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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT ON UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999.
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from..................to....................
Commission file number: 0-27331
FINDWHAT.COM
(Exact name of registrant as specified in its charter)
Nevada 88-0348835
(State of Incorporation) (I.R.S. Employer Identification No.)
121 West 27th Street, Suite 903
New York, New York 10001
(212) 255-1500
(Address and telephone number of registrant's principal executive offices and
principal place of business)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. /X/
State the aggregate market value of the voting and non-voting equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or
the average bid and asked prices of such common equity, as of a specified
date within 60 days prior to the date of filing. $61,807,359 based on the last
sale price on March 29, 2000.
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date. 13,691,750 shares of common,
$.001 par value as of March 27, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 2000 Annual Meeting of Stockholders.
Forward-Looking Statements
This document contains forward-looking statements which reflect the views
of management with respect to future events and financial performance. These
forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from such
statements. These uncertainties and other factors include, but are not limited
to, the words "anticipates", "believes", "estimates", "expects", "plans",
"projects", "targets" and similar expressions which identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which speak only as of the date the statements were made.
PART I
Item 1. Description of Business
BUSINESS
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 web site optimization
service. Our focus is to:
o drive qualified traffic to Internet web sites, and
o 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 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 for 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. We have entered into relationships with
Go2Net, LinkShare Corporation, Beasley Broadcasting and Inktomi.
Our FindWhat.com search listing advertisement revenue is determined by
multiplying the number of click-throughs on paid search results by the amounts
bid for applicable keywords. Search listing revenue is earned based on
click-through activity to the extent that the advertiser has deposited
sufficient funds with us or collection is probable. Our banner advertising
revenue is earned under the terms of our contractual arrangements with
advertisers or advertising agencies. While we only launched our FindWhat.com
search engine in September 1999, we have made significant progress in growing
the number of advertisers and consumers. As of March 23, 2000, consumers
could find relevant search listings for information, products and services
from approximately 2,300 participating advertisers who had placed over 1.15
million search listings, up from approximately 1,200 advertisers and more
than 750,000 search listings as of December 31, 1999. For the year to date
through March 23, 2000, the FindWhat.com search engine had approximately 1.1
million paid click-throughs with an average price per paid click-through of
$0.06. In all of 1999, the FindWhat.com search engine had approximately
35,000 paid click-throughs.
Our BeFirst.com service, known as "web site optimization," increases the
volume of relevant traffic to each client's business by improving the placement
in the search results generated by Internet search engines. We achieve improved
placement for our clients through our understanding of search engine algorithms
and constant monitoring of search engine behavior. 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. As of March 23, 2000, BeFirst.com had over 100 clients,
including eBay, Avenue A, Ebags.com and Dr.Koop.com.
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 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. 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
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 message. 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, 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 and duration of visits to their sites in order to maximize
graphical advertising opportunities. Increasing length of visits 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 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 operators are free to tag their sites with irrelevant search
terms to attract additional customer attention at low cost.
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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 accounts,
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.
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.
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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 they believe 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 March 23, 2000, the FindWhat.com search engine
listed paid results from approximately 2,300 advertisers who had placed more
than 1.15 million search listings. Additionally, our search results not only
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.
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 describe 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 write 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 online, although
customer service is available 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
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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 an Internet media buy - knowing what they are getting for their
money. Advertisers can pick all the keywords that are relevant to their
businesses, 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 competitive bids. The bidding for key words is automated in
real time, so that results are instantaneous.
Popular category key buys
We also offer advertisers the opportunity to buy 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 and
run of site banners appear at the top of the search result pages and at the
top of information pages. There is no paid advertising on the FindWhat.com
home page.
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BeFirst.com
Another service we offer to meet the needs of Internet e-commerce
businesses we offer our BeFirst.com service, known as "web site
optimization." The purpose of our BeFirst.com service is to increase the
volume of traffic relevant to each client's business by improving the
placement of our clients' web sites in the search results generated by
Internet search engines.
In providing "web site 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 other popular search engines.
The goal is a higher ranking on the 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 web site 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. As of March 23, 2000,
BeFirst.com had over 100 clients, including eBay, Avenue A, Ebags.com and
Dr.Koop.com.
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 on line 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
Online traffic partnerships.
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Our online traffic partnerships enable us to link our advertisers to
consumers who may not otherwise use the FindWhat.com search engine. We have
agreements with Go2Net, Mamma.com, WebInfoSearch and Cyber Networks, Inc. to
provide search results on their meta-search engines. We also target heavily
trafficked sites, browsers, community portals and Internet service providers.
