UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission file number 0-28968
APTIMUS, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1809146
(State of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
95 SOUTH JACKSON STREET, SUITE 300
SEATTLE, WASHINGTON 98104
(Address of principal executive offices and zip code)
(206) 441-9100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
The number of shares of the registrant's Common Stock outstanding as of
July 15, 2003 was 4,220,933.
APTIMUS, INC.
INDEX TO THE FORM 10-Q
For the quarterly period ended June 30, 2003
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance sheets as of December 31, 2002 and June 30, 2003....................... 1
Statements of Operations for the three and six months ended
June 30, 2002 and 2003......................................................... 2
Condensed Statements of Cash Flows for the six months ended
June 30, 2002 and 2003......................................................... 3
Notes to Financial Statements.................................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................ 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................... 13
ITEM 4. CONTROLS AND PROCEDURES........................................................ 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................. 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................... 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 14
ITEM 5. OTHER INFORMATION.............................................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 14
SIGNATURES................................................................................ 16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APTIMUS, INC.
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
December 31, June 30,
2002 2003
---------------- --------------
ASSETS
Cash and cash equivalents $ 667 $ 71
Accounts receivable, net 530 526
Prepaid expenses and other assets 159 75
Short-term investments 51 --
---------------- -----------------
Total current assets 1,407 672
Fixed assets, net 440 363
Intangible assets, net 24 40
Long-term investments 40 40
Deposits 30 30
---------------- -----------------
$ 1,941 $ 1,145
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 297 $ 464
Accrued and other liabilities 344 316
Current portion of capital lease obligations 68 122
---------------- -----------------
Total current liabilities 709 902
Notes Payable 50
Commitments and contingent liabilities (note 5)
Total Liabilites 952
Shareholders' equity 50
Common stock, no par value; 100,000 shares authorized, 4,221 issued
and outstanding at December 31, 2002 and June 30, 2003 60,282 60,282
Additional paid-in capital 2,506 2,506
Deferred stock compensation (2) --
Accumulated deficit (61,554) (62,595)
---------------- -----------------
Total shareholders' equity 1,232 193
---------------- -----------------
$ 1,941 $ 1,145
================ =================
The accompanying notes are an integral part of these financial statements.
-1-
APTIMUS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2003 2002 2003
------------ ----------- ----------- ------------
Net revenues $ 782 $ 938 $ 1,555 $ 1,849
Operating expenses
Sales and marketing 596 323 1,139 671
Connectivity and network costs 417 348 739 627
Partner fees 315 189 570 409
Research and development 149 136 299 269
General and administrative 439 329 907 678
Depreciation and amortization 363 64 726 189
Equity-based compensation 3 -- 7 1
Loss (gain) on disposal of long-term (8) (14) (31) 44
assets
------------ ----------- ----------- ------------
Total operating expenses 2,274 1,375 4,356 2,888
Operating loss (1,492) (437) (2,801) (1,039)
Interest expense (7) (1) (15) (4)
Interest income 13 1 33 2
------------ ----------- ----------- ------------
Net loss $ (1,486) $ (437) $ (2,783) $ (1,041)
============ =========== =========== ============
Basic and diluted net loss per share $ (0.37) $ (0.10) $ (0.70) $ (0.25)
============ =========== =========== ============
Weighted-average shares used in 4,020 4,221 4,003 4,221
computing basic and diluted net loss
per share
The accompanying notes are an integral part of these financial statements.
