currently,
we do not have key person life insurance on Messrs. Pisaris-Henderson, Brahms or
Jones and may be unable to obtain such insurance in the near future due to high
cost or other reasons. We also do not have written employment agreements with
any of these key personnel. We believe that the loss of the services of any of
our executive officers or other key employees could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
We depend on one customer for a substantial portion of our BeFirst.com service
revenue.
A significant portion of our BeFirst.com service revenue has been derived
from one customer, eBay. As a result, our net sales are concentrated and this
customer accounted for approximately 30% of our revenue in 1999 and 10% in the
first six months of 2000. We expect that we will continue to be dependent upon
this customer for a significant portion of our BeFirst.com service revenue in
the future. As a result of this customer concentration, our business, prospects,
financial condition and results of operations could be materially adversely
affected if this customer discontinues or curtails its use of our BeFirst.com
service.
Our charter documents limit the liability of our directors and officers.
Our articles of incorporation contain provisions which limit the personal
liability of our directors and officers for monetary damages arising from a
breach of their fiduciary duties as directors or officers. In addition, our
by-laws require us to indemnify any person who is or was involved in any manner,
or who is threatened to be involved, in any pending or completed action or
proceeding, including a derivative action brought by us or in our name, by
reason of the fact that such person is or was a director, officer, employee or
agent of ours, or was serving at our request as an officer, director, employee
or agent of another entity, enterprise or employee benefit plan, against all
liabilities and expenses actually and reasonably incurred by such person in
connection with any such action or proceeding. See "Management - Limitation on
Liability and Indemnification Matters."
Our Articles of Incorporation authorize us to issue additional shares of stock.
We are authorized to issue up to 50,000,000 shares of common stock which
may be issued by our board of directors for such consideration as they may
consider sufficient without seeking stockholder approval. The issuance of
additional shares of common stock in the future will reduce the proportionate
ownership and voting power of current stockholders.
Our Articles of Incorporation also authorize us to issue up to 500,000
shares of preferred stock, the rights and preferences of which may be designated
by our board of directors. These designations may be made without stockholder
approval. The designation and issuance of preferred stock in the future could
create additional securities which would have dividend and liquidation
preferences prior in right to the outstanding shares of common stock. These
provisions could also impede a non-negotiated change in control.
We cannot predict our future capital needs and we may not be able to secure
additional financing.
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.
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We do not intend to pay future cash dividends.
We currently do not anticipate paying cash dividends on our common stock
at any time in the near future. We may never pay cash dividends or distributions
on our common stock. Any credit agreements which we may enter into with
institutional lenders may restrict our ability to pay dividends. Whether we pay
cash dividends in the future will be at the discretion of our board of directors
and will be dependent upon our financial condition, results of operations,
capital requirements and any other factors that the board of directors decides
is relevant. See "Dividend Policy."
As our current members of management are controlling stockholders, our
stockholders may be unable to affect corporate activity without the support of
these individuals.
Currently, Craig A. Pisaris-Henderson, Robert D. Brahms and Courtney P.
Jones collectively own approximately 44% of our outstanding common stock and,
therefore, are able to exert significant influence on all matters requiring
approval of our stockholders. Accordingly, our other stockholders may not be
able to effect corporate action after this offering without the supporting vote
or one or more of these individuals. See "Principal Stockholders."
The market price of our securities may be volatile.
From time to time the market price of our common stock may experience
significant volatility. Our quarterly results, failure to meet analysts'
expectations, announcements by us or our competitors regarding acquisitions or
dispositions, loss of existing clients, new procedures or technology,
litigation, changes in general conditions in the economy and general market
conditions could cause the market price of the common stock to fluctuate
substantially. In addition, the stock market has experienced significant price
and volume fluctuations that have particularly affected the trading prices of
equity securities of many technology and Internet companies. Frequently, these
price and volume fluctuations have been unrelated to the operating performance
of the affected companies. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against such a company. This type of litigation,
regardless of the outcome, could result in substantial costs and a diversion of
management's attention and resources, which could materially adversely affect
our business, prospects, financial condition and results of operations.
Significant additional dilution will occur if outstanding options and warrants
are exercised.
We also have outstanding stock options under our 1999 Stock Incentive Plan
to purchase 1,548,713 shares of common stock at a weighted average exercise
price of $2.60 and warrants and non-plan options to purchase 2,329,646 shares of
common stock at a weighted average exercise price of $3.71 per share. To the
extent these options or warrants are exercised, our stockholders will experience
further dilution. In addition, in the event that any future financing should be
in the form of, be convertible into, or exchangeable for, equity securities, and
upon the exercise of options and warrants, investors may experience additional
dilution.
We may have trouble maintaining our listing on the Nasdaq SmallCap Market.
Under the currently effective criteria for continued listing of securities
on the Nasdaq SmallCap Market, a company must maintain $4.0 million in market
value, a minimum bid price of $1.00 per share and either (1) have net tangible
assets of at least $2 million, (ii) have a market capitalization of $35 million,
or (iii) have net income of at least $500,000 in two of the last three fiscal
years. Due to the amount of our net tangible assets and the volatility of our
stock price, from time to time we have not met the continued listing
requirements. If we are unable to meet the standards for continued listing, or
if formal action is taken by Nasdaq for our noncompliance with listing
standards, our common stock could be subject to delisting from the Nasdaq
SmallCap Market. Trading, if any, in our common stock would then be conducted in
the over-the-counter market on the OTC Bulletin Board. As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, our shares.
RISKS SPECIFIC TO OUR INDUSTRY
We face substantial and increasing competition.
We may face increased pricing pressure for the sale of paid listings,
advertisements and direct marketing opportunities, which could materially
adversely affect our business, prospects, financial condition and results of
operations. Our competitors may have or obtain certain intellectual property
rights which may interfere or prevent the use of our pay-for-position business
model. See "Risk Factors - Our intellectual property rights may not be
protectable or of significant value in the future." The market for
Internet-based marketing services is relatively new, intensely competitive and
rapidly changing. Since the advent of search engine optimization services on the
Internet, the number of companies offering services similar to our BeFirst.com
service has proliferated due to, among other reasons, the absence of substantial
barriers to entry. This competition may further continue to intensify. Such
increased competition may lead to reductions in market prices for web site
optimization marketing and sales. Our principal competitors in our web site
optimization business are Did-it.com and WebsiteResults.com, each of which may
have a longer operating history, a larger customer base, greater brand
recognition and may have greater financial, marketing and other resources than
we have. Our principal competitor in the pay-for-position search engine aspect
of our business is GoTo.com. We also compete against providers of web
directories and search and information services, such as those provided by
America Online, Excite, Yahoo and Alta Vista.
Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, certain of which may be larger
and have greater financial and other resources than we have. Competition for
these acquisition targets will likely also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition.
We have filed for one patent and have only a limited amount of other
proprietary technology that would preclude or inhibit competitors from entering
the paid listings market or the search engine optimization market.
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Therefore, we must rely on the skill of our personnel and the quality of our
client service. The costs to develop and provide e-commerce services are
relatively low. Therefore, we expect that we will continually face additional
competition from new entrants into the market in the future, and we are subject
to the risk that our employees may leave us and may start competing businesses,
notwithstanding non-competition agreements. The emergence of these enterprises
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We may not be able to adapt as the Internet, electronic commerce, Internet
advertising and customer demands continue to evolve.
We may not be able to adapt as the Internet, electronic commerce, Internet
advertising and consumer demands continue to evolve. Our failure to respond in a
timely manner to changing market conditions or client requirements would have a
material adverse effect on our business, prospects, financial condition and
results of operations. The Internet e-commerce and the Internet advertising
industry are characterized by:
- rapid technological change;
- changes in user and customer requirements and preferences;
- frequent new product and service introductions embodying new
technologies; and
- the emergence of new industry standards and practices that could
render proprietary technology and hardware and software
infrastructure obsolete.
Our success will depend, in part, on our ability to:
- enhance and improve the responsiveness and functionality of our
pay-for-position search engine;
- license or develop technologies useful in our business on a timely
basis, enhance our existing services and develop new services and
technology that address the increasingly sophisticated and varied
needs of our prospective or current customers; and
- respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
Internet security poses risks to our entire business.
The process of e-commerce aggregation by means of our hardware and
software infrastructure involves the transmission and analysis of confidential
and proprietary information of the advertiser, as well as our own confidential
and proprietary information. The compromise of our security or misappropriation
of proprietary information could have a material adverse effect on our business,
prospects, financial condition and results of operations. We rely on encryption
and authentication technology licensed from other companies to provide the
security and authentication necessary to effect secure Internet transmission of
confidential information, such as credit and other proprietary information.
Advances in computer capabilities, new discoveries in the field of cryptography
or other events or developments may result in a compromise or breach of the
technology used by us to protect client transaction data. Anyone who is able to
circumvent our security measures could misappropriate proprietary information or
cause material interruptions in our operations. We may be required to expend
significant capital and other resources to protect against security breaches or
to minimize problems caused by security breaches. To the extent that our
activities or the activities of others involve the storage and transmission of
proprietary information, security breaches could damage our reputation and
expose us to a risk of loss or litigation and possible liability. Our security
measures may not prevent security breaches. Our failure to prevent these
security breaches may have a material adverse effect on our business, prospects,
financial condition and results of operations.
Our future success will depend on continued growth in the use of the Internet.
Our future success will depend substantially upon continued growth in the
use of the Internet to support the sale of our advertising services and
acceptance of e-commerce transactions on the Internet. As this is a new and
rapidly evolving industry, the ultimate demand and market acceptance for
Internet-related services is subject to a high level of uncertainty. Significant
issues concerning the commercial use of the Internet and online services
technologies, including security, reliability, cost, ease of use and quality of
service remain unresolved and may
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inhibit the growth of Internet business solutions that utilize these
technologies. In addition, the Internet or other online services could lose
their viability due to delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet activity, or due
to increased governmental regulation. In the event that the use of the Internet
and other online services does not continue to grow or grows more slowly than we
expect, or the Internet does not become a commercially viable marketplace, our
business, prospects, financial condition and results of operations would be
materially adversely affected.
The market for our services is uncertain and is still evolving.
Internet marketing and advertising, in general, and advertising through
priority placement in an Internet search engine, in particular, are at early
stages of development, are evolving rapidly and are characterized by an
increasing number of market entrants. Our future revenues and any future profits
are substantially dependent upon the widespread acceptance and use of the
Internet and other online services as an effective medium of commerce by
merchants and consumers. Rapid growth in the use of, and interest in, the
Internet, the web, and online services is a recent phenomenon, and may not
continue on a lasting basis. In addition, customers may not adopt, and continue
to use, the Internet and other online services as a medium of commerce. The
demand and market acceptance for recently introduced services is generally
subject to a high level of uncertainty. Most potential advertisers have only
limited experience advertising on the Internet and have not devoted a
significant portion of their advertising expenditures to Internet advertising.
If this trend continues, the market for our existing services, which are
dependent upon increased Internet advertising, may be adversely affected, which
in turn will have a material adverse effect on our business, prospects,
financial condition or results of operations.
Our future success will depend upon the continued development and maintenance of
a viable Internet infrastructure.
Our future success depends upon the continued development and maintenance
of a viable Internet infrastructure to support the continued growth in Internet
use. The public in general may not accept the Internet and other online services
as a viable commercial marketplace for a number of reasons, including
potentially inadequate development of the necessary network infrastructure or
delayed development of enabling technologies and performance improvements. To
the extent that the Internet and other online retail and business to business
services continue to experience significant growth in the number of users, their
frequency of use or in their bandwidth requirements, the infrastructure for the
Internet and online services may be unable to support the demands placed upon
them. The maintenance and improvement of this infrastructure will require timely
development of products, such as high-speed modems and communications equipment,
to continue to provide reliable Internet access and improved content. Changes
in, or insufficient availability of, telecommunications services to support the
Internet or other online services also could result in slower response times and
adversely affect usage of the Internet and other online services generally and
our products and services in particular. If the infrastructure for the Internet
and other online services does not effectively support the growth that may
occur, our business, prospects, financial condition and results of operations
could be materially adversely affected.
We will need to keep pace with rapid technological change in the Internet search
and advertising industries.
In order to remain competitive, we will be required continually to enhance
and improve the functionality and features of our existing FindWhat.com search
engine and BeFirst.com service which could require us to invest significant
capital. If our competitors introduce new products and services embodying new
technologies, or if new industry standards and practices emerge, our existing
services, technology and systems may become obsolete and we may not have the
funds or technical know-how to upgrade our services, technology and systems. If
we face material delays in introducing new services, products and enhancements,
our users may forego the use of our services and select those of our
competitors, in which event, our business, prospects, financial condition and
results of operations could be materially adversely affected.
We will need to continue to understand and keep pace with search engine
technology.
The success of our BeFirst.com service depends on our ability to
understand search engine technology. Consequently, we will be required to remain
current with any new technologies used in search engines, in order to continue
to be able to provide our BeFirst.com service.
We use internally developed proprietary systems for our BeFirst.com
service. If we are unable to modify our systems to accommodate necessary changes
in search engine technology which effect optimization, the result could be
unanticipated disruptions, slower retail response times, impaired quality of
optimization, degradation in
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customer service and delays in reporting accurate financial information. These
events could result in a material adverse effect on our business, prospects,
financial condition and results of operations.
Regulatory and legal uncertainties could harm our business.
We are not currently subject to direct regulation by any government agency
other than laws or regulations applicable generally to e-commerce. Due to the
increasing popularity and use of the Internet and other online services,
federal, state and local governments may adopt laws and regulations, or amend
existing laws and regulations, with respect to the Internet or other online
services covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services. In 1998,
the United States Congress established the Advisory Committee on Electronic
Commerce which is charged with investigating, and making recommendations to
Congress regarding, the taxation of sales by means of the Internet. Furthermore,
the growth and development of the market for e-commerce may prompt calls for
more stringent consumer protection laws and impose additional burdens on
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our services and increase our cost
of doing business, or otherwise have a material adverse effect on our business,
prospects, financial condition and results of operations. Moreover, the relevant
governmental authorities have not resolved the applicability to the Internet and
other online services of existing laws in various jurisdictions governing issues
such as property ownership and personal privacy and it may take time to resolve
these issues definitively. Any new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Implementation of our FindWhat.com service and our BeFirst.com service for some
clients may infringe on intellectual property rights of others.