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."
Affiliate program. Central to our Internet-based marketing is an affiliate
program that allows other web sites to place the FindWhat.com search interface
on their pages in the form of small boxes or banners. Our 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. Our affiliates earn money for each click-through generated by a search on
their site. We attempt to place FindWhat.com links on high traffic, high profile
web sites and pay other web site owners fees to provide the necessary incentive
to enter into the link arrangement.
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 out of our New York and
Santa Monica 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.
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.
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o Radio: Radio is our primary consumer advertising launch 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.
o Outdoor Advertising: In December 1999, we launched outdoor (billboard)
campaigns in Los Angeles in selected high traffic locations. This
billboard advertising has been obtained through our agreement with Van
Wagner Outdoor.
o Online Advertising: We operate an online banner campaign to promote
FindWhat.com and our million dollar sweepstakes, featuring a "click and
win" promotion.
o Million Dollar Giveaway: Starting December 1999, we implemented a daily
million dollar lottery. Registered consumers have the chance to win $1
million in a daily online lottery. We believe the million-dollar lottery
provides an incentive to visit FindWhat.com repeatedly. A personalized
e-mail greeting welcomes consumers back each time. The lottery has been
arranged through a third party provider that guarantees payment of the
sweepstakes in return for flat fees from us.
o Public Relations: We have a public relations firm to exploit our contests
and other media activities.
Advertisers
We believe businesses that become FindWhat.com search engine clients are
those who are particularly interested in taking advantage of the growth of
e-commerce by driving motivated consumers to their web sites efficiently. Our
program to attract advertising clients includes:
o Direct sales: Our sales staff targets companies with highly visible
web-based promotional programs and advertisers who are using competitive
services.
o 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 try the service. To reach this larger market, we have
supplemented our direct-sales program with an advertising campaign on
business-oriented media.
o Online promotion: Our online promotional program includes banner
advertisements and preferred placement on search engines.
o 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
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the year.
o 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.
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:
o search listing paid click-throughs on the FindWhat.com search
engine,
o banner advertising on the FindWhat.com search results pages,
o set-up fees on our BeFirst.com service, and
o 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 web site optimization
services to be performed by us for that client.
BeFirst.com click-through fees.
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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
With an open bidding system that is automated, 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. The power of the model is demonstrated
by the quality of the advertisers that have enlisted since September 1999 as
shown in the following table:
FindWhat.com
Participating Companies
Category Company
Advertising Agency Avenue A
Auctions Ebay
Music Sonicnet/MTV
Flowers PC Flowers & Gifts, Flower.com
Pets Petstore.com
Health DrKoop.com, allherb.com
Travel Uniglobe.com
Rewards mypoints.com
Key Relationships
Inktomi. We have an agreement with Inktomi Corporation, a data
information provider, to provide supplemental data 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 to
purchase 725,000 shares of our common stock.
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LinkShare. We launched an affiliate marketing program with LinkShare
Corporation (http://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. We have entered into an agreement with Beasley
Broadcasting to provide us with $3 million worth of radio and internet
advertising. Beasley Broadcasting is the 16th largest radio broadcasting company
in the United States based on 1998 gross revenues. After giving effect to
pending acquisitions in Boston, Miami-Ft. Lauderdale, West Palm Beach and
Augusta, Beasley Broadcasting will own and operate 36 stations, located in nine
large and mid-sized markets in the eastern United States. Twelve of these
stations are located in four of the nation's top 12 radio markets: Atlanta,
Philadelphia, Boston and Miami-Ft. Lauderdale.
Competition
FindWhat.com
We compete with portals, pure search engines, and pay-for-performance
search engines.
o Portals
|*| Yahoo! |*| AOL |*| GO |*| iWon
|*| Excite |*| MSN |*| AltaVistal |*| About
|*| Netscape |*| Lycos |*| Snap
o Pure search engines
|*| Google |*| NorthernLight |*| LookSmart
|*| DirectHits |*| HotBot |*| WebCrawler
o Pay-for-performance search engines
|*| GoTo |*| RocketLinks
|*| HitsGalore |*| Kanoodle
In addition, other companies may offer directly competing services in the
future. Most providers of web directories, search 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 website for up to 300
search engines, directories and on-line "yellow pages," while we believe that
our competitors typically focus on only the top
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10 search engines.
Since the advent of web site 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 web site optimization business, our principal competitors are:
o Did-it.com
o 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 an excellent base from which
to grow our business.