-2-
APTIMUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30,
----------------------------------------
2002 2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,783) $ (1,041)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 726 189
Bad debt expense 1 19
Amortization of deferred compensation 7 2
(Gain) loss on disposal of long-term assets (31) 44
Cash paid for restructuring costs (15) --
Amortization of discount on short-term investments (4) --
Changes in assets and liabilities, net of impact of acquisitions:
Accounts receivable (164) (15)
Prepaid expenses and other assets 93 88
Accounts payable 115 167
Accrued and other liabilities 57 (28)
------------------ ------------------
Net cash used in operating activities (1,998) (575)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (14) (21)
Proceeds from disposal of assets 23 13
Payments for intangible assets -- (31)
Purchase of short-term investments (1) --
Sale of short-term investments 1,000 51
------------------ ------------------
Net cash provided by investing activities 1,008 12
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital leases (44) (83)
Proceeds from notes payable -- 50
Repayment of notes payable (76) --
Notes issued to shareholders (27) --
Issuance of common stock, net of issuance stocks 5 --
------------------ ------------------
Net cash used in financing activities (142) (33)
------------------ ------------------
Net decrease in cash and cash equivalents (1,132) (596)
------------------ ------------------
Cash and cash equivalents at beginning of period 3,651 667
------------------ ------------------
Cash and cash equivalents at end of period $ 2,519 $ 71
------------------ ------------------
-3-
The accompanying notes are an integral part of these financial statements.
APTIMUS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments that, in the opinion of
management, are necessary to present fairly the financial information set forth
therein. Certain information and note disclosures normally included in financial
statements, prepared in accordance with accounting principles generally accepted
in the United States America, have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC).
The unaudited financial statements should be read in conjunction with the
Company's audited financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K filed with the SEC on March 31, 2003. The
results of operations for the three months ended June 30, 2003 are not
necessarily indicative of the results to be expected for any subsequent quarter
or the entire year ending December 31, 2003.
Certain changes have been made to the description and presentation of the
Statement of Operations during the current year. Losses and gains on the
disposal of long-term assets have been reclassified to their own line item that
is included in the loss from operations. Such costs were included in the other
(income) expense category in prior years. Interest income is the only other item
that was included in this other income (expense) category. Interest income is
now shown as a separate line item after the loss from operations subtotal. Prior
period presentation has been changed to conform to current period presentation.
These changes to the description and presentation of the Statement of Operations
had no effect on net loss.
Our business has been operating at a loss and generating negative cash flows
from operations since inception. As of June 30, 2003, we had accumulated losses
of approximately $62.6 million. Even with anticipated growth in revenues, we
expect our losses and negative cash flows are likely to continue during the
quarter ending September 30, 2003.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. If the Company is unable to increase
revenues or contain operating expenses as planned it may not have sufficient
funds to satisfy its cash requirements. The Company may be forced to curtail
operations further, dispose of assets or seek additional funding. Such events
would materially and adversely affect the value of the Company's equity
securities. There can be no assurance that the Company will be able to
successfully complete the steps necessary to continue as a going concern.
2. REVENUE RECOGNITION
The Company currently derives revenue from providing lead generation and
customer acquisition programs through a network of website and email
distribution partners.
Revenue earned for lead generation through the Aptimus network is based on a fee
per lead and is recognized when the lead information is delivered to the client.
Revenue earned for e-mail mailings can be based on a fee per lead, a percentage
of revenue earned from the mailing, or a cost per thousand e-mails delivered.
Revenue from e-mail mailings delivered on a cost per thousand basis is
recognized when the e-mail is delivered. Revenues from e-mail mailings sent on a
fee per lead or a percentage of revenue earned from the mailing basis are
recognized when amounts are determinable, generally when the customer receives
the leads.
Revenues generated through network partners and opt-in email list owners are
recorded on a gross basis in accordance with Emerging Issues Task Force
consensus 99-19 (EITF 99-19). Fees paid to network partners and opt-in email
list owners related to these revenues are shown as Partner fees on the Statement
of Operations. Email based campaigns that are sent to Company owned lists do not
have partner fees associated with them.
The Company has evaluated the guidance provided by EITF 99-19 as it relates to
determining whether revenue should be recorded gross or net for the payments
made to network partners and opt-in email list owners. The Company has
determined the recording of revenues gross is appropriate based upon the
following factors:
-4-
o Aptimus acts as a principal in these transactions;
o Aptimus and its customer are the only companies identified in the
signed contracts;
o Aptimus is solely responsible to the client for fulfillment of the
contract;
o Aptimus determines how the offer will be presented across the network;
and
o Amounts earned are based on leads or emails delivered and are not
based on amounts paid to partners.