In implementing our FindWhat.com service and our BeFirst.com service, we
utilize promotional material generated by our clients and our editing staff to
promote web sites. In the past, third parties have advised that the use of
certain keywords in our FindWhat.com service and our search engine optimization
services have infringed on their intellectual property rights. Although the
terms and conditions of our services provide that our clients are responsible
for infringement of intellectual property rights of others arising out of
content on their web sites, if we become involved in disputes regarding
intellectual property, these claims could be time-consuming, expensive to defend
and could result in the diversion of our management's time and attention, which
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 under "Risk Factors" in this
prospectus.
In addition, in this prospectus, we use words such as "anticipates",
"believes", "plans", "expects", "future", "intends" and similar expressions 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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USE OF PROCEEDS
The proceeds from the sale of the shares offered by this prospectus will
be received directly by the selling stockholders. We will not receive any
proceeds from the sale of the shares. We may, however, receive the exercise
price for any warrants which are exercised by the selling stockholders not
utilizing the cashless exercise method. We will use any funds we receive for
general working capital purposes.
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PRICE RANGE OF COMMON STOCK
Effective April 10, 2000 our common stock began trading on the Nasdaq
SmallCap Market under the symbol "FWHT." From December 22, 1999 to April 7, 2000
our common stock traded on the OTC Bulletin Board under the symbol "FWHT." From
October 7, 1999 to December 21, 1999, our common stock appeared in the National
Quotation Bureau Inc.'s over-the-counter "pink sheets." From June 17, 1999 until
October 7, 1999, our common stock traded on the OTC Bulletin Board under the
symbol "FWHT." Prior to June 17, 1999, our common stock was listed under the
symbol "CAMJ" and traded infrequently. The following table sets forth the high
and low sales prices of our common stock for the periods indicated as reported
by the Nasdaq SmallCap Market, the OTC Bulletin Board or the National Quotation
Bureau Inc.'s over-the-counter "pink-sheets":
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ----
<S> <C> <C>
March 31, 2001 (through January 17, 2001)......................................... $ 1.00 $ 0.593
December 31, 2000 ................................................................ $ 2.5625 $ 0.375
September 30, 2000................................................................ $ 3.75 $ 1.50
June 30, 2000..................................................................... $ 10.75 $ 2.00
March 31, 2000.................................................................... $ 18.25 $ 5.375
December 31, 1999................................................................. $ 9.25 $ 3.875
September 30, 1999................................................................ $ 8.50 $ 3.00
June 30, 1999 (beginning June 17, 1999)........................................... $ 7.25 $ 5.00
</TABLE>
Such prices reflect inter-dealer quotations, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
On January 8, 2001, the last reported sale price of our common stock on
the Nasdaq SmallCap Market was $0.75 per share. The number of record holders of
our common stock was 161 as of December 31, 2000.
DIVIDEND POLICY
We currently do not anticipate paying cash dividends on our common stock
at any time in the near future. We may never pay cash dividends or distributions
on our common stock. Any credit agreements which we may enter into with
institutional lenders may restrict our ability to pay dividends. Whether we pay
cash dividends in the future will be at the discretion of our board of directors
and will be dependent upon our financial condition, results of operations,
capital requirements and any other factors that the board of directors decides
is relevant.
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DETERMINATION OF OFFERING PRICE
The common stock offered by this prospectus may be offered by the selling
stockholders from time to time in transactions reported on the NASDAQ SmallCap
Market, in negotiated transactions, or otherwise, or by a combination of these
methods, at fixed prices which may be changed, at market prices at the time of
sale, at prices related to market prices or at negotiated prices. As such, the
offering price is indeterminate as of the date of this prospectus. See "Plan of
Distribution."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
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.
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM INCEPTION (MARCH 27, 1998) TO
DECEMBER 31, 1998
Revenue
Revenue for the year ended December 31, 1999 increased to $451,509
compared to $58,818 for the period from inception (March 27, 1998) to December
31, 1998 as a result of growth in demand for our BeFirst.com service. Revenue
from the FindWhat.com search engine was immaterial in 1999. We expect that
FindWhat.com search listing paid click-through revenue and banner advertisement
revenue 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, providing the BeFirst.com service, fees paid to
outside service providers like Inktomi that provide our unpaid listings, 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 and web site domain
registration expenses for clients. Cost of revenues increased to $394,402 for
the year ended December 31, 1999 from $36,837 for the period from inception
(March 27, 1998) to December 31, 1998. The increase was primarily due to the
launch of the FindWhat.com search engine in September 1999 and the growth of our
BeFirst.com service, including an increase in personnel associated with
providing the BeFirst.com service. 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:
- 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 industry
seminars,
- revenue-sharing or other arrangements with our FindWhat.com
affiliates,
- fees to an affiliate which provided our sales force and other
marketing services in 1999,
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- 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 certain sales personnel salaries, most of our sales and
marketing expenses relate to the FindWhat.com search engine.
Advertising expenditures include campaigns for the FindWhat.com search
engine in New York City and Los Angeles on local radio stations and billboards
paid for with cash, as well as transactions in which we have exchanged shares of
our restricted common stock for advertising. In November 1999, we issued 41,750
shares of common stock in exchange for outdoor advertising. The term of the
contract was four months, and we recorded $40,445 in non-cash advertising
charges for the year ended December 31, 1999. The remainder of $121,335 was
deferred and will be expensed over the term of the contract. In January 2000, we
announced an equity investment by Beasley Broadcast Group, Inc., a national
radio broadcasting company. We sold 600,000 shares of common stock, representing
approximately 4.8% of our then outstanding capital stock, in exchange for $3.0
million, reflected by a promissory note. The outstanding amount due under the
promissory note may be offset by the purchase price of advertisements placed by
us on Beasley's radio stations, as well as online links and promotions across
Beasley's media properties. We will record a non-cash advertising charge of
$4,425,000 over the two-year term of the contract.
Promotional expenditures include the Search & Win $1 million Internet
sweepstakes game on our search engine web site, which began on December 16,
1999.
Our agreements with affiliate web sites take different formats. Some
agreements with web sites provide that we pay these web sites to direct traffic
to our FindWhat.com search engine through online links placed on their sites or
banner advertisements promoting our search engine on their sites. In addition,
we have revenue-sharing agreements with affiliate web sites which integrate our
search results into their web sites. The results are displayed without requiring
a web surfer to leave the affiliate's web site. We also have revenue-sharing
contracts with web sites called meta-search engines which list our search
results together with results from other search engines. These contracts provide
that our search results are included in the aggregated search offerings on these
sites. These contracts with other web sites are typically short term, generally
expiring within a year or less. Our costs for traffic under these contracts vary
widely and are generally incurred on a click-through basis where we pay for each
consumer who clicks through to our service, or where we share the click-through
revenue we derive from a consumer who clicks through directly to one of our
advertiser's web sites.
Our sales and marketing expense was $369,086 for the year ended December
31, 1999. We did not incur any sales and marketing expense prior to 1999. Our
1999 sales and marketing expense was related primarily to the launch of the
FindWhat.com search engine in September 1999 and increased sales efforts related
to our BeFirst.com service. 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. We believe
that continued investment in sales and marketing, including attracting consumers
and advertisers to utilize the FindWhat.com search engine, is critical to
attaining our strategic objectives and as a result, 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; facilities; insurance; professional services, including consulting,
legal, and accounting fees; expenses and fees associated with the reporting and
other obligations of a public company; travel and other general corporate
expenses, as well as fees to affiliates which provide office space and other
general and administrative services. Until July 1, 1999, our Chairman, Chief
Executive Officer, and President/Chief Technology Officer did not receive
salaries. General and administrative expenses increased to $1,472,287 for the
year ended December 31, 1999 from $44,146 for the period from inception (March
27, 1998) to December 31, 1998. These increases were primarily due to increases
in administrative headcount and related expenses associated with the hiring of
personnel, increased professional services, increased services provided by our
affiliates, executive officer salaries, which were not incurred prior to July 1,
1999, and costs associated with being a public company beginning in June 1999,
including the cost of directors' and officers' liability insurance expense. In
December 1999, we issued options for the purchase of 68,750 shares of common
stock to an investor public relations firm. The term of the contract was five
and one-half months, and we recorded $36,094 in non-cash general and
administrative charges for the year ended December 31, 1999. The remainder of
$108,281 was deferred and will be expensed over the term of the contract. We
expect general and administrative expenses to continue to increase as
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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 BeFirst.com and FindWhat.com services,
license fees for software used in product development and depreciation for
related equipment, and consulting fees to a technical consultant. Product
development increased to $54,058 for the year ended December 31, 1999 from
$45,000 for the period from inception (March 27, 1998) to December 31, 1998, as
a result of technical consulting services related to the development of the
FindWhat.com search engine and offset by a slight decrease in compensation
expense. In November 1999, we issued 50,000 shares of common stock to a
technical consultant, who became a member of our Board of Directors in December
1999. The term of the contract is for one year, and we recorded $15,625 in
non-cash technical consulting charges for the year ended December 31, 1999. The
remainder of $171,875 was deferred and will be expensed over the term of the
contract. 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.
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 $48,657 for the year ended December 31, 1999. We
did not earn any interest income or incur any interest expense prior to 1999.
Our 1999 interest income was primarily due to an increase in our average cash
and cash equivalent balances following the receipt of funds from our June 1999
private placement of common stock.
Net Loss
As a result of the factors described above, our net loss increased to
$1,789,667 for the year ended December 31, 1999 from $67,165 for the period from
inception (March 27, 1998) to December 31, 1998.
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.
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BUSINESS
OVERVIEW
We are a developer and marketer of performance-based advertising services
for the Internet. Our clients pay us for each consumer we deliver to their web
sites. Currently, we offer two proprietary services: FindWhat.com, a
pay-for-position search engine and BeFirst.com, a search engine optimization
service. Our focus is to:
- drive qualified traffic to Internet web sites, and
- 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 goods and services.
The FindWhat.com search engine allows Internet users to enter a word,
phrase or plain english query describing what they want to locate on the
Internet. Our search engine then displays a selection of web sites related to
that query. Advertisers can determine exactly where on the results page their
web site link will appear for any given query. This is accomplished 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. The highest
bidder receives the first listing with all other bidders listed in descending
bid order. We have entered into relationships with Go2Net, LinkShare
Corporation, Beasley Broadcasting and Inktomi.
Our 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. Our banner advertising revenue is earned
under the terms of our contractual arrangements with advertisers or advertising
agencies.
Our BeFirst.com service, known as "search engine optimization," assists
web sites to achieve higher placements on search results on over 300 third-party
search engines. We are able to achieve this for our clients through our
understanding of search engine algorithms and constant monitoring of search
engine behavior. Our BeFirst.com service enhances the probability that our
clients' web sites will appear in search results served in response to a
consumer's inquiry on a particular keyword, as well as being placed higher in
the ranking in the search results. Our BeFirst.com service currently derives
revenue from two sources: set-up fees charged to new clients and a
per-click-through charge for each consumer the service generates for a client's
web site. Our BeFirst.com 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 in exchange for our issuance of 8,750,000 shares of our common
stock. As a result of the 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. In September 1999, we changed our corporate name
to FindWhat.com. At the time of our acquisition of BeFirst Internet Corporation,
it had been in the business of developing and offering web site optimization
services to Internet advertisers.
INDUSTRY OVERVIEW
Use of the Internet and online advertising expenditures are experiencing
rapid growth, especially performance-based advertising. Forrester Research
predicts that performance-based online advertising spending in the United States
will increase from an estimated $421 million, or 15% of total United States
online advertising spending, in 1999 to an estimated $11.8 billion, or over 50%
of total United States online advertising spending, in 2004. Internet
advertisers rely on web sites providing web directories or "search engines" as
one of the means of supplying an audience for their web sites and advertising
messages. These search engines enable consumers to search the Internet for a
listing of web sites matching a descriptive word or phrase and offer advertisers
exposure to the Internet audience. In order to attract and keep users, many of
these search engines have evolved into "portals" that deliver a vast array of
content and services.
Internet user's unmet search requirements. Portals attempt to increase the
number of page views per visit and the duration of visits to their sites in
order to maximize graphical advertising opportunities. Increasing the length
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of time a visitor spends on the portal's web site creates a conflict of interest
between the consumer's desire to find what they are looking for in a quick and
efficient manner, and the objectives of the portal. Additionally, the process
for assigning results to user queries by traditional search engines may generate
irrelevant results. Search engines that use technology based on invisible or
descriptive tags are prone to post irrelevant and unassociated results because
web site operators are free to tag their sites with irrelevant search terms to
attract additional customer attention at low cost.
Ineffectiveness of traditional Internet advertising. Traditional Internet
advertising primarily is in the form of banner or sponsorship advertising, which
is typically priced with advertisers paying for viewers. Advertising with
portals is typically expensive and available only to relatively large
advertisers, which limits the number of Internet advertising opportunities. We
believe the pay-per-view model does not efficiently exploit the advertising
potential and accountability of the Internet because advertisers are paying for
viewers who may not be interested in their products or services. We believe that
over time, advertisers will increasingly shift their online advertising
expenditures toward the pay-for-performance model.
Lack of convergence between effective e-commerce and search engines. We
believe that there is increasing frustration and discontent among consumers
concerning the lack of comprehensive information regarding offers of consumer
products and services by existing Internet search engines. Additionally, we
believe that advertisers are looking for alternatives to traditional Internet
advertising. This presents a market opportunity for the FindWhat.com search
engine, which is designed as an e-commerce aggregator to improve the consumer
search experience and more efficiently link advertisers with their target
consumers.