We believe our current infrastructure is suitably sized to give web
surfers a positive feeling about their interaction with the FindWhat.com site.
The physical components of our infrastructure are comprised of equipment made by
some of the most recognized manufacturers in the business 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 site backup services through mica.net (Michigan
Internet Communication Association). We have hardware co-located at mica.net to
replicate the FindWhat.com web site should a catastrophic event occur. This
equipment includes three 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
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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 an accurate 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 "FindWhat.com," "BeFirst," "Be1st," "Find what
you're looking for," "pay for placement" and "a better search result." In
addition, we use and have common law rights in the marks "F.A.S.T.,""FindWhat
Advanced Search Technology" and "Search and Win." 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 web site optimization business. However, we do
rely upon common law trade secret, 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 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 commence
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
13
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 Santa Monica, California, and an
executive, administrative and techical facility in Fort Myers, Florida.
Employees
We currently have 35 employees, including our executive officers. We
have approximately seven employees in sales and marketing, eighteen in
technical and customer service, seven in administration and three executive
officers. In addition, WPI Advertising, Inc., an affiliate of one of our
executive officers, currently supplies us with certain services, including
office space and additional staff support.
Item 2. Properties.
We lease approximately 3,200 square feet of office space in Fort Myers,
Florida for current annual rent of $28,000. The lease commenced August 1,
1999 and has a three-year term. We share office space in New York with WPI
Advertising, Inc., an affiliate of Robert D. Brahms, our Chief Executive
Officer and director. We share office space in Santa Monica, California with
V-Lite Corporation, an affiliate of Courtney P. Jones, our Chairman of the
Board of Directors.
Item 3. Legal Proceedings.
We are not a party to any pending legal proceedings and are not aware of
any threatened legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Price Range Of Common Stock
From June 17, 1999 until October 7, 1999, 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." Prior to June 17, 1999, our common stock was
listed under the symbol "CAMJ" and traded infrequently.
14
The following table sets forth the high and low sales prices of our common stock
for the periods indicated as reported by the NASD's OTC Bulletin Board or the
National Quotation Bureau Inc.'s over-the-counter "pink-sheets":
Quarter Ended High Low
March 31, 2000 (through March 30,
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
Such prices reflect inter-dealer quotations, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
On March 29, 2000, the last reported sale price of our common stock on
the OTC Bulletin Board was $11.50 per share. The number of record holders of our
common stock was 128 as of March 28, 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.
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 in the past three years. None of
these securities was registered under the Securities Act.
15
In October 1997, we sold 12,000,000 shares of common stock to a former
officer for a purchase price of $15,000 pursuant to Section 4(2) of the
Securities Act of 1933.
In June 1999, we cancelled 8,600,000 shares of common stock contributed to
us by Mr. Mick Jardine, and then effected a 1-for-2 reverse stock split of the
remaining outstanding shares of common stock.
Following the reverse split, in June 1999, we completed a private offering
of 1,250,000 shares of common stock to 39 individual and corporate accredited
investors purchasers for gross proceeds of $2,500,000. 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 Rule
506 of Regulation D under the Securities Act.
In June 1999, we acquired all of the outstanding capital stock of BeFirst
Internet Corporation in exchange for the issuance of 8,750,000 shares of common
stock to Messrs. Courtney P. Jones, Craig A. Pisaris-Henderson, Robert D.
Brahms, Peter Miller, Tony Garcia and Christopher Knight Whitaker, the former
stockholders of BeFirst Internet Corporation. The certificates representing the
shares of common stock were appropriately legended. In the opinion of
FindWhat.com the issuance of these shares was exempt by pursuant to Section 4(2)
of the Securities Act and the rules promulgated thereunder.
In June 1999, we issued options under our 1999 Stock Incentive Plan to
purchase up to an aggregate of 663,713 shares of our common stock to certain
employees and non-employees of the Company at average weighted exercise prices
of $2.17 and $2.00 per share, respectively.
In September 1999, we issued options under our 1999 Stock Incentive Plan
to purchase up to an aggregate of 62,000 shares of our common stock to certain
employees and non-employees of the Company at average weighted exercise prices
of $4.00 and $4.50 per share, respectively.
In November 1999, we issued options under our 1999 Stock Incentive Plan to
purchase up to an aggregate of 3,000 shares of our common stock to certain
employees of the Company at an exercise price of $3.91 per share.