In addition to the ongoing revenue related to the network and email mailings
some revenue has been recognized through March 31, 2002 related to services
performed on the FreeShop site. These revenues have been recognized when
received, as collection was not reasonably assured at the time the services were
performed. As of June 30, 2003 it is not expected that any additional amounts
will be received that have not been previously recognized as revenue.
Prior to May 15, 2001 the Company derived revenue from its online marketing
service activities, including lead generation, advertising, and list rental.
Lead generation revenues consist of fees received, generally on a per inquiry
basis, for delivery of leads to clients. Revenue is recognized in the period the
leads are provided to the client.
Advertising revenues consist of email newsletter sponsorships, banner
advertising, and anchor positions. Newsletter sponsorship revenues are derived
from a fixed fee or a fee based on the circulation of the newsletter. Newsletter
sponsorship revenues are recognized in the period in which the newsletter is
delivered. Banner advertising and anchor positions can be based on impressions,
fixed fees, or click throughs. Fixed fee contracts, which range from three
months to two years, are recognized ratably over the term of the agreement,
provided that no significant Company obligations remain. Revenue from
impressions or click through based contracts is recognized based on the
proportion of impressions or click throughs delivered, to the total number of
guaranteed impressions or click throughs provided for under the related
contracts.
List rental revenues are received from the rental of customer names to third
parties through the use of list brokers. Revenue from list rental activities is
recognized in the period the names are delivered by the list broker to the third
party.
3. STOCK COMPENSATION
At June 30, 2003, the Company has two stock-based employee compensation plans,
which are more fully described in the Company's Annual Report on Form 10-K filed
with the SEC on March 31, 2003. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. The following table
illustrates the effect on net income and earning per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation
for the three and six months ended June 30:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2003 2002 2003
--------------------------------------------
Net loss, as reported......................................... $(1,486) $(437) $(2,783) $(1,041)
Add: Total stock-based employee compensation expense,
included in the determination of net income as reported,
net of related tax effects.................................... 3 -- 7 2
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net (93) (47) (238) (89)
of related tax effects....................................... ----- ----- ------ -----
Pro forma net loss........................................... $(1,576) $(484) $(3,014) $(1,128)
-5-
Earnings per share:
Basic - as reported....................................... $ (0.37) $ (0.10) $ (0.70) $ (0.25)
Basic - pro forma......................................... $ (0.39) $ (0.11) $ (0.75) $ (0.27)
4. NET LOSS PER SHARE
Basic net loss per share represents net loss available to common shareholders
divided by the weighted average number of shares outstanding during the period.
Diluted net loss per share represents net loss available to common shareholders
divided by the weighted average number of shares outstanding, including the
potentially dilutive impact of common stock options and warrants. Common stock
options and warrants are converted using the treasury stock method. Basic and
diluted net loss per share is equal for all periods presented because the impact
of common stock equivalents is antidilutive.
The following table sets forth the computation of the numerators and
denominators in the basic and diluted net loss per share calculations for the
periods indicated and the common stock equivalent securities as of the end of
the period that are not included in the diluted net loss per share calculation
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2002 2003 2002 2003
------------ ----------- ------------ ------------
Numerator:
Net loss............................................... $ (1,486) $ (437) $(2,783) $(1,041)
Denominator:
Weighted average shares used in computing net loss
per share........................................... 4,020 4,221 4,003 4,221
Potentially dilutive securities consist of the
following:
Options to purchase common stock 1,469 1,674 1,469 1,674
Warrants to purchase common stock................... 16 -- 16 --
------------ ----------- ------------ -------------
1,485 1,674 1,485 1,674
============ =========== ============ =============
5. COMMITMENTS AND CONTINGENCIES
The Company's office facilities are leased under operating leases that
provide for minimum rentals and require payment of property taxes and include
escalation clauses. In addition, the Company also leases certain equipment under
agreements treated for financial reporting purposes as capital leases. In June
of 2003 the Company entered into a new capital lease for computer equipment. The
initial term of the lease is for the Company to make 12 payments of varying
amounts over the next year. The payment schedule calls for $25,000 as the first
payment, 5 payments of $18,000 and then 6 payments of $1,847. At the end of the
initial lease term, the Company has the option of continuing with the lease on a
$7,00 per month basis or it can purchase the leased equipment at a cost not to
exceed $31,016.