THE FINDWHAT.COM SOLUTION
FindWhat.com
FindWhat.com is designed as an e-commerce aggregator to improve the
consumer search experience and link advertisers and consumers. We distinguish
the FindWhat.com search engine from the "portal" search engine model - used by
such sites as AltaVista, Excite, and Yahoo - by presenting an extremely clean,
uncluttered interface. Unlike portals, which seek to keep consumers within their
web site and have multiple graphical advertisements, our search result pages
load quickly and consist of a list of 25 results per page. The top results for
any keyword search are those companies that are most likely to have what the
consumer wants to find. Consequently, we believe our FindWhat.com search engine
offers consumers fast, simple and direct search results. By eliminating
extraneous content and advertising, we eliminate a portal's inherent conflict
between assisting consumers to locate relevant information and attempting to
keep them within the portal's web site. Like the Yellow Pages, the FindWhat.com
search engine is a commercial search tool for people or businesses that are
actively looking for information or for goods or services to purchase.
THE FINDWHAT.COM SEARCH ENGINE
Search results on the FindWhat.com search engine are rank-ordered through
a competitive bidding process in which each advertiser's bid represents the
amount it will pay us for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending order. Because advertisers must pay for each
click-through to their web site, we believe that they select and bid only on
those search words or phrases which are most relevant to their business
offerings. We also employ editors and an automated editing program to insure
that advertisers do not bid on irrelevant keywords.
BENEFITS FOR CONSUMERS
A better search result. We believe that the pay-for-performance model
delivers a better and more relevant search result to Internet consumers, because
companies actively promoting and selling the desired goods and services are
positioned first in the results listings.
A robust database. As of December 31, 2000, more than 11,500 Web site
publishers and their advertising agencies have opened accounts with us and have
placed over 9 million bids on search keywords or key phrases. Additionally, not
only do our search results deliver web sites that bid for position, the search
is supplemented by Inktomi's robust database. Inktomi is an independent supplier
that is not allied with any one search engine or portal.
Ease of use. The FindWhat.com search engine focuses on delivering an
easy-to-use, uncluttered interface that delivers a faster response with less
confusion. The FindWhat.com site is particularly easy to navigate for the novice
web user.
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BENEFITS TO ADVERTISERS
Delivery of the target market. The FindWhat.com pay-for-performance search
engine enables marketers to target their message directly at the consumers who
are shopping for products or services in their category. They accomplish this
precise targeting of qualified prospects by paying to reach consumers who have
typed in keywords or phrases that relate to their product and service offerings.
Control. The advertiser maintains control over their listing in the
FindWhat.com search results. Our clients can access their account and change or
edit their company or product description at any time. We believe this
capability is particularly useful to advertisers when they are running
promotions or are featuring certain seasonal or holiday items or services.
Ease of use. The FindWhat.com search engine advertiser interface is easy
to access and use. Advertisers can establish an account directly online with no
human intervention, or they can access a customer service representative via
e-mail or a toll-free number.
Reasonable start-up costs. Barriers to opening an account with the
FindWhat.com search engine are low. Any company with a web site can utilize the
FindWhat.com search engine. Participation in the system requires a minimum bid
deposit of $25. The account is then charged for each consumer who clicks through
to the bidder's web site. The minimum starting bid for a specific keyword search
result is $0.01.
Efficiency and accountability. The FindWhat.com search engine brings
efficiency and accountability to the purchase of Internet advertising and
addresses what we believe is the most common objection marketers have when
considering any advertising expenditure - knowing what they are getting for
their money. Advertisers can pick all of the keywords that are relevant to their
business, bidding the most for those that are most relevant and bidding less for
those that are more distantly related to their core products.
Pay for performance only. With the FindWhat.com search engine, advertisers
are confident that they are not wasting their advertising dollars because they
pay only for the prospects who come to their site. We believe the pay-per-click
model delivers exactly the type of accountability advertisers are seeking.
Evaluation. With our open automated bidding system, advertisers can
evaluate the value of paying for a premium position. The search results page
shows advertisers what their competitors are bidding for their positions and
allows them to make competing bids. The bidding for key words is automated in
real time, so that results are instantaneous.
POPULAR CATEGORY KEY WORD BIDS
We also offer advertisers the opportunity to bid on popular category
keywords on our FindWhat.com search engine. These popular category topics
present quick access choices for consumers who have not refined their search
enough to type in a keyword that defines a narrow topic.
BANNER ADVERTISING ON FINDWHAT.COM
In addition to the pay-for-performance bidding system, we offer
opportunities to advertisers to buy traditional banner ad placements.
Advertisers can choose from highly targeted placements, based on major search
categories like travel or music, or run-of-site banners. Keyword-specific
banners and run-of-site banners appear at the top of the search result pages and
at the top of the information pages. There is no paid advertising on the
FindWhat.com home page.
BeFirst.com
Another service we offer to meet the needs of Internet e-commerce
businesses is our BeFirst.com service, known as "search engine optimization,"
which assists web sites to achieve placement in search results on over 300
third-party search engines. The purpose of our BeFirst.com service is to
increase the volume of traffic relevant to each client's business by enhancing
the probability that our clients' web sites will appear in search results served
in response to a consumer's inquiry on a particular keyword, as well as being
placed higher in the ranking in such search results.
In providing search engine optimization services, our technical staff
analyzes the client's web site, including its main goals and objectives. We then
focus on enhancing the probability that the web site will appear in a list of
results in response to a consumer's inquiry on a number of popular search
engines.
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The goal is a higher ranking on the search results list. The methods we
use for a particular client might include providing suggestions as to how source
codes in a client's web site should be restructured or modified to increase
relevancy rankings. Additionally, we may create a new web site consisting of the
client's desired promotional information which we submit to search engines. When
a user clicks on a listing based on the web site created by us, the user is
automatically forwarded to the client's main web site.
We believe that our BeFirst.com search engine optimization service is
unique because each client's objectives are assessed on an individual basis,
generating customized programs in an industry where standard "one size fits all"
models typically prevail. Moreover, our BeFirst.com service seeks to optimize a
client's site on up to 300 search engines, directories and online yellow pages,
while other search optimization services generally limit their optimization
techniques to a smaller number of search engines. Our BeFirst.com clients
include eBay and Avenue A. A significant portion of our BeFirst.com service
revenue has been derived from one customer, Ebay. As a result, our net sales are
concentrated and this customer accounted for approximately 30% of our revenue in
1999 and 10% of our revenue in the first six months of 2000. We expect that we
will continue to be dependent upon this customer for a significant portion of
our BeFirst.com service revenue in the future.
STRATEGY
INCREASE NUMBER OF ADVERTISERS
We recruit advertisers to utilize our services primarily through direct
sales efforts. Our sales staff targets e-commerce businesses and advertisers who
they locate through online and offline research. Our sales staff usually
contacts potential advertisers directly, utilizing telemarketing and e-mail. If
warranted, our sales staff makes personal sales calls. Additionally, we sponsor
trade shows in which we believe potential advertisers will be exposed to our
services.
INCREASE TRAFFIC
Affiliate partnerships. Our online affiliate partnerships enable us to
link our advertisers to consumers who may not otherwise use the FindWhat.com
search engine. We have agreements with Go2Net, and several other meta-search
engines to include our search listings on their web sites. We also plan to
develop affiliate relationships with other heavily trafficked sites, browsers,
community portals and Internet service providers. Central to our Internet-based
marketing is an additional affiliate program that allows other web sites to
place the FindWhat.com search interface on their web pages in the form of small
boxes or banners. This affiliate program drives traffic to the FindWhat.com site
and also functions as an online branding program, by placing the FindWhat.com
logo on numerous sites around the web. Affiliates generate revenue either on a
per search basis or through revenue sharing on paid click-throughs.
Traditional media strategies. We utilize traditional media strategies to
generate unique users for the FindWhat.com search engine. To build brand
awareness with consumers and drive traffic to the FindWhat.com web site, we use
offline media including: public relations, telemarketing, radio and outdoor
advertising in key markets. We believe offline media has proven to be highly
effective for online media companies. Our online advertising includes targeted
e-mail, banners and our affiliate program. See "Sales and Marketing."
INCREASE REVENUE
Our objective is to expand advertiser participation and increase business
and consumer transactions through our FindWhat.com search engine. We believe
that if we build a solid foundation of active bidders and users, we will
stimulate growth which should increase the efficiency of our service. A large
and active base of advertisers will enable us to generate more relevant search
results for consumers, which in turn should increase the number of consumers
utilizing our services and clicking through on bidded results.
SALES & MARKETING
Our sales and marketing efforts are coordinated from our New York and Los
Angeles offices. We currently employ seven full-time sales representatives. All
of our representatives are compensated with salaries and performance-based
bonuses. Our representatives report to supervisors and have direct communication
with our Chief Executive Officer, who oversees our sales and marketing efforts.
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CONSUMER AND BUSINESS USERS
We target online consumers who are actively shopping for goods and
services or looking for information. To build brand awareness with consumers and
drive traffic to the FindWhat.com web site, we use offline media including:
public relations, telemarketing, radio and outdoor advertising in key markets.
We believe offline media has proven to be highly effective for online media
companies. Our online advertising includes targeted e-mail, banners and the
affiliate program.
- Radio: Radio is our primary consumer advertising vehicle. By
focusing on delivering the media message by region, we are
attempting to create the perception that FindWhat.com is a major
online presence in the selected market. We believe that radio is a
highly effective medium for reaching Internet users.
- Outdoor Advertising: We have run outdoor (billboard) campaigns in
New York and Los Angeles in selected high traffic locations. We
intend to continue our outdoor campaigns as we believe that outdoor
advertising represents a highly effective medium for branding the
FindWhat.com search engine.
- Online Advertising: We operate an online banner campaign to promote
FindWhat.com and our million dollar sweepstakes, featuring a "search
and win" promotion.
- Million Dollar Sweepstakes: Starting December 1999, we implemented a
daily million dollar sweepstakes. Registered consumers have a chance
to win $1 million in a daily online sweepstakes. We believe the
million dollar sweepstakes provides an incentive to visit and
experience the FindWhat.com search engine repeatedly. A personalized
e-mail greeting welcomes consumers back each time. The sweepstakes
has been arranged through a third party provider that guarantees
payment of the sweepstakes prize.
- Public Relations: We have engaged the services of a public relations
firm to exploit our contests and other media activities.
ADVERTISERS
FindWhat.com search engine
We believe businesses that become FindWhat.com search engine advertisers
are those who are particularly interested in taking advantage of the growth of
e-commerce by driving motivated consumers to their web sites. Our program to
attract advertising clients includes:
- Direct sales: Our sales staff targets companies with highly visible
web-based promotional programs and advertisers who are using
competitive services.
- Business-oriented advertising: Because the barriers to opening an
account with the FindWhat.com search engine service are low,
virtually any company with a web site can use our service. To reach
this larger market, we have supplemented our direct-sales program
with an advertising campaign in business-oriented media.
- Online promotion: Our online promotional program includes banner
advertisements and preferred placement on search engines.
- Trade Shows: We participate and sponsor industry trade shows, such
as the Internet Search Engine Expo held in San Francisco in November
1999 and in New York in March 2000. We intend to participate in
additional trade shows that attract advertisers and affiliates
throughout the year.
- Customer service: To eliminate any perceived barriers to doing
business with us, we attempt to deliver excellent customer service.
We believe that superior customer service adds an extra level of
value.
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BEFIRST.COM
To obtain advertising clients for our BeFirst.com service, our sales force
uses direct phone and Internet selling to a target client list culled from the
large number of advertisers placing banner advertising on the top search service
web sites as well as smaller advertisers placing advertisements on more targeted
web sites. We anticipate that we will hire additional sales staff in order to
increase the direct queries made to potential clients. We also intend to retain
additional personnel or hire third party contractors to assist in data entry and
technical aspects of our service so that we may service an increased client
base.
REVENUE MODEL
We generate revenue from:
- paid click-throughs on the FindWhat.com search engine,
- banner advertising on the FindWhat.com search results pages,
- set-up fees on our BeFirst.com service, and
- click-through fees for BeFirst.com service.
FindWhat.com search listing paid click-throughs.
Our 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. Paid click-through revenue is 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 advertising.
Our banner advertising revenue is earned under the terms of our
contractual arrangements with the advertiser or advertising agency, which
generally provide for a fee for each click-thru on the banner advertisement.
BeFirst.com set-up fees.
We charge each new client a one-time fee for the search engine
optimization services to be performed by us for that client.
BeFirst.com click-through fees.
Click-through rates are negotiated and generally vary based on the
client's industry and the frequency with which words or phrases related to that
industry are searched. The negotiated click-through rate is applied to the
actual number of consumers clicking on the various search engine placements
established by the BeFirst.com service on behalf of a client.
CUSTOMERS
The FindWhat.com search engine had more than 11,500 accounts opened as of
December 31, 2000. With an open automated bidding system, advertisers can
evaluate the value to their company of paying for a premium position. They can
see listed on the search results page exactly what their competitors are bidding
for their positions and can outbid them, if they like. The auction is automated
in real time, so results are instantaneous.
KEY RELATIONSHIPS
Inktomi. We have an agreement with Inktomi Corporation, a data information
provider, to provide supplemental search results for the FindWhat.com search
engine so that consumers will receive comprehensive search results in response
to their search queries. Utilizing Inktomi's database of web sites, we can
display search results in addition to the listings paid for by our advertisers.
Go2Net, Inc. We have entered into an agreement with Go2Net, Inc. to post
our search results on their Dogpile and MetaCrawler meta-search services. Go2Net
is one of the Internet's leading networks, providing consumer services, business
services and enabling services. Go2Net offers through the world wide web a
network of branded properties and aggregated content in the categories of search
and directory, personal finance, multi-player games, small business services and
e-commerce solutions. Pursuant to our agreement, we issued Go2Net a warrant
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to purchase 725,000 shares of our common stock, which has subsequently been
adjusted pursuant to anti-dilution provisions to 804,459 shares.