In November 1999, we entered into an agreement with Global Financial
Resources, Inc. for public investor relations services whereby we issued
non-plan stock options to purchase up to 150,000 shares of our common stock at
$3.75 per share. In March 2000, our agreement with Global Financial was
terminated and 68,750 of the option shares vested.
16
In November 1999, we entered into an agreement to issue 41,750 shares of
our common stock to Van Wagner Communications, LLC in consideration of $161,770
worth 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 by pursuant to Section 4(2) of the Securities Act and
the rules promulgated thereunder.
In November 1999, we entered into an agreement to issue 50,000 shares of
our common stock to David M. Medinis as consideration for consulting services.
In December 1999, Mr. Medinis became a member of our board of directors. The
certificates representing the shares of common stock were appropriately
legended. In the opinion of FindWhat.com the issuance of these shares was exempt
by pursuant to Section 4(2) of the Securities Act and the rules promulgated
thereunder.
In December 2000, we issued options under our 1999 Stock Incentive Plan
to purchase up to 500 shares of our common stock to an employee at an
exercise price of $4.12 per share.
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 by 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 by pursuant to Section 4(2)
of the Securities Act and the rules promulgated thereunder.
In January 2000, we issued options under our 1999 Stock Incentive Plan to
purchase up to an aggregate of 231,000 shares of our common stock to certain
employees and non-employees at a weighted average exercise price $5.50 per
share.
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
by pursuant to Section 4(2) of the Securities Act and the rules promulgated
thereunder.
17
In February 2000, we issued options under our 1999 Stock Incentive Plan to
purchase up to an aggregate of 20,000 shares of our common stock to certain
non-employee directors at an exercise price of 5.75 per share.
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 by pursuant
to Section 4(2) of the Securities Act and the rules promulgated thereunder.
Item 6. Selected Consolidated Financial Data.
The following selected statements of operations date for the period
from our inception on March 27, 1998 through December 31, 1998 and the year
ended December 31, 1999 and the selected balance sheet data as of December
31, 1999 and 1998 are derived from our consolidated financial statements and
related notes included elsewhere in this prospectus audited by Grant Thornton
LLP, our independent certified public accountants.
The pro forma balance sheet data is adjusted to reflect the issuance
of 1,100,000 shares of common stock subsequent to December 31, 1999.
Period from
March 27,
1998 (date of
Year ended inception) to
December 31, December 31,
1999 1998
----------- -----------
STATEMENT OF OPERATIONS DATA:
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 (1):
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
=========== ===========
December 31, 1999 December 31, 1999 December 31, 1998
Actual Pro Forma Actual
------ --------- ------
BALANCE SHEET DATA:
Current assets $ 1,021,856 $ 3,021,856 $ 15,165
Total assets 1,266,880 3,266,880 16,525
Working capital 788,875 2,788,875 (23,525)
Stockholders' equity
(deficit) 1,027,536 3,027,536 (22,165)
(1) 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 increase effective July 1, 1999 as if the
salaries hade been effective March 27, 1998.
Item 7. Management's Discussion and Analysis or Plan of Operation.
This management's discussion and analysis of financial condition contains
forward-looking statements, the accuracy of which involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify
forward-looking statements. This management's discussion and analysis also
contains forward-looking statements attributed to certain third parties relating
to their estimates regarding the growth of the Internet, Internet advertising
and online commerce markets and spending. Prospective investors should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this report. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons.
Overview
We are a developer and marketer of performance-based advertising services
for the Internet. Currently, we offer two proprietary services: FindWhat.com., a
pay-for-performance search engine and BeFirst.com, a web site optimization
service. Our focus is:
o to drive qualified traffic to Internet web sites and
o 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. 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
18
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
and consumers. As of March 23, 2000, consumers could find relevent search
listings for informtion products and services from approximately 2,300
participating advetisers who had placed over 1.15 million search listings up
from approximately 1,200 advetisers and more than 750,000 search lisitngs as
of December 31, 1999. For the year to date through March 23, 2000, the
FindWhat.com search engine had approximately 1.1 million paid click-throughs
with an average price per paid click-throughs with an average price per paid
click-through of $006. In all of 1999, the FindWhat.com search engine had
approximately 34,000 paid click-throughs.
The FindWhat.com search engine generates revenue consisting of search
listing 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 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 use it for their search needs and more attractive
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 service. To date, we have primarily attracted consumers through
online and offline marketing, including radio and outdoor advertising as well as
advertising on the Internet, and through our affiliates. 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.
19
Our BeFirst.com web 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. For the year ended December 31, 1999,
set-up fee charges represented less than 10% of BeFirst.com revenues.