Future minimum lease payments under the non-cancelable leases are as
follows (in thousands).
Capital Operating
Leases Leases
------ ------
Six months ending December 31, 2003............. $ 102 $ 109
Year ending December 31, 2004................... 44 46
------ --------
Total minimum lease payments...................... 146 $ 155
------ --------
Less: Amount representing interest................ (24)
------
Present value of capital lease obligations........ 122
Less: Current portion............................. (122)
------
Capital lease obligations, net of current $ --
portion........................................... ======
-6-
6. SUBSEQUENT EVENTS
In July 2003 the Company completed raising $305,000 pursuant to the terms of a
Convertible Promissory Note, which will pay interest of 6% per annum like a
bond, but can be converted to shares of common stock at the option of the holder
at a fixed price of $0.80 per share. The note has a 36-month term. Principal and
accrued interest is payable quarterly, commencing one year from the closing
date. In addition to the notes, the Company has issued to the investors warrants
to purchase a total of 127,094 shares of common stock for $0.50 per share. The
warrants have a term of five years. The $50,000 long-term note payable in the
June 30, 2003 balance sheet is an advance on the Convertible Promissory Note
that was received on June 27th. The remaining $255,000 is anticipated to be
received by August 2003.
In July 2003 the Company also obtained a line-of-credit with Comerica Bank for
up to $500,000, with a term of one year, which is renewable at the company's
option, and is secured by the company's assets. The line-of-credit bears
interest at prime plus three percent. Timothy C. Choate, the Company Chief
Executive Officer, personally guaranteed the line-of-credit.
7. NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123. This Statement amends SFAS 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, it
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The adoption of this standard has not resulted in an
impact to results of operations or financial position of the Company as the
Company continues to follow the intrinsic value method to account for
stock-based employee compensation. The additional disclosure requirements of
this Statement have been adopted.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The adoption of this standard has not resulted in
an impact to results of operations or financial position of the Company, as the
Company has no financial instruments that fall within the scope of this
standard.
-7-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this filing constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements can often be identified by terminology such as may,
will, should, expect, plan, intend, expect, anticipate, believe, estimate,
predict, potential or continue, the negative of such terms or other comparable
terminology. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Aptimus, Inc. ("Aptimus", "we", "us" or the "Company"), or
developments in the Company's industry, to differ materially from the
anticipated results, performance or achievements expressed or implied by such
forward-looking statements. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements include, without limitation, fluctuation of the Company's operating
results, the ability to compete successfully, the ability of the Company to
maintain current client and distribution partner relationships and attract new
ones, and the sufficiency of remaining cash and short-term investments to fund
ongoing operations. For additional factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements,
please see the risks and uncertainties described under "Business -- Risk
Factors" in Exhibit 99.1 to our Form 10-Q for the quarter ended March 31, 2003,
which factors are hereby incorporated by reference in this report.
Although we believe the expectations reflected in our forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements or other future events. Moreover, neither we nor
anyone else assumes responsibility for the accuracy and completeness of
forward-looking statements. We are under no duty to update any of our
forward-looking statements after the date of this filing. You should not place
undue reliance on forward-looking statements.
OVERVIEW
We began our direct marketing business in 1994 as the FreeShop division of
Online Interactive, Inc. In addition to operating the FreeShop division, Online
Interactive was also engaged in the business of selling software over the
Internet. In July 1997, Online Interactive transferred the FreeShop division to
FreeShop International, Inc., a newly formed, wholly owned subsidiary, and spun
off FreeShop International through a distribution to its shareholders. On
February 19, 1999, FreeShop International changed its name to FreeShop.com, Inc.
On October 16, 2000 FreeShop.com, Inc. changed its name to Aptimus, Inc.