LinkShare. We launched an affiliate marketing program with LinkShare
Corporation (www.linkshare.com) in early December 1999. This program offers web
sites that are members of the LinkShare Network an opportunity to offer a link
on their sites to our FindWhat.com search engine. LinkShare manages a network
where merchants and affiliates may create an online marketplace, refer customers
to each other, and place a value on that traffic.
Beasley Broadcasting Group, Inc. We sold 600,000 shares of common stock to
Beasley for $3.0 million, reflected by a promissory note. The outstanding amount
due under the promissory note may be offset by the purchase price of
advertisements placed by us on Beasley's radio stations, as well as online links
and promotions across Beasley's media properties. After giving effect to
Beasley's pending acquisitions in New Orleans and Las Vegas, Beasley will own
and operate stations in eleven markets in the United States. These markets
include Atlanta, Philadelphia, Boston and Miami-Ft. Lauderdale.
COMPETITION
FindWhat.com
We compete with portals, pure search engines, and pay-for-performance
search engines.
- Portals
- Yahoo! - AOL - GO - iWon
- Excite - MSN - AltaVista - About
- Netscape - Lycos - Snap
- Pure search engines
- Google - Northern Light - LookSmart
- DirectHits - HotBot - WebCrawler
- Pay-for-performance search engines
- GoTo - RocketLinks
- Sprinks - Kanoodle
In addition, other companies may offer directly competing services in the
future. Most providers of web directories, search engines and information
services offer additional features and content that we have elected not to
offer. We also compete with traditional off-line media such as television, radio
and print for a share of advertising budgets.
BEFIRST.COM
We compete on the basis of our ability to anticipate changes in search
engine technologies. We also seek to optimize our client's web sites for up to
300 search engines, directories and on-line "yellow pages," while we believe
that our competitors typically focus on only the top 10 search engines.
Since the advent of search engine optimization services on the Internet,
the number of companies offering such services has proliferated due to, among
other reasons, the absence of substantial barriers to entry. This competition
may continue to intensify. Such increased competition may lead to reductions in
market prices for search engine optimization marketing and sales.
While we do not believe that any one competitor or group of competitors is
dominant in the search engine optimization business, our principal competitors
are:
- Did-it.com
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- WebsiteResult.com
Most of our current and potential competitors for our FindWhat.com search
engine and our BeFirst.com service have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we have. These competitors may be able to
respond more quickly to new or emerging technologies and changes in search
engine requirements and to devote greater resources to the development,
promotion and sale of their services than we can. Accordingly, we may not be
able to compete successfully against our current or future competitors.
TECHNOLOGY AND OPERATIONS
We believe high traffic Internet search engines / portals require a fast,
reliable and secure infrastructure that can be easily expanded to maintain
acceptable response times under the stress of growth. However, most new
companies operate under considerable resource constraints that usually hinder
the construction of networks that are fast, reliable and secure. We believe that
while we have operated under the constraints of a new company, we have managed
to create an infrastructure that provides us with a platform from which to grow
our business.
We believe our current infrastructure and operating environment are
suitably sized and designed to give consumers, advertisers and affiliates a
positive feeling about their interaction with the FindWhat.com site. The
physical components of our infrastructure are comprised of equipment made by
industry-leading manufacturers including Cisco and Intel. The software being
used to power the FindWhat.com site is a combination of industry standard
commercial software and our internally developed proprietary software. We
believe that given the solid mix of industry standard equipment and software we
are positioned to sustain the effects of considerable growth.
We have provided for FindWhat.com web site backup services through
mica.net (Michigan Internet Communication Association). We believe we have the
necessary co-located hardware at mica.net to replicate the FindWhat.com web site
should an interruption of service at our primary facility occur. This equipment
includes servers that could be used to replicate web servers, DNS servers and
Database servers.
In February 2000 we introduced a new technology called F.A.S.T. (FindWhat
Advanced Search Technology.) F.A.S.T. is designed to read most simple plain
English queries and, utilizing programmed intelligence, deliver relevant search
results from the FindWhat.com proprietary database. F.A.S.T. was implemented to
deliver more refined search results to FindWhat.com users and to give
FindWhat.com advertisers more site traffic. F.A.S.T. processes what the
Findwhat.com user queries, then interprets the query based on intelligence
programmed into the FindWhat.com system. F.A.S.T. interprets the query by
comparing it to keywords purchased by advertisers and delivers what we believe
will be a relevant outcome for the user.
Early in our development, we placed a firewall between the outside world
and our service. As currently configured, our firewall provides the ability to
block out any traffic that is not required to operate the FindWhat.com web
service.
INTELLECTUAL PROPERTY
We have pending United States federal applications with the Patent and
Trademark Office for the marks F.A.S.T.(SM), SEARCH & WIN(SM), A BETTER SEARCH
RESULT(SM), PAY FOR PLACEMENT(SM), FIND WHAT YOU'RE LOOKING FOR(SM), and
FINDWHAT.COM(SM), as well as a Federal Registration for BE1ST(R). In addition,
we use and have common law rights in the mark "FindWhat Advanced Search
Technology." In February 2000, we filed a patent application for our
FindWhat.com search engine with the U.S. Patent and Trademark Office. This
application is currently pending.
While we rely on trade secrets and confidentiality provisions to protect
our intellectual property, we also use a license from Inktomi as well as
standard licenses contained in software we use, such as software supplied by
Microsoft, in offering our web site search engine.
We are not dependent on any third-party technology or service mark
licenses in connection with our search engine optimization business. However, we
do rely upon common law trade secrets, proprietary technology and
confidentiality principles to protect our intellectual property rights.
We have adopted a policy of requiring our employees and consultants to
execute confidentiality agreements when they commence employment or are employed
by us. These agreements generally provide that all confidential information
developed or made known to employees and consultants during the course of their
relationship with us
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is not to be disclosed to third parties, except under specific circumstances
described in these agreements. In the case of employees, the agreements provide
that inventions conceived by employees in the course of employment will be our
exclusive property.
The material risks associated with our intellectual property rights are
discussed above under "Risk Factors."
REGULATIONS
Governmental Regulations
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to, or commerce
on, the Internet. However, due to the increasing popularity and use of the
Internet, it is possible that various laws and regulations may be adopted with
respect to the Internet, covering issues such as taxation, user privacy and
characteristics and quality of products and services. In 1998, the United States
Congress established the Advisory Committee on Electronic Commerce which is
charged with investigating and making recommendations to Congress regarding the
taxation of sales by means of the Internet. The adoption of any such laws or
regulations upon the recommendation of this Advisory Committee or otherwise may
decrease the growth of the Internet, which could in turn decrease the demand for
our products or services, our cost of doing business or otherwise have an
adverse effect on our business, prospectus, financial condition, or results of
operations. Moreover, the applicability to the Internet of existing laws
governing issues, such as property ownership, libel and personal privacy is
uncertain. Future federal or state legislation or regulations could have a
material adverse effect on our business, prospects, financial conditions and
results of operations.
FACILITIES
We have an executive, administrative and sales office in New York City, an
executive and marketing office in Los Angeles and an executive, administrative
and technical facility in Fort Myers, Florida.
EMPLOYEES
We currently have approximately 47 employees, including our executive
officers. We have approximately fourteen employees in sales and marketing,
twenty-four in technical and customer service, five in administration and four
executive officers. In addition, WPI Advertising, an affiliate of one of our
executive officers, currently supplies us with certain services, including
office space and additional staff support.
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MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, their ages, and their positions with
us are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Courtney P. Jones...................... 41 Chairman of Board of Directors and a Director
Craig A. Pisaris-Henderson............. 31 President, Chief Technology Officer, Secretary and a
Director
Robert D. Brahms....................... 42 Chief Executive Officer, Treasurer and a Director
Phillip R. Thune....................... 30 Chief Operating Officer and Chief Financial Officer
Peter Neumann.......................... 36 Vice President-Business Development
Lee S. Simonson........................ 51 Director
David M. Medinis....................... 42 Director
Kenneth E. Christensen................. 44 Director
Martin Berger.......................... 41 Director
</TABLE>
The following is certain summary information with respect to the directors
and executive officers of FindWhat.com.
Courtney P. Jones has served as our Chairman of the Board of Directors and
as one of our directors since we acquired BeFirst Internet Corporation in June
1999. Prior to that time, he served as the President and as a director of
BeFirst, which is now our wholly-owned subsidiary, from its inception in March
1998. From November 1993 through February 2000, he served as President and a
director of V-Lite Video Corporation, a direct marketing production and
distributing company.
Craig A. Pisaris-Henderson has served as our President, Secretary and
Chief Technology Officer and as one of our directors since we acquired BeFirst
Internet Corporation in June 1999. Prior to that time he served as the Vice
President and Secretary and a director of BeFirst from its inception in March
1998. He served as President and Chief Executive Officer of Internet Services
International, Inc. and its predecessor, H.E. Internet Services (founded under
the name Henderson Enterprises) from 1993 to May 1999. Since May 1999, he has
served as Chairman of the Board of Directors, President and Chief Executive
Officer of E-troop.com., a provider of business-to-business multimedia Internet
content, web site design and distribution services.
Robert D. Brahms has served as our Chief Executive Officer and Treasurer
and as one of our directors since we acquired BeFirst in June 1999. Prior to
that time, he served as a Vice President and Treasurer and as a director of
BeFirst Internet Corporation from its inception in May 1998. Mr. Brahms has
served as the President, Chief Executive Officer and director of WPI Advertising
since it was founded in 1986. WPI is a general advertising firm and sales
representative firm for other advertising media, including print and Internet.
Phillip R. Thune has served as our Chief Operating Officer since November
28, 2000 and as our Chief Financial Officer since April 2000. From 1996 to April
2000, he served as the Chief Financial Officer and a Director of Broadcasting
Partners Holdings, L.P., which had controlling equity positions in five platform
companies operating 38 radio stations in eleven markets. The stations were sold
to Citadel Communications Corporation in April 2000. Prior to Broadcasting
Partners Holdings, Mr. Thune worked in the Media & Communications group of Alex
Brown & Sons' investment banking division, and was Vice President of Corporate
Development and Strategic Planning for Broadcasting Partners, Inc., a publicly
traded radio broadcasting company that merged with AMFM, Inc. (formerly
Evergreen Media) in 1995.
Peter Neumann has served as our Vice President - Marketing since April
2000. From August 1999 to April 2000, Mr. Neumann served as the Manager Business
Development Search and Directory of Go2Net, Inc., a leading Internet network
which provides consumer services, business services and enabling services. Prior
to joining Go2Net, Inc. and beginning in February 1997, Mr. Neumann was in sales
for Design Intelligence, a software development publishing company. From
February 1995 to February 1997, Mr. Neumann served as the Manager and Chef of
Vicino Bistro in Seattle, Washington.
David M. Medinis has served as one of our directors since December 1999.
Mr. Medinis has been an independent consultant since January 2001. Prior to
January 2001, he served as President of Monitor Systems, Inc., an enterprise
resource planning and e-commerce software company primarily serving the
automotive industry, since 1989.
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Lee S. Simonson is an independent consultant. From 1996 to April 2000, he
served as Chairman and Chief Executive Officer of Broadcasting Partners
Holdings, L.P., which had controlling equity positions in five platform
companies operating 38 radio stations in eleven markets. The stations were sold
to Citadel Communications Corporation in April 2000. Prior to Broadcasting
Partners Holdings, Mr. Simonson was co-founder, and served as Vice Chairman and
Chief Operating Officer, of Broadcasting Partners, Inc., a publicly traded radio
broadcasting company that merged with AMFM, Inc. (formerly Evergreen Media) in
1995.
Kenneth E. Christensen has been an independent consultant since January
2001. Prior to January 2001, he was the Vice President/General Manager of Viacom
Broadcasting's "STAR 98.7", "B100.3" and KFI/KOST Los Angeles, based radio
stations. Mr. Christensen joined Viacom Broadcasting in August 1995. Prior to
joining Viacom Broadcasting, Mr. Christensen was the General Sales Manager of
KFI/KOST/KACE for Cox Broadcasting in Los Angeles, a position he held since May
1992.
Martin Berger is a Managing Member of McCann Real Equities Development
LLC, a position he has held since 1997. From 1989 to 1997 Mr. Berger served as a
Director of McCann Real Equities Development. McCann Real Equities Development
is a real estate finance and development company.
STRUCTURE OF OUR BOARD OF DIRECTORS
Directors are elected for a period of one year and serve until the next
annual meeting at which their successors are duly elected by the stockholders.
Officers and other employees serve at the will of the board of directors. There
are currently no arrangements or understandings regarding the length of time
each director is to serve in such a capacity. During our fiscal year ended
December 31, 1999, our Board of Directors held one meeting and took written
action an additional 16 times by written consent.
POTENTIAL CONFLICTS OF INTEREST
Mr. Brahms is involved in the ownership of other businesses, although such
businesses do not compete with our business. As such, even though he currently
devotes more than 40 hours per week to our business, he may have future
conflicts of interest in the allocation of his business time which may have an
adverse affect on our business and operations.