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. As of March 23, 2000, BeFirst.com had
approximately 100 clients, including eBay, Avenue A, Ebags.com, and
Dr.Koop.com.
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 losses for the years ended December 31, 1999 and 1998 were $1,789,667
and $67,165, respectively.
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
Year ended December 31, 1999 and period from inception (March 27, 1998) to
December 31, 1998
Our fiscal year runs from January 1 through December 31. We began offering
our Internet web site optimization service in March 1998 and we commercially
launched our FindWhat.com(SM) search engine in September 1999. As a result of
these factors, comparisons between the fiscal years ended December 31, 1998 and
1999 have limited meaning.
20
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 providing the BeFirst.com service include salaries of related
personnel and web site domain registration expenses for clients. 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. 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, and the number of web site domain names
registered. 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 :
o advertising expenditures for the FindWhat.com search engine, such as
radio, outdoor and banner advertising campaigns and sponsorships,
o promotional expenditures, including proprietary contests to attract
consumers to the FindWhat.com web site and sponsorships of industry
seminars,
o revenue-sharing or other arrangements with our FindWhat.com
affiliates,
o fees to marketing and public relations firms, and
o 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.
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.
21
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 and multi-year marketing
agreement with Beasley Broadcast Group, the nation's 16th largest radio
broadcasting company based on gross revenue. We will receive $3 million worth of
radio advertising and online links and promotions across Beasley's media
properties and Beasley will receive 600,000 shares of restricted FindWhat.com
common stock. 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
lottery 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 that aggregate the search
offerings of several providers of 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 per-click
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
22
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 a 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 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 increased technical consulting services and increases in
compensation expense, in part related to the development of the FindWhat.com
search engine. 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 March 2000, we have raised
approximately $4.5 million through equity financings. To date, space
23
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. Through August 31, 1999, space and support services were provided to us
in Florida by Internet Services International, Inc., an affiliate of our
President, Craig Pisaris-Henderson. We have been billed for these services at
competitive rates.
Net cash used in operating activities totaled approximately $1,283,889
for the year ended December 31, 1999 and net cash provided by operating
activities was $8,402 for the period from inception (March 27, 1998) through
December 31, 1998. The increase in net cash used in the year ended December
31, 1999 was primarily attributable to cash used in marketing and sales
efforts as well as general and administrative and product development
expenses, partially offset by increases in revenue, stock option compensation
and increases in other current assets.
Net cash used in investing activities totaled approximately $260,056 for
the year ended December 31, 1999 and $1,700 for the period from inception (March
27, 1998) through December 31, 1998. This increase resulted primarily from
capital expenditures for equipment.
Net cash provided by financing activities totaled approximately $2,444,174
for the year ended December 31, 1999. We did not have any financing activities
in 1998. The activity in 1999 consisted of the net proceeds from a private
placement of our common stock in June 1999 in which the Company issued 1,250,000
shares of common stock for $2.00 per share and received gross proceeds of $2.5
million.
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.
Our principal sources of liquidity consisted of $906,931 of cash and cash
equivalents as of December 31, 1999. 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 currently anticipate that the net proceeds from our private
placements, together with cash flows from operations and anticipated
financings, will be sufficient to meet the anticipated liquidity needs for
working capital and capital expenditures over the next 12 months. In the
future, we may seek additional capital through the issuance of debt or equity
depending upon results of operations, market conditions or unforeseen
opportunities. 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. 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
24
above. As we require additional capital resources, we will seek to sell
additional equity or debt securities or obtain a bank line of credit. The sale
of additional equity or convertible debt securities could result in additional
dilution to existing stockholders. There can be no assurance that any financing
arrangements will be available in amounts or on terms acceptable to us, if at
all.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
Not appplicable.
Item 8. Financial Statements and Supplementary Data.
The Company's balance sheet as of December 31, 1999, 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, together with the independent certified public
accountants' report thereon appear on pages F-1 through F-17 hereof, and are
incorporated herein by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
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 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.
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.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required under this item is incorporated herein by reference to
the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders
pursuant to Regulation 14A.
Item 11. Executive Compensation.
25
Information required under this item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders
pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required under this item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders
pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
Information required under this item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders
pursuant to Regulation 14A.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report.