Today, Aptimus' mission is to provide the most powerful and effective ways
to acquire new customers via the Internet. This is the same mission we had in
1994 when we launched our business. We continue to believe that the Internet is
the most important new medium for customer acquisition objectives in recent
history.
We are positioning ourselves to be the leading online direct response
network. Our focus is creating high volume performance-based customer
acquisition solutions for major consumer marketers. To achieve these objectives,
we leverage our proprietary technology platform to dynamically present offers to
large volumes of transacting consumers at the point of transaction, when they
are most likely to respond, across a broad variety of web sites. In our network
we focus our efforts around two primary offer presentation formats:
1. Co-Registration - We present relevant offers to transacting consumers
in a manner that allows them to "opt-in" or choose the offers they
wish to receive. By managing the registration process, we can target
offers "real time" based on the site demographics, the data entered in
the order process (e.g. geo-targeting), and/or the substance of the
specific transaction. Managed transactions include product purchases,
email and site registrations or joins, and other transactional actions
occurring on the web sites of our distribution partners.
2. Email - We present relevant offers to consumers via opt-in email
lists, including lists that we own, lists that we manage for others,
and third party lists.
We derive our revenues primarily from lead generation contracts related to
the Aptimus network of sites and opt-in email lists. We receive lead generation
revenues when we deliver customer information to a marketer in connection with
an offer presented via our network. The services we deliver are primarily sold
under short-term agreements
-8-
that are subject to cancellation. We recognize revenues in the period in which
we deliver the service, provided we have no further performance obligation.
In the quarters ended June 30, 2002 and 2003 our ten largest clients
accounted for 50.2% and 62.9% of our net revenues, respectively. During the
quarter ended June 30, 2002 MyPoints.com, Inc. was our largest client accounting
for 14.1% of our net revenues. No other client accounted for more than 10% of
our net revenues in the quarter ended June 30, 2002. During the quarter ended
June 30, 2003 Leadclick Media, Inc. was our largest client accounting for 13.2%
of our net revenues. No other client accounted for more than 10% of our net
revenues in the quarter ended June 30, 2003. For the six months ended June 30,
2002 and 2003 our ten largest clients accounted for 46.2% and 59.1% of our net
revenues, respectively. During the six months ended June 30, 2002 MyPoints.com,
Inc. was our largest client accounting for 15.0% of our revenues. No other
client accounted for more than 10% of our net revenues in the six months ended
June 30, 2002. During the six months ended June 30, 2003 Blue Dolphin, Inc.
accounted for 12.1% and Leadclick Media, Inc. accounted for 11.6% of our net
revenues. No other client accounted for more than 10% of our net revenues in the
six months ended June 30, 2003.
Our business has been operating at a loss and generating negative cash
flows from operations since inception. As of June 30, 2003, we had an
accumulated deficit of approximately $62.6 million. With the reductions in
continuing operating expenses that have been made and growth in revenues, we
anticipate achieving positive earnings and cash flows by the end of the year
ending December 31, 2003. However, there are still many challenges to achieving
this goal, including the availability of additional financing, and the
achievement is by no means assured. See "Risks Related to Our Business".
On March 7, 2003, our common stock was delisted from the Nasdaq SmallCap
Market due to our noncompliance with the continued listing standards for that
market. Since March 7, 2003, our common stock has been quoted on the OTCBB under
the symbol APTM.
In July 2003 the Company completed raising $305,000 pursuant to the terms
of a Convertible Promissory Note, which will pay interest of 6% per annum like a
bond, but can be converted to shares of common stock at the option of the holder
at a fixed price of $0.80 per share. The note has a 36-month term. Principal and
accrued interest is payable quarterly, commencing one year from the closing
date. In addition to the notes, the Company has issued to the investors warrants
to purchase a total of 127,094 shares of common stock for $0.50 per share. The
warrants have a term of five years. The $50,000 long-term note payable in the
June 30, 2003 balance sheet is an advance on the Convertible Promissory Note
that was received on June 27th. The remaining $255,000 is anticipated to be
received in August 2003.