COMMITTEES OF THE BOARD OF DIRECTORS
In February 2000, our board of directors created an audit committee, which
is currently comprised of Messrs. Simonson, Christensen and Berger. The audit
committee is responsible for reviewing the results of the audit engagement with
the independent auditors; reviewing the adequacy, scope, and results of the
internal accounting controls and procedures; reviewing the degree of
independence of the auditors; reviewing the auditors' fees; and recommending the
engagement of auditors to the full board of directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid to our Chief Executive Officer, Chairman of the Board and our President and
Chief Technology Officer. No other of our executive officers earned combined
salary and bonus exceeding $100,000 for 1999.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- -------------
NAME AND FISCAL YEAR ENDED ALL OTHER
PRINCIPAL POSITION DECEMBER 31, SALARY BONUS OPTIONS (#) COMPENSATION
------------------ ----------------- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Robert D. Brahms 1999 $64,615 (1) $20,000 122,667 0
Chief Executive Officer
Courtney P. Jones 1999 $64,615 (1) $20,000 125,667 0
Chairman of the Board
Craig A. Pisaris-Henderson 1999 $87,615 (1) $20,000 130,667 0
President and Chief
Technology Officer
</TABLE>
---------------
(1) From March 27, 1998 (the date of BeFirst's inception) through June 30,
1999, none of our executive officers received compensation. Effective
January 2000, the annual base Salary for Messrs. Brahms, Jones and
Pisaris-Henderson was increased to $180,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding stock options
granted during 1999 to each of the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME (a) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
-------------------------- --------- ----------- --------- ---------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert D. Brahms 122,667 17.0% $2.20 06/17/04 $0 $74,559 $164,757
Courtney P. Jones 125,667 17.4% $2.20 06/17/04 $0 $76,383 $168,786
Craig A. Pisaris-Henderson 130,667 18.1% $2.20 06/17/04 $0 $79,422 $175,502
</TABLE>
---------------
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
us pursuant to certain rules promulgated by the Securities and Exchange
Commission and are not intended to forecast future appreciation, if any,
in the price of our common stock. Such amounts are based on the assumption
that the option holders hold the options granted for their full term. The
actual value of the options will vary in accordance with the market price
of our common stock. The column headed "0%($)" is included to illustrate
that the options were granted at fair market value and option holders will
not recognize any gain without an increase in the stock price.
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AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the exercise of
stock options during 1999, and the number and value of stock options held by the
executive officers named in the Summary Compensation Table as of December 31,
1999.
<TABLE>
<CAPTION>
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END ($)(1)
EXERCISE REALIZED ----------------------------- -----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ----------- ---------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Courtney P. Jones 0 $0 122,667 0 $711,469 $0
Robert D. Brahms 0 $0 125,667 0 $728,869 $0
Craig A.
Pisaris-Henderson 0 $0 130,667 0 $757,869 $0
</TABLE>
---------------
(1) Represents the total gain which would have been realized if all
in-the-money options held at fiscal year-end had been exercised,
determined by multiplying the number of shares underlying the options by
the difference between the per share option exercise price and per share
fair market value at year-end. An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.
DIRECTORS' COMPENSATION
Directors who are our employees do not receive any compensation for
services as directors. David Medinis has not received any compensation for his
services as a director. Messrs. Christensen and Simonson each received an option
to purchase 10,000 shares of our common stock on February 14, 2000 with a
purchase price of $5.50 per share vesting on the first anniversary of the date
of grant. Mr. Berger received an option to purchase 10,000 shares of our common
stock on April 25, 2000 with a purchase price of $5.8125 per share vesting on
the first anniversary of the date of grant.
1999 STOCK INCENTIVE PLAN
In June 1999, we adopted our 1999 Stock Incentive Plan. Pursuant to this
Plan, we may grant options to purchase up to an aggregate of 1,975,000 shares of
common stock to our key employees, officers, directors, consultants and other
agents and advisors. Awards under this Plan will consist of stock options, both
non-qualified options and options intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended,
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards.
The Plan is administered by our board of directors, which may determine
the persons to whom awards will be granted, the number of awards to be granted
and the specific terms of each grant, including vesting, subject to the
provisions of the Plan.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of our common stock on the date of grant or 110% of the
fair market value in the case of a grantee holding more than 10% of our
outstanding stock. The aggregate fair market value of shares for which qualified
stock options are exercisable for the first time by a grantee during any
calendar year may not exceed $100,000. Non-qualified stock options granted under
the Plan may be granted at a price determined by our board of directors, which
may not be less than the fair market value per share of our common stock on the
date of grant.
No stock option may be transferred by an optionee other than by will or by
the laws of descent and distribution or, if permitted, pursuant to a qualified
domestic relations order, and during the lifetime of the optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment by reason of death, the optionee's estate will have no more than one
year after such termination during which the optionee's estate shall
37
<PAGE> 41
be entitled to exercise the options, unless otherwise determined by the board of
directors. In the event of termination of employment by reason of disability,
the optionee will have no more than three years after termination to exercise
the options, or until the end of the stated term of the option, which ever
period is shorter, unless otherwise determined by the board of directors. In the
event of termination of employment by reason of retirement, the optionee will
have no more than three years after termination to exercise the options, or
until the end of the stated term of the option, whichever period is shorter,
unless otherwise determined by the board of directors. Upon termination of
employment by us without cause, the optionee's options remain exercisable for a
period of six months from the date of the termination or until the expiration of
the stated term of the option, whichever period is shorter.
We may grant options under the plan within ten years from the effective
date of the plan. The effective date of this plan is June 3, 1999. Options and
awards granted on or prior to ten anniversary of the effective date may extend
beyond that date.
Any unexercised options that expire, are forfeited or that terminate for
any reason become available again for issuance under the plan.
The Plan also contains certain change in control provisions which could
cause options and other awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d), but excluding certain stockholders of ours approved by the board of
directors, becomes the beneficial owners of more than 25% of the outstanding
shares of common stock.
On the date of this prospectus, options for an aggregate of 1,545,713
shares of common stock were outstanding pursuant to this plan at a weighted
average exercise price of $2.60 per share.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our Articles of Incorporation do not provide for the indemnification of a
present or former director or officer. However, pursuant to Nevada Revised
Statutes Section 78.750 and 78.751, we must indemnify any of our directors,
officers, employees or agents who is successful on the merits or otherwise in
defense of any action or suit. Such indemnification includes expenses, including
attorney's fees actually or reasonably incurred. Nevada law also provides for
discretionary indemnification for each person who serves as or at our request as
our officer or director. We may indemnify such individuals against all costs,
expenses, and liabilities incurred in a threatened, pending or completed action,
suit or proceeding brought because such individual is our director or officer.
Such individual must have conducted himself in good faith and reasonably
believed that his conduct was in, or not opposed to, our best interests. In a
criminal action he must not have had a reasonable cause to believe his conduct
was unlawful.
Our by-laws include provisions to (1) indemnify the directors and officers
to the fullest extent permitted by Nevada law and (2) indemnify directors and
officers involved or threatened to be involved in any action, suit or proceeding
as a witness or as party. We believe that this right to indemnification,
enforceable as a contract right, is necessary to attract and retain qualified
persons as directors and officers.
The foregoing by-law provisions may be amended by our stockholders only by
vote of the holders of 66 2/3% of the entire number of shares of each class,
voting separately, of our outstanding capital stock (even though the right of
any class to vote is otherwise restricted or denied), provided that no amendment
or repeal of these by-law provisions will adversely affect the indemnification
rights of any indemnitee existing at the time such repeal or amendment becomes
effective.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to these provisions or otherwise, we have been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of this prospectus
- each person who is known by us to be the owner of record or beneficial
owner of more than 5% of the outstanding common stock,
- each of our directors and executive officers, and
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<PAGE> 42
- the number of shares of common stock beneficially owned by each such
person and such group, and the percentage of the outstanding shares owned
by each such person and such group.
Except as otherwise noted below, the address of each of the persons in the
table is c/o FindWhat.com, 121 West 27th Street, Suite 903, New York, New York
10001.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------------------
NUMBER OF OPTIONS
GRANTED UNDER OUR
STOCK INCENTIVE PLAN
OR WARRANTS INCLUDED
NAME AND ADDRESS OF BENEFICIAL NUMBER OF IN THE NUMBER OF PERCENT OF
OWNER SHARES SHARES CLASS(1)
--------------------------------- ---------- -------------------- ----------
<S> <C> <C> <C>
Courtney P. Jones.............. 2,348,688 125,667 15.5%
Craig A. Pisaris-Henderson..... 2,120,879 130,667 14.0%
Robert A. Brahms............... 2,350,658 122,667 15.5%
Lee S. Simonson................ 15,200 10,000 *
Ken Christensen................ 20,000 20,000 *
David M. Medinis............... 51,740 0 *
Martin Berger.................. 32,470 0 *
Phillip R. Thune............... 125,000 125,000 *
Peter Neumann.................. 1,540 0 *
Peter V. Miller(2)............. 1,562,500 0 10.4%
Go2Net, Inc.(3)................ 803,936 803,936 5.1%
Rupinder Sidhu(4).............. 1,500,000 750,000 9.5%
---------- --------- -----
As a group (12 persons)........ 10,932,611 2,087,937 63.6%
</TABLE>
-----------------------
*Less than 1%
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options or
warrants held by that person that are currently exercisable or exercisable
within 60 days of December 22, 2000 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person.
(2) The address of Mr. Peter Miller is care of Proskauer Rose LLP, 1545
Broadway, New York, New York 10036, attention: Jack P. Jackson, Esq.
(3) The address of Go2Net, Inc. is 999 Third Avenue, Suite 4700, Seattle,
Washington 98104.
(4) The address of Rupinder Sidhu is 10229 Tavistock Road, Orlando, Florida
32827. Includes 375,000 shares which can be purchased upon the exercise of
common stock purchase warrants held by Mr. Sidhu and 750,000 shares,
including 375,000 shares which can be purchased upon the exercise of stock
purchase warrants, owned by Merion Fund, L.P., an entity controlled by Mr.
Sidhu.
We believe that all of the persons named in the above table have sole
voting and investment power over all shares they beneficially own. Each person
in the table above is considered the beneficial owner of securities that he can
acquire through the exercise of options, warrants or convertible securities
within 60 days from the date of this registration statement. In calculating each
beneficial owner's percentage ownership, we have assumed that options
39
<PAGE> 43
held by that person that are exercisable within 60 days from the date of this
registration statement have been exercised.
RELATED PARTY TRANSACTIONS
Our sales activities are conducted out of the Manhattan offices of WPI
Advertising, a business owned and operated by Robert D. Brahms, our Chief
Executive Officer, Treasurer and a director. From our inception through the date
hereof, we have paid WPI for office space and support services. As our sales
operations expand, we will determine whether to maintain our presence in the WPI
offices or to seek alternate space in Manhattan. These expenses for the nine
months ended September 30, 2000 and the year ended December 31, 1999 were
approximately $122,000, and $100,000, respectively.
Additionally, from time to time WPI makes purchases on our behalf and we
reimburse WPI the amount advanced. These amounts for the nine months ended
September 30, 2000 and the year ended December 31, 1999 were approximately
$70,000 and $35,000, respectively.
On November 28, 1999, we entered into a consulting agreement with David M.
Medinis, who was subsequently appointed to our board of directors, in which we
agreed to issue to Mr. Medinis 50,000 shares of common stock, with a fair market
value of $306,250 based on the closing price on November 26, 1999, the last
trading day prior to the Agreement.
We believe that prior transactions with our officers, directors and
principal stockholders were on terms that were no less favorable than we could
have obtained from unaffiliated third parties. We intend that all future
transactions between us and our officers, directors and stockholders
beneficially owning 5% or more of our outstanding voting securities or their
affiliates will be on terms no less favorable to us than we could obtain in
arm's-length negotiations from unaffiliated third parties.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share, and 500,000 shares of preferred stock, $.001
par value per share. As of December 31, 2000, there were 15,091,844 shares of
our common stock outstanding. As of December 31, 2000, the number of record
holders of our common stock was 161. No shares of our preferred stock are
outstanding.
COMMON STOCK
Holders of common stock are entitled to share equally in all dividends and
distributions that the board of directors, in its discretion, declares from
legally available funds. No holder of common stock has a preemptive right to
subscribe for any securities. No shares of common stock are subject to
redemption or convertible into other securities. Upon our liquidation,
dissolution or winding up, and after payment of creditors and preferred
stockholders, if any, our assets will be divided pro-rata on a share-for-share
basis among the holders of common stock. All shares of common stock now
outstanding are validly issued, fully paid and nonassessable. Each share of
common stock is entitled to one vote on all matters for which stockholders are
required or permitted to vote. Holders of common stock do not have cumulative
voting rights. The holders of more than 50% of the combined shares voting for
the election of directors may elect all of the directors, if they choose to do
so. In that event, holders of the remaining shares of common stock will not be
able to elect any members to the board of directors.
PREFERRED STOCK
We may issue preferred stock in one or more series and having the rights,
privileges and limitations, including voting rights, conversion privileges and
redemption rights, as may, from time to time, be determined by the board of
directors. Preferred stock may be issued in the future in connection with
acquisitions, financing or other matters as the board of directors deems
appropriate. In the event that we determine to issue any shares of preferred
stock, a certificate of designation containing the rights, privileges and
limitations of this series of preferred stock shall be filed with the Secretary
of State of the State of Nevada. The effect of this preferred stock is that our
board of directors alone, and subject to Federal securities laws, applicable
blue sky laws and Nevada law, may be able to authorize the issuance of preferred
stock which could have the effect of delaying, deferring or preventing a change
in control of us without further action by the stockholders, and may adversely
affect the voting and other rights of the holders of common stock. The issuance
of preferred stock with voting and conversion rights may also adversely affect
the voting power of the holders of common stock, including the loss of voting
control to others.
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<PAGE> 44
CERTAIN PROVISIONS OF NEVADA LAW
Anti-Takeover Provisions. Nevada law provides that any agreement providing
for the merger or consolidation for sale of all or substantially all of the
assets of a corporation be approved by the owners of at least the majority of
the outstanding shares of that corporation, unless a different vote is provided
for in our Articles of Incorporation. Our Articles of Incorporation do not
provide for a super-majority voting requirement in order to approve any such
transactions. Nevada law also gives appraisal rights for certain types of
mergers, plans of reorganization, or exchanges or sales of all or substantially
all of the assets of a corporation. Under Nevada law, a stockholder does not
have the right to dissent with respect to:
- a sale of assets or reorganization, or
- any plan of merger or any plan of exchange, if
1. the shares held by the stockholder are part of a class
of shares which are listed on a national securities
exchange or the NASDAQ National Market System, or are
held of record by not less than 2,000 stockholders, and
2. the stockholder is not required to accept for his shares
any consideration other than shares of a corporation
that, immediately after the effective time of the merger
or exchange, will be part of a class of shares which are
listed on a national securities exchange or the Nasdaq
National Market, or are held of record by not less than
2,000 holders.