(1) The following Financial Statements are included in this Annual
Report on Form 10-K on the pages indicated below:
Independent Certified Public Accountants Report. F-2
Balance Sheets as of December 31, 1999 and 1998. F-3
Statement of Operations for the year ended December 31, 1999 and for the
period from March 27, 1998 (date of inception) to December 31, 1998. F-4
Statement of Stockholders' Equity (Deficit) for the year ended December
31, 1999 and for the period from March 27, 1998 (date of inception)
to December 31, 1998. F-5
Statement of Cash Flows for the year ended December 31, 1999 and for
the period from March 27, 1998 (date of inception) to December 31, 1998. F-6
(b) 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
10.1* Portal Services Agreement dated June 18, 1999 between Inktomi
Corporation and BeFirst Internet Corporation.
10.2* Lease Agreement by and between Cambridge Management Associates and
BeFirst.com Inc.
10.3* Agreement dated August 18, 1999 between Michigan Internet
Communication Association and BeFirst.com Inc.
10.4* BeFirst 1999 Stock Incentive Plan
10.5* Form of Incentive Stock Option Agreement
10.6* Form of Non-Qualified Stock Option Agreement
10.7(R) Search Result Agreement, dated December 22, 1999, between the
Registrant and Mamma.com.
10.8(R) Search Services Agreement, dated March 15, 2000, between the
Registrant and Go2Net, Inc.
26
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.
16.1** Letter from Pritchett, Siler & Hardy, P.C.
16.2** Letter from Levine, Levine & Meyrowitz, CPA's, P.C.
21 Subsidiaries of the Registrant
24 Power of Attorney
27 Financial Data Schedule
* Incorporated by reference to the exhibit previously filed on September 14,
1999 with prior Form 10 of FindWhat.com (file no. 0-27331).
** Incorporated by reference to the exhibit previously filed on November 1, 1999
with Amendment No. 1 to FindWhat.com's prior Form 10 (file no 0-27331).
(R) Please note that certain confidential commercial information has been
redacted from some of the exhibits attached to this Form 10-K in order to
preserve the confidentiality of such information. All of the confidential
information which has been redacted is on file with the Securities and Exchange
Commission. Exhibits to this Form 10-K which have had confidential information
redacted are indicated as follows on the exhibit list above: (R). Within
the exhibits to this Form 10-K, redacted material is indicated by the following
sign where such redacted text would have appeared in the relevant exhibit:
< < (**REDACTED**)
(c) Reports on Form 8-K
None
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FINDWHAT.COM
Date: March 30, 2000 By: /s/ Robert D. Brahms
---------------------------------
Robert D. Brahms, Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title
- - --------- -----
*
- - ------------------------------------------ Chairman of the Board and Director
Courtney P. Jones
*
- - ------------------------------------------ Chief Executive Officer and Director
Robert D. Brahms (principal executive officer)
*
- - ------------------------------------------ President, Chief Technology Officer
Craig A. Pisaris-Henderson and Director
/s/ Michael S. Schulman
- - ------------------------------------------ Chief Financial Officer
Michael S. Schulman (principal financial and
accounting officer)
*
- - ------------------------------------------ Director
David Medinis
*
- - ------------------------------------------ Director
Lee S. Simonson
*
- - ------------------------------------------ Director
Kenneth E. Christensen
*By /s/ Robert D. Brahms
--------------------------------------
Robert D. Brahms
Attorney-in-Fact
28
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Balance Sheets 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 - F-17
F-1
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
FindWhat.com
BALANCE SHEETS
December 31,
ASSETS
1999 1998
----------- -----------
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
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
FindWhat.com
STATEMENTS OF OPERATIONS
Period from
March 27,
1998 (date of
Year ended inception) to
December 31, December 31,
1999 1998
------------ ------------
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
============ ============
(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
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
Common stock, Common stock,
no par value $.001 par value Additional Deferred
---------------------- ----------------------- paid-in service
Shares Amount Shares Amount capital cost
--------- -------- ---------- -------- ----------- ---------
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)
========= ======== ========== ======== =========== =========
Stock
Accumulated subscription
deficit receivable Total
----------- ------------ ------------
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
=========== ========= ===========
The accompanying notes are an integral part of this statement.
F-5
FindWhat.com
STATEMENTS OF CASH FLOWS
Period from
March 27,
1998 (date of
Year ended inception) to
December 31, December 31,
1999 1998
----------- -----------
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
The accompanying notes are an integral part of these statements.
F-6
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
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:
o 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.
o 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).
o 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.
o The sole officer and director of FindWhat.com was replaced by a
board of directors from BeFirst Internet Corporation.
o 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
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
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
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
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
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.
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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)
====== ======
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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
======= ===== =======
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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.
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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