In July 2003 the Company also obtained a line-of-credit with Comerica Bank
for up to $500,000, with a term of one year, which is renewable at the company's
option, and is secured by the company's assets. The line-of-credit bears
interest at prime plus three percent. Timothy C. Choate, the Company's Chief
Executive Officer, personally guaranteed the line-of-credit.
RESULTS OF OPERATIONS
Revenues
We currently derive our revenues primarily from network activities, which
include both lead generation activities through a network of partners and e-mail
mailings. Our revenues increased by $156,000, or 20%, to $938,000 in the quarter
ended June 30, 2003 from $782,000 in the same quarter of 2002. For the six
months ended June 30, 2003, net revenues have increased by $294,000 or 19% to
$1.8 million, from $1.5 million in the first six months of 2002. Included in the
prior year revenue amount is $78,000 related to the old FreeShop site. The
majority of the increase results from implementation of the Aptimail program
which uses dynamic revenue optimization technology. The Aptimail program was
launched towards the end of June 2002.
Sales and Marketing
Sales and marketing expenses consist primarily of marketing and operational
personnel costs, bad debts, and outside sales costs. Sales and marketing
expenses decreased by $273,000 to $323,000, or 34% of net revenues, in the
quarter ended June 30, 2003 from $596,000, or 76% of net revenues, in the same
quarter of 2002. For the six months ended
-9-
June 30, 2003 sales and marketing expenses have decreased by $468,000 to
$671,000, or 36% of net revenues, from $1.1 million, or 73% of net revenues, in
the first six months of 2002. On a year to date basis, the decrease in sales and
marketing expenses is primarily a result of reduced labor costs, resulting from
reductions in workforce, and reduced rent expense as a result of renegotiating
existing leases. Sales and marketing expense for the remaining quarters of 2003
is expected to be similar to the second quarter of 2003.
Connectivity and Network Costs
Connectivity and network costs consist of expenses associated with the
maintenance and usage of our network as well as email delivery costs. Such costs
include email delivery costs, Internet connection charges, hosting facility
costs, banner ad serving fees and personnel costs. Connectivity and network
costs decreased by $69,000 to $348,000, or 37% of net revenues, in the quarter
ended June 30, 2003 from $417,000, or 53% of net revenues, in the same quarter
of 2002. For the six months ended June 30, 2003 connectivity and network costs
have decreased by $112,000 to $627,000, or 34% of net revenues, from $739,000,
or 48% of net revenues, in the first six months of 2002. On a year to date basis
the decrease is primarily the result of decreases in rent expense resulting from
the renegotiation of leases, decreases in connectivity resulting from scaling
back the level of operations outsourced and decreases in email delivery costs as
a result of switching delivery vendors. These three items account for 25%, 35%,
and 29% of the decrease in connectivity and network costs, respectively.
Connectivity and network costs for the remaining quarters of 2003 are expected
to be similar to the second quarter of 2003.
Partner fees
Partner fees consist of fees owed to network distribution partners and opt-in
email list owners based on revenue generating activities created in conjunction
with these partners. Partner fees decreased by $126,000 to $189,000, or 20% of
net revenues, in the quarter ended June 30, 2003 from $315,000, or 40% of net
revenues, in the same quarter of 2002. For the six months ended June 30, 2003
partner fees have decreased by $161,000 to $409,000, or 22% of net revenues,
from $570,000, or 37% of net revenues, in the first six months of 2002. Partner
fees have decreased on an absolute and a percentage of revenue basis as a result
of the continued growth in email based marketing campaigns and as a result of
purchases of some email lists. Email based campaigns that are sent to
Company-owned lists do not have any partner fees associated with them. Also the
cost of delivering the emails and certain third-party costs are generally
deducted before calculating the fees due partners for email based campaigns not
sent to Company-owned lists.
Research and Development
Research and development expenses primarily consist of personnel costs related
to maintaining and enhancing the features, content and functionality of our Web
sites, network and related systems. Research and development expenses decreased
by $13,000 to $136,000, or 15% of net