Control Share Acquisition Provision. Under Nevada law, when a person has
acquired or offers to acquire one-fifth, one-third, or a majority of the stock
of a corporation, a meeting of stockholders must be held after delivery of an
"offeror's" statement, at the offeror's expense, so that the stockholders of the
corporation can vote on whether the owner(s) of the shares proposed to be
acquired (the "control shares") can exercise voting rights. Except as otherwise
provided in a corporation's articles of incorporation, the approval of the
owner(s) of a majority of the outstanding stock not held by the offerors is
required so that the stock held by the offerors will have voting rights. The
control share acquisition provisions are applicable to any acquisition of a
controlling interest, unless the articles of incorporation or by-laws of a
corporation in effect on the tenth day following the acquisition of a
controlling interest by an acquiring person provide that the control share
acquisition provisions do not apply. We have not elected out of the control
share acquisition provisions of Nevada law.
Combination Moratorium Provision. Nevada law provides that a corporation
may not engage in any "combinations," which is broadly defined to include
mergers, sales and leases of assets, issuances of securities and similar
transactions, with an "interested stockholder" (defined as the beneficial owner
of 10% or more of the voting power of the corporation) and certain affiliates or
their associates for three years after an interested stockholder's date of
acquiring the shares, unless the combination or the purchase of the shares by
the interested stockholder is approved by the board of directors by the date the
interested stockholder acquires the shares. After the initial three-year period,
any combination must still be approved by majority of the voting power not
beneficially owned by the interested stockholder or the interested stockholders,
affiliates or associates, unless the aggregate amount of cash and the market
value of the consideration other than cash that could be received by
stockholders as a result of the combination is at least equal to the highest of:
(a) the highest bid per share of each class or series of shares,
including the common shares, on the date of the announcement of the
combination or on the date the interested stockholder acquired the
shares; or
(b) for holders of preferred stock, the highest liquidation value of the
preferred stock.
Other Provisions. Under Nevada law, the selection of a period for
achieving corporate goals is the responsibility of the directors. In addition,
the officers, in exercising their respective powers with a view to the interests
of the corporation, may consider:
(a) the interests of the corporation's employees, suppliers, creditors,
and customers;
(b) the economy of the state and the nation;
(c) the interests of the economy and of society; and
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<PAGE> 45
(d) the long-term, as well as short-term, interests of the corporation
and its stockholders, including the possibility that those interests
may be best served by the continued independence of the corporation.
The directors may resist any change or potential change of control of the
corporation if the directors, by majority vote of a quorum, determine that a
change or potential change is opposed to, or not in the best interests of, the
corporation "upon consideration of the interest of the corporation's
stockholders," or for one of the other reasons described above. The directors
may also take action to protect the interests of the corporations' stockholders
by adopting or executing plans that deny rights, privileges, powers, or
authority to a holder of a specific number of shares or percentage of share
ownership or voting power.
TRANSFER AGENT
Our transfer agent and registrar is Interwest Transfer Co., Inc., 1981
East 4800 South, Salt Lake City, Utah 84117, telephone number (801) 272-9294.
42
<PAGE> 46
SELLING STOCKHOLDERS
The 2,382,648 shares of our common stock described in this prospectus
includes 1,133,089 shares which may be issued to the selling stockholders upon
exercise of their warrants or non-plan options. Except for the ownership of the
common stock and the warrants (and any shares upon conversion or exercise
thereof) and our relationships with Go2Net, Inc. and Beasley Broadcast Group,
Inc. an affiliate of Beasley Internet Ventures LLC, the selling stockholders
have not had a material relationship with us within the past three years with
us. See "BUSINESS." The shares of common stock are being registered to permit
public secondary trading of the shares, and the selling stockholders may offer
the shares for resale from time to time. See "Plan of Distribution."
As required by our agreements with the selling stockholders, in
recognition of the fact that selling stockholders may wish to be legally
permitted to sell their shares of common stock or shares of common stock
acquired upon exercise of the warrants, we have filed with the Commission under
the Securities Act a registration statement on Form SB-2, of which this
prospectus forms a part, with respect to the resale of the shares of common
stock by the selling stockholders from time to time on the Nasdaq SmallCap
Market or in privately-negotiated transactions.
43
<PAGE> 47
Information regarding beneficial ownership of our common stock by the
selling stockholders as of December 22, 2000 follows. The table assumes that the
selling stockholders sell all shares offered under this prospectus. We can make
no assurance as to how many of the shares offered that the selling stockholders
will in fact sell.
<TABLE>
<CAPTION>
NAME OF SELLING STOCKHOLDER NUMBER OF SHARES PERCENTAGE OF COMMON NUMBER OF SHARES
BENEFICIALLY OWNED STOCK OWNED BEING OFFERED
BEFORE OFFERING BEFORE OFFERING HEREBY
<S> <C> <C> <C>
Go2Net, Inc. 803,936(1) 5.1% 801,839
Andrew Lessman 625,000(2) 4.1% 625,000
Beasley Internet Ventures LLC 600,000 4.0% 600,000
Global Financial Resources, Inc. 68,750(3) * 68,750
deJong & Associates, Inc. 36,225(4) * 7,059
MWPT Partnership 25,000(5) * 25,000
MWDD Partnership 25,000(6) * 25,000
MWCA Partnership 100,000(7) * 100,000
Morris Wolfson 50,000(8) * 50,000
Com. Ind. Multiforma 75,000(9) * 75,000
Michael Fromer 2,500 * 2,500
William N. Walker 2,500 * 2,500
</TABLE>
---------------
*less than 1%
(1) Includes 803,936 shares which may be acquired by exercising stock purchase
warrants.
(2) Includes 125,000 shares which may be acquired by exercising stock purchase
warrants.
(3) Includes 68,750 shares which may be acquired by exercising non-plan stock
options.
(4) Includes 25,000 shares which may be acquired by exercising stock purchase
warrants.
(5) Includes 12,500 shares which may be acquired by exercising stock purchase
warrants.
(6) Includes 12,500 shares which may be acquired by exercising stock purchase
warrants.
(7) Includes 50,000 shares which may be acquired by exercising stock purchase
warrants.
(8) Includes 25,000 shares which may be acquired by exercising stock purchase
warrants.
(9) Includes 37,500 shares which may be acquired by exercising stock purchase
warrants.
PLAN OF DISTRIBUTION
Although we have not been advised of any selling stockholders' plans to do
so, the selling stockholders may sell the shares from time to time in
transactions in over-the-counter transactions reported on the Nasdaq SmallCap
Market, in negotiated transactions, or otherwise, or by a combination of these
methods, at fixed prices which may be changed, at market prices at the time of
sale, at prices related to market prices or at negotiated prices. A selling
stockholder shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if it deems the purchase price to be
unsatisfactory at any particular time. The selling stockholders may effect these
transactions by selling the shares to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders or the purchasers of the shares for whom the broker-dealer
may act as an agent or to whom they may sell the shares as a principal, or both.
The compensation to a particular broker-dealer may be in excess of customary
commissions.
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<PAGE> 48
Broker-dealers who act in connection with the sale of the shares may be
underwriters. Profits on any resale of the shares as a principal by such
broker-dealers and any commissions received by such broker-dealers may be
underwriting discounts and commissions under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions from a selling stockholder and, if they act as agent for the
purchaser of the shares, from the purchaser. Broker-dealers may agree with a
selling stockholder to sell a specified number of shares at a stipulated price
per share and, to the extent a broker-dealer is unable to do so acting as agent
for the selling stockholder, to purchase as principal any unsold shares at a
price required to fulfill the broker-dealer commitment to the selling
stockholder. Broker-dealers who acquire shares as a principal may resell the
shares from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market, in negotiated transactions or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and may pay to or receive from the
purchasers of the shares commissions computed as described above. To the extent
required under the Securities Act, a supplemental prospectus will be filed,
disclosing:
- the name of the broker-dealers;
- the number of shares involved;
- the price at which the shares are to be sold;
- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable;
- that broker-dealers did not conduct any investigation to verify the
information in this prospectus, as supplemented; and
- other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares may not simultaneously engage in market
making activities with the common stock for a period beginning when the person
becomes a distribution participant and ending upon the person's completion of
participation in a distribution, including stabilization activities in the
common stock to effect covering transactions, to impose penalty bids or to
effect passive market making bids. In addition, we and the selling stockholders
will be subject to applicable provisions of the Exchange Act, including Rule
10b-5 and to the extent we and the selling stockholders are distribution
participants, Regulation M. These rules and regulations may affect the
marketability of the shares.
The selling stockholders will pay any commissions associated with the sale
of the shares. The shares offered by this prospectus are being registered to
comply with contractual obligations, and we have paid the expenses of the
preparation of this prospectus. We have also agreed to indemnify the selling
stockholders against liabilities, including liabilities under the Securities
Act, or, if the indemnity is unavailable, to contribute toward amounts required
to be paid the liabilities.
LEGAL MATTERS
The validity of the shares offered hereby has been passed upon for us by
Porter, Wright, Morris & Arthur LLP, 41 South High Street, Columbus, Ohio 43215.
Partners and associates of Porter, Wright, Morris & Arthur LLP who participated
in the preparation of this prospectus beneficially own 77,460 shares of our
common stock.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In August 1999, our board of directors retained Grant Thornton LLP as our
independent accountants and dismissed Pritchett, Siler & Hardy, P.C., the
accountants for Collectibles America, Inc., and Levine, Levine & Meyrowitz,
CPAs, P.C., the accountants for BeFirst Internet Corporation.
During the periods that Pritchett, Siler & Hardy, P.C. and Levine, Levine
& Meyrowitz, CPAs, P.C. were retained, there were no disagreements with the
former accountants on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which would have
caused them to make reference to the subject matter in connection with their
reports. No accountants report prepared by the former auditors on our financial
statements for either of the past two years contained an adverse opinion or
disclaimer of opinion or was modified as to uncertainty, audit scope or
accounting principles.
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<PAGE> 49
Prior to engaging Grant Thornton LLP, neither we nor anyone acting on our
behalf consulted with Grant Thornton LLP regarding the application of accounting
principles to any specific transaction or the type of audit opinion that might
be rendered on our financial statements.
EXPERTS
The financial statements as of December 31, 1999 and for the year ended
December 31, 1999 and for the period from March 27, 1998 (date of inception) to
December 31, 1998 included herein and in the Registration Statement on Form
SB-2, of which this prospectus forms a part, have been audited by Grant Thornton
LLP, independent certified public accountants, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the Securities and Exchange Commission. These reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Securities and Exchange
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. You can obtain copies of these materials
from the Public Reference Section of the Securities and Exchange Commission upon
payment of fees prescribed by the Securities and Exchange Commission. You may
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission's Web site contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission under the Securities Act with respect to the securities
offered in this prospectus. This prospectus, which is filed as part of a
registration statement, does not contain all of the information set forth in the
registration statement, some portions of which have been omitted in accordance
with the Securities and Exchange Commission's rules and regulations. Statements
made in this prospectus as to the contents of any contract, agreement or other
document referred to in this prospectus are not necessarily complete and are
qualified in their entirety by reference to each such contract, agreement or
other document which is filed as an exhibit to the registration statement. The
registration statement may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission, and copies of
such materials can be obtained from the Public Reference Section of the
Securities and Exchange Commission at prescribed rates.
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<PAGE> 50
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS
----------------------------
PAGE
-----
Report of Independent Certified Public Accountants F-2
Balance Sheet F-3
Statements of Operations F-4
Statement of Stockholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
UNAUDITED FINANCIAL STATEMENTS
------------------------------
PAGE
----
Balance Sheet F-18
Statements of Operations F-19
Statement of Stockholders' Equity (Deficit) F-20
Statements of Cash Flows F-21
Notes to Financial Statements F-22
F-1
<PAGE> 51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
FindWhat.com
We have audited the accompanying balance sheets of FindWhat.com as of December
31, 1999 and 1998, and the related statements of operations, stockholders'
equity (deficit) and cash flows for the year ended December 31, 1999 and for the
period from March 27, 1998 (date of inception) to December 31, 1998. These
financial statements are the responsibility of FindWhat.com's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FindWhat.com as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the year
ended December 31, 1999 and for the period from March 27, 1998 (date of
inception) to December 31, 1998 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
February 17, 2000 (except for Note P, as
to which the date is March 15, 2000)
F-2
<PAGE> 52
FindWhat.com
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 906,931 $ 6,702
Accounts receivable 97,675 8,463
Prepaid expenses and other current assets 17,250
----------- -----------
Total current assets 1,021,856 15,165
EQUIPMENT, FURNITURE AND FIXTURES - NET 242,429 1,360
OTHER ASSETS 2,595
----------- -----------
Total assets $ 1,266,880 $ 16,525
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 134,773 $ 11,348
Current portion of capital lease obligation 7,025
Deferred income 31,402 19,353
Due to affiliate 59,781 7,989
----------- -----------
Total current liabilities 232,981 38,690
CAPITAL LEASE OBLIGATION, less current portion 6,363
----------- -----------
Total liabilities 239,344 38,690
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; authorized,
500,000 shares; none issued and outstanding
Common stock, no par value, authorized issued
and outstanding, 1,000 shares at
December 31, 1998 1,000
Common stock, $.001 par value; authorized,
50,000,000 shares; issued and outstanding,
12,591,750 shares at December 31, 1999 12,592
Additional paid-in capital 3,273,267 54,000
Deferred service costs (401,491)
Accumulated deficit (1,856,832) (67,165)
----------- -----------
1,027,536 (12,165)
Less stock subscription receivable (10,000)
----------- -----------
Total stockholders' equity 1,027,536 (22,165)
----------- -----------
Total liabilities and stockholders' equity $ 1,266,880 $ 16,525
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 53
FindWhat.com
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
March 27,
1998 (date of
Year ended inception) to
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 451,509 $ 58,818
Cost of revenues 394,402 36,837
------------ ------------
Gross profit 57,107 21,981
Operating expenses
Sales and marketing 369,086
General and administrative 1,472,287 44,146
Product development 54,058 45,000
------------ ------------
Total operating expenses 1,895,431 89,146
------------ ------------
Loss from operations (1,838,324) (67,165)
Interest income, net 48,657
------------ ------------
NET LOSS $ (1,789,667) $ (67,165)
============ ============
Loss per share - basic and diluted $ (0.17) $ (0.01)
============ ============
Unaudited pro forma information (i):
Increase in officer salaries $ 180,000 $ 270,000
============ ============
Pro forma net loss after increase in officer salaries $ (1,969,667) $ (337,165)
============ ============
Pro forma loss per share after increase
in officer salaries $ (0.18) $ (0.04)
============ ============
Weighted-average number of common
shares outstanding 10,781,765 8,750,000
============ ============
</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.
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 54
FindWhat.com
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Note B)
Year ended December 31, 1999 and
period from March 27, 1998 (date of inception)
to December 31, 1998
<TABLE>
<CAPTION>
Common stock, Common stock,
no par value $.001 par value Additional Deferred
---------------------- ----------------------- paid-in service
Shares Amount Shares Amount capital cost
--------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 1,000 $ 1,000 $ 9,000
Executive compensation 45,000
--------- -------- ----------
Net loss
Balance at December 31, 1998 1,000 1,000 54,000
Reclassification of no par value
common stock into $.001 common stock (1,000) (1,000) 2,500,000 $ 2,500 (250)
Issuance of common stock in connection
with private placement 1,250,000 1,250 2,432,704
Issuance of common stock, in connection
with acquisition of BeFirst Internet
Corporation 8,750,000 8,750 (8,750)
Issuance of common stock for consulting
and advertising services 91,750 92 349,188 $(293,210)
Fair value of options issued for services 144,375 (108,281)
Fair value of stock options granted to
consultants and nonemployees 266,000
Executive compensation 36,000
Receipt of stock subscription
Net loss
--------- -------- ---------- -------- ----------- ---------
Balance at December 31, 1999 $ 12,591,750 $ 12,592 $ 3,273,267 $(401,491)
========= ======== ========== ======== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Stock
Accumulated subscription
deficit receivable Total
----------- ------------ ------------
<S> <C> <C> <C>
Issuance of common stock $(10,000)
Executive compensation $ 45,000
Net loss $ (67,165) (67,165)
------------ -------- -----------
Balance at December 31, 1998 (67,165) (10,000) (22,165)
Reclassification of no par value
common stock into $.001 common stock 1,250
Issuance of common stock in connection
with private placement 2,433,954
Issuance of common stock, in connection
with acquisition of BeFirst Internet
Corporation
Issuance of common stock for consulting
and advertising services 56,070
Fair value of options issued for services 36,094
Fair value of stock options granted to
consultants and nonemployees 266,000
Executive compensation 36,000
Receipt of stock subscription 10,000 10,000
Net loss (1,789,667) (1,789,667)
----------- --------- -----------
Balance at December 31, 1999 $(1,856,832) $ $ 1,027,536
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 55
FindWhat.com
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
March 27,
1998 (date of
Year ended inception) to
December 31, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,789,667) $ (67,165)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation 33,405 340
Stock options granted to consultants and nonemployees 266,000
Executive compensation 36,000 45,000
Common shares issued for consulting and advertising
services, net 56,070
Options issued for services, net 36,094
Changes in operating assets and liabilities
Accounts receivable (89,212) (8,463)
Other current assets (17,250)
Other assets (2,595)
Accounts payable and accrued expenses 123,425 11,348
Deferred income 12,049 19,353
Due to affiliate 51,792 7,989
----------- -----------
Net cash (used in) provided by operating activities (1,283,889) 8,402
----------- -----------
Cash flows from investing activities
Purchase of equipment (260,056) (1,700)
----------- -----------
Cash flows from financing activities
Gross proceeds from private placement 2,500,000
Payment of financing costs (64,796)
Payments made on capital leases (1,030)
Receipt of stock subscription 10,000
----------- -----------
Net cash provided by financing activities 2,444,174
----------- -----------
INCREASE IN CASH AND CASH
EQUIVALENTS 900,229 6,702
Cash and cash equivalents at beginning of period 6,702
----------- -----------
Cash and cash equivalents at end of period $ 906,931 $ 6,702
=========== ===========
Supplemental noncash investing and financing activities
Capital lease obligations for purchase of equipment $ 14,418
Capital contributions for stock subscription $ 10,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 56
FindWhat.com
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - NATURE OF BUSINESS
BeFirst.com was organized under the laws of the State of Nevada and,
beginning June 17, 1999, conducts its operations through its wholly-owned
subsidiary, BeFirst Internet Corporation. In September 1999, the Company
changed its name from BeFirst.com to FindWhat.com ("FindWhat" or the
"Company").
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 web site optimization service. The Company charges an
initial set-up fee to enhance a client's web page using key words and
utilizes software that tracks click-through rates. The Company operates in
one reportable business segment.
NOTE B - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of FindWhat.com
and its wholly-owned subsidiary, BeFirst Internet Corporation.
On June 17, 1999, Collectibles America, Inc. ("Collectibles"), a
nonoperating public company with immaterial net assets, acquired 100% of
the outstanding common stock of BeFirst Internet Corporation, whose date
of inception was March 27, 1998 (the "Acquisition"). The Acquisition
resulted in the owners and management of BeFirst Internet Corporation
having effective control of the combined entity. Concurrent with the
Acquisition, Collectibles changed its name to BeFirst.com. In September
1999, BeFirst.com changed its name to FindWhat.com.
Under generally accepted accounting principles, the Acquisition is
considered to be a capital transaction in substance, rather than a
business combination. That is, the Acquisition is equivalent to the
issuance of stock by BeFirst Internet Corporation for the net monetary
assets of Collectibles (now FindWhat), accompanied by a recapitalization,
and is accounted for as a change in capital structure. Accordingly, the
accounting for the Acquisition is identical to that resulting from a
reverse acquisition, except that no goodwill is recorded. Under reverse
takeover accounting, the post-reverse-acquisition comparative historical
financial statements of the "legal acquirer," Collectibles (now FindWhat),
are those of the "accounting acquirer" (BeFirst Internet Corporation).
Accordingly, the financial statements of FindWhat.com for the period from
March 27, 1998 through December 31, 1998, are the historical financial
statements of BeFirst Internet Corporation for the same period. The basic
structure and terms of the Acquisition and related
F-7
<PAGE> 57
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE B (continued)
events, all of which are deemed to have occurred simultaneously on June
17, 1999, together with the applicable accounting effects, were as
follows:
- FindWhat.com cancelled 8,600,000 unissued shares of common stock and
effected a 2-to-1 reverse stock split of its outstanding shares of
common stock, resulting in a decrease in the number of outstanding
shares to 2,500,000.
- FindWhat.com issued 1,250,000 post-split shares of common stock in a
private placement for $2.00 per share in cash (see Note K).
- FindWhat.com acquired all of the outstanding shares of common stock
of BeFirst Internet Corporation in exchange for 8,750,000 post-split
shares of FindWhat.com. The common stock exchanged, in addition to
the existing FindWhat.com shares outstanding, collectively resulted
in the recapitalization of the Company. Earnings per share ("EPS")
calculations include the Company's change in capital structure for
all periods presented.
- The sole officer and director of FindWhat.com was replaced by a
board of directors from BeFirst Internet Corporation.
- The Company adopted a 1999 Stock Incentive Plan (see Note M) for
employees.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
2. Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost. Depreciation
is computed using the straight-line method over the estimated useful
lives of the assets, which range from three to five years.
Depreciation expense consists of the depreciation of computer
equipment and furniture.
F-8
<PAGE> 58
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE C (continued)
3. Revenues
The Company derives revenues from the following sources: through
set-up fees charged to new BeFirst clients, through click-through
rates charged for the traffic the BeFirst service generates to its
clients' Web sites and through search listing click-throughs and
banner advertisements on the FindWhat.com search engine.
Revenue is recognized when the set-up services are completed and as
click-throughs are generated.
4. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions in determining the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
5. Basic and Diluted Loss Per Share
Basic and diluted loss per share is calculated by dividing the net
loss by the weighted average number of shares of common stock
outstanding during each period. All stock options have been excluded
from the calculation of diluted loss per share as their effect would
have been antidilutive (see Note M).
The issuance of 8,750,000 shares as described in Note B has been
reflected as of March 27, 1998.
6. Deferred Service Costs
Deferred service costs, which is shown as a reduction to
stockholders' equity, consists of the value of common stock and
stock options issued for services that will be provided to the
Company in future periods.
7. Reclassifications
Certain amounts in the 1998 financial statements were reclassified
to conform to the 1999 presentation.
F-9
<PAGE> 59
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE C (continued)
8. Significant New Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging
Activities," which requires entities to recognize all derivatives in
their financial statements as either assets or liabilities measured
at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that
may be hedged and specifies detailed criteria to be met to qualify
for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. The
Company currently does not use derivative instruments as defined by
SFAS No. 133. If it continues to not use these derivative
instruments by the effective date, the adoption of this statement
will have no effect on the results of operations or the financial
position of the Company.
In January 2000, the Emerging Issues Task Force reached a consensus
on Issue No. 99-17, "Accounting for Advertising Barter Transaction,"
to be effective for transactions entered into after January 20,
2000. The consensus states that advertising barter transactions
should be accounted for at fair value and the fair value recognized
be disclosed in the financial statements, if there is verifiable
objective evidence provided by sufficient cash transactions received
by the seller of the advertising or similar advertising.
Accordingly, the Company will record barter transactions, if any, at
their estimated fair value, prospectively, beginning January 2000.
NOTE D - EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures at December 31, 1999 and 1998 consist of
the following:
1999 1998
-------- --------
Computer equipment $193,921
Furniture and fixtures 67,835 $ 1,700
Leased equipment 14,418
-------- --------
276,174 1,700
Less accumulated depreciation (33,745) (340)
-------- --------
$242,429 $ 1,360
======== ========
F-10
<PAGE> 60
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1999 and 1998
consist of the following:
1999 1998
-------- --------
Accounts payable and other $ 64,818 $ 9,332
Professional fees 24,955 871
Salaries and bonuses 1,145
Database license 45,000
-------- --------
$134,773 $ 11,348
======== ========
NOTE F - RELATED PARTY TRANSACTIONS
The Company shares space in New York and California with WPI Advertising
Inc. ("WPI") and V-Lite Corporation ("V-Lite"), respectively, whose owners
are also the shareholders and officers of the Company. The total amount
paid to V-Lite for the year ended December 31, 1999 was approximately
$7,000.
Through June 30, 1999, the Company paid a 30% commission to WPI for sales
generated by WPI. The commission covered sales costs as well as rent
allocation and other administrative costs provided by WPI. These expenses
for the period ended December 31, 1999 and December 31, 1998 were
approximately $100,000 and $18,000, respectively, of which approximately
$50,000 and $9,000, respectively, are included in general and
administrative expenses and $50,000 and $9,000, respectively, are included
in marketing and sales expenses. Beginning July 1, 1999, the Company hired
its own sales staff and entered into a revised arrangement with WPI
whereby an allocation of the above-mentioned rent and administrative
expenses is apportioned to the Company. The total amount allocated to WPI
for the year ended December 31, 1999 is approximately $54,000, which is
included in general and administrative expenses. Total amounts due to WPI
at December 31, 1999 and 1998 were approximately $60,000 and $8,000,
respectively.
Through July 31, 1999, the Company shared space in Florida with Internet
Solutions International ("ISI"), whose owner is also the shareholder and
officer of the Company. The total amount paid to ISI during the year ended
December 31, 1999 was approximately $24,000. Beginning August 1, 1999, the
Company signed a lease (with an unrelated lessor) and moved its technical
operations out of ISI's offices.
F-11
<PAGE> 61
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F (continued)
In November 1999, the Company also hired WPI to purchase airtime to
several radio stations on behalf of the Company. Total amount charged to
the Company for the period ended December 31, 1999 was approximately
$35,000, which represents the regular rates charged by these stations
during their normal course of business.
NOTE G - DEFERRED INCOME
Deferred income at December 31, 1999 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 year ended December 31, 1999 was
approximately $35,000, of which approximately $3,000 was recognized in
1999. Deferred income at December 31, 1998 represents advance deposits
made by the Company's clients for future BeFirst click-through sales.
NOTE H - COMMITMENTS AND CONTINGENCIES
Beginning August 1, 1999, the Company leased office space under the terms
of an operating lease that expires in 2002.
Future minimum payments under noncancellable operating leases consisted of
the following at December 31, 1999:
2000 $28,400
2001 30,000
2002 23,400
------
$81,800
=======
In addition, the Company has entered into service agreements with various
Internet providers, all with terms of one year or less. These agreements
allow the Company to connect to the Internet with sufficient capacity so
that the FindWhat.com Web site can handle current and anticipated traffic.
NOTE I - CONCENTRATION OF FINANCIAL INSTRUMENTS
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents. The Company
places its cash and cash equivalents with European American Bank. In
general, through the year, such instruments exceeded the FDIC insurance
limit of $100,000.
F-12
<PAGE> 62
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE J - MAJOR CUSTOMERS
During the year ended December 31, 1999, one customer provided
approximately 30% of the Company's revenues. The loss of this customer,
without an appropriate replacement, may have a material effect on the
Company's business. Management does not believe any such loss will occur
as long as the Company continues to provide competitive service.
NOTE K - PRIVATE PLACEMENT
In June 1999, a private placement to offer 1,250,000 shares of $.001 par
value common stock at a price of $2.00 per share was completed by the
Company. The proceeds from the offering were used as follows: (a) upgrades
to transactions processing systems; (b) the hiring of additional sales and
technical personnel; (c) development of the FindWhat.com search engine,
which was launched in September 1999; and (d) purchase of additional
computer hardware and software.
As a result of the private placement, approximately $65,000 of legal costs
were incurred, which are being reflected as a reduction to additional
paid-in-capital.
NOTE L - COMMON STOCK AND STOCK OPTIONS ISSUED FOR SERVICES
In November 1999, the Company issued 41,750 shares of common stock for
outdoor advertising at a closing market price of $3.875 per share. The
term of the contract is for four months. Total noncash advertising charges
for the year ended December 31, 1999 recorded by the Company were $40,445,
which is included in marketing and sales expense. The remainder of
$121,335 was deferred and will be expensed over the term of the contract.
On November 28, 1999, the Company issued 50,000 shares of common stock to
a consultant of the Company for services at a closing market price of
$3.75 per share. The term of the contract is for one year. Total noncash
consulting charges for the year ended December 31, 1999 recorded by the
Company were $15,625, which is included in product development expenses.
The remainder of $171,875 was deferred and will be expensed over the term
of the contract.
F-13
<PAGE> 63
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE L (continued)
In November 1999, the Company issued options for the purchase of 150,000
shares of common stock to an investor public relations firm at a price of
$3.75 per share. The contract was subsequently terminated in March 2000
and 68,750 option shares vested. The term was amended to five and a half
months. Total noncash charges for the year ended December 31, 1999
recorded by the Company were $36,094, which is included in general and
administrative expenses. The remainder of $108,281 was deferred and will
be expensed over the term of the contract.
NOTE M - STOCK INCENTIVE PLAN
In June 1999, the Board of Directors of the Company adopted the 1999 Stock
Incentive Plan ("the Plan"). The total number of shares reserved and
available for distribution to the Company's key employees, officers,
directors, consultants and other agents and advisors under this Plan as of
December 31, 1999 were 1,000,000 shares. Awards under the Plan consist of
stock options (both qualified and non-qualified options), restricted stock
awards, deferred stock awards and stock appreciation rights.
During the year ended December 31, 1999, the Company granted 495,501
options under the terms of the Plan to its employees and 233,712 options
to nonemployees. Total expense recognized for stock options given to
nonemployees amounted to approximately $266,000, which is included as a
noncash charge in the statement of operations for the year ended December
31, 1999.
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based
Compensation," that relate only to pro forma disclosures required by SFAS
No. 123 for employee plans. It applies APB Opinion 25, "Accounting for
Stock Issued to Employees," and does not recognize compensation expense
for its stock-based compensation plans for employees. If the Company had
elected to recognize compensation expense based upon the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed by SFAS No. 123, then the Company's net loss and loss per share
would be increased to the pro forma amounts indicated below:
Year ended December 31, 1999 Actual Pro forma
----------------------------- ----------- -----------
Net loss $(1,789,667) $(2,129,541)
=========== ===========
Loss per share - basic and diluted $(0.17) $(0.20)
====== ======
F-14
<PAGE> 64
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE M (continued)
The fair value of these options for the year ended December 31, 1999 was
estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
Volatility 50%
Risk-free rate 6%
Expected life 5 years
Vesting requirements 1 year
Forfeiture rate 0%
Expected dividends 0
The weighted-average fair value of all Plan options granted during the
year ended December 31, 1999 was $1.22, and the weighted-average exercise
price was $2.29. The maximum life of the option is five years.
Stock option activity under the Plan during the year ended December 31,
1999 is summarized below:
Weighted-
average
exercise
Options price
------- ---------
Balance, December 31, 1998 0 $ --
Granted 729,213 $2.30
Canceled (6,000) $3.33
---------
723,213
=========
The following table summarizes information concerning currently
outstanding and exercisable stock options under the Plan:
Weighted-
average Weighted- Weighted-
Range remaining average average
of exercise Number contractual exercise Number exercise
price outstanding life (years) price exercisable price
----------- ----------- ------------ --------- ----------- ---------
$2.00 - $2.20 661,713 4.47 $2.11 555,713 $2.14
$3.87 - $4.50 61,500 4.72 $4.20 25,000 4.50
-------- -------
723,213 4.49 $2.29 580,713 $2.24
======= ===== =======
F-15
<PAGE> 65
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE N - DATABASE LICENSE
In August 1999, the Company acquired a database license from Inktomi,
Inc., which requires minimum aggregate payments of $600,000 over the
three-year life of the contract. The Company accounts for this license as
an executory contract and records expense as the service is provided. As
of December 31, 1999, the minimum payments of $90,000 under the license
have been expensed.
NOTE O - INCOME TAXES
At December 31, 1999, the Company has operating loss carryforwards of
approximately $1,300,000, which expire through 2019. The future
availability of such carryforwards may be limited based on certain changes
in stock ownership. For financial statements purposes, a valuation
allowance equal to the amount of the net deferred tax asset at December
31, 1999 has been recognized, as the realization of such deferred tax
asset is uncertain.
Components of the Company's deferred tax asset at December 31, 1999 and
1998 are as follows:
1999 1998
--------- ---------
Stock option compensation $ 120,838
Net operation loss carryforwards 520,550 $ 9,000
Capital expenditures 77,145
--------- ---------
718,533 9,000
Valuation allowance (718,533) (9,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
NOTE P - SUBSEQUENT EVENTS
On January 12, 2000, the Company entered into an advertising agreement
with Beasley Internet Ventures LLC ("Beasley") whereby the Company will
issue 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 will record the noncash advertising
charge of $4,425,000 over the term of the contract.
On January 28, 2000, the Board of Directors of the Company amended its
1999 Stock Incentive Plan (see Note M) 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 1,900,000
shares, subject to shareholder approval in June 2000.
F-16
<PAGE> 66
FindWhat.com
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE P - SUBSEQUENT EVENTS (continued)
On February 11, 2000, the Company completed a private placement of 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.
On March 15, 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.
F-17
<PAGE> 67
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.
F-18
<PAGE> 68
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.
F-19
<PAGE> 69
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.
F-20
<PAGE> 70
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.
F-21
<PAGE> 71
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.
F-22
<PAGE> 72
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
========== ==========
F-23
<PAGE> 73
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.
F-24
<PAGE> 74
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.
F-25
<PAGE> 75
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.
F-26
<PAGE> 76
================================================================================
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS LISTED IN THIS PROSPECTUS ARE
OFFERING TO SELL, AND ARE SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE AND RESTRICTIONS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
2,382,648 SHARES
FINDWHAT.COM
COMMON STOCK
PROSPECTUS
--------------------------
___________________, 2000
================================================================================
<PAGE> 77
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation do not provide for the indemnification of a
present or former director or officer. However, pursuant to Nevada Revised
Statutes Section 78.750 and 78.751, we must indemnify any of our directors,
officers, employees or agents who is successful on the merits or otherwise in
defense of any action or suit. Such indemnification includes expenses, including
attorney's fees actually or reasonably incurred. Nevada law also provides for
discretionary indemnification for each person who serves as or at our request as
our officer or director. We may indemnify such individuals against all costs,
expenses, and liabilities incurred in a threatened, pending, or completed
action, suit or proceeding brought because such individual is our director or
officer. Such individual must have conducted himself in good faith and
reasonably believed that his conduct was in, or not opposed to, our best
interests. In a criminal action he must not have had a reasonable cause to
believe his conduct was unlawful.
OUR BY-LAWS PROVIDE:
Unless prohibited by Nevada law, we must indemnify any person who is or
was involved in any manner (including, without limitation, as a party or a
witness), or is threatened to be so involved, in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, including without limitation, any action, suit or
proceeding brought by us or in our right to procure a judgment in our favor, by
reason of the fact that he is or was our director, officer, employee or agent,
or is or was serving at our request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise, against all expenses and liabilities actually and
reasonably incurred by him in connection with any such action, suit or
proceeding. The right to indemnification conferred by our by-laws shall be
presumed to have been relied upon by our directors, officers, employees and
agents and shall be enforceable as a contract right and inure to the benefit of
heirs, executors and administrators of such individuals.
Our board of directors is authorized, on our behalf, to enter into,
deliver and perform agreements or other arrangements to provide any indemnitee
with specific rights of indemnification in addition to the rights provided
hereunder to the fullest extent permitted by Nevada Law. Such agreements or
arrangements may provide:
(i) that the expenses of our officers and directors incurred in
defending a civil or criminal action, suit or proceeding, must be paid by us as
they are incurred and in advance of the final disposition of any such action,
suit or proceeding provided that, if required by Nevada Law at the time of such
advance, the officer or director provides an undertaking to repay such amounts
if it is ultimately determined by a court of competent jurisdiction that such
individual is not entitled to be indemnified against such expenses;
(ii) that the indemnitee shall be presumed to be entitled to
indemnification under our by-laws or such agreement or arrangement and we will
have the burden of proof to overcome that presumption;
(iii) for procedures to be followed by us and the indemnitee in
making any determination of entitlement to indemnification or for appeals
therefrom; and
(iv) for insurance or such other financial arrangements, all as may
be deemed appropriate by the board of directors as the time of execution of such
agreement or arrangement.
We may, unless prohibited by Nevada Law, purchase and maintain insurance
or make other financial arrangements on behalf of any indemnitee for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses. Such other financial arrangements may
include:
- the creation of a trust fund;
- the establishment of a program of self-insurance;
- the securing of our obligation of indemnification by granting
a security interest or other lien on any of our assets; or
- the establishment of a letter of credit, guaranty or surety.
The foregoing by-law provisions, as well as this provision, may be amended
by our stockholders only by vote of the holders of 66 2/3% of the entire number
of shares of each class, voting separately, of our outstanding
II-1
<PAGE> 78
capital stock (even though the right of any class to vote is otherwise
restricted or denied), provided that no amendment or repeal of these by-law
provisions will adversely affect the indemnification rights of any indemnitee
existing at the time such repeal or amendment becomes effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to our directors, officers and
controlling persons pursuant to these provisions or otherwise, we have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than the underwriting
discounts and commissions and the Underwriter's Non-Accountable Expense
Allowance) expected to be incurred in connection with the issuance and
distribution of the securities being registered.
SEC Registration............................................. $ 1,848
Legal Fees and Expenses*..................................... $ 20,000
Accounting Fees*............................................. $ 10,000
Miscellaneous*............................................... $ 2,000
------
Total........................................................ $ 33,848
======
------------
* Estimated
** To be provided by amendment.
ITEM 26. 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.
II-2
<PAGE> 79
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 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.
In October 2000, we entered into agreements to issue an aggregate of 9,083
shares of our common stock to consultants on a charitable foundation. 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 and promulgated thereunder.
In November 2000, we entered into agreements to issue an aggregate of
8,000 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 and promulgated thereunder.
In December 2000, we entered into agreements to issue an aggregate of
12,308 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 and promulgated thereunder.
In January 2001, we entered into agreements to issue an aggregate of
15,333 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 and promulgated thereunder.
ITEM 27. EXHIBITS.
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.
5.1***** Opinion of Porter, Wright, Morris & Arthur, LLP.
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
II-3
<PAGE> 80
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.
10.12**** Executive Employment Agreement between FindWhat.com and Peter
Neumann.
23.1***** Consent of Grant Thornton LLP
23.2***** Consent of Porter, Wright, Morris & Arthur LLP (contained in
exhibit 5.1).
24***** Powers of Attorney.
* 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.
*****Previously filed with Registrant's Registration Statement on Form SB-2,
dated October 3, 2000, Registration file No. 333-47240.
(R) Please note that certain confidential commercial information has been
redacted from some of the exhibits incorporated into this Form SB-2 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 SB-2 which have had confidential information
redacted are indicated as follows on the exhibit list above: (R). Within the
exhibits to this Form SB-2, redacted material is indicated by the following sign
where such redacted text would have appeared in the relevant exhibit:
(**REDACTED**)
ITEM 28. UNDERTAKINGS.
The undersigned hereby undertakes:
A. Undertakings Regarding Amendments to this Prospectus and the
Registration Statement
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
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<PAGE> 81
Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the change in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" in the effective Registration Statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
2. That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. Undertaking in Respect of Indemnification. Insofar
as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the registrant's
directors, officers, and controlling persons pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a directors, officers or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
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<PAGE> 82
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing a Pre-effective Amendment No. 1 to
Form SB-2 and authorized this amended registration statement to be signed on its
behalf by the undersigned in the City of New York, State of New York, on January
17, 2001.
FINDWHAT.COM
By: /s/ Robert D. Brahms
------------------------------------------
Robert D. Brahms, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director and Chairman January 17, 2001
--------------------------
Courtney P. Jones
/s/ Robert D. Brahms Director and Chief Executive Officer January 17, 2001
-------------------------- (Principal Executive Officer)
Robert D. Brahms
* Director, President and Chief January 17, 2001
-------------------------- Technology Officer
Craig A. Pisaris -Henderson
* Director January 17, 2001
--------------------------
David Medinis
* Director January 17, 2001
--------------------------
Lee Simonson
* Director January 17, 2001
--------------------------
Martin Berger
* Director January 17, 2001
--------------------------
Ken Christensen
/s/ Phillip R. Thune Chief Operating Officer and January 17, 2001
-------------------------- Chief Financial Officer (Principal
Phillip R. Thune Accounting and Financial Officer)
By: /s/ Robert D. Brahms January 17, 2001
--------------------------
Robert D. Brahms
(Attorney-in-fact)
* By Attorney
</TABLE>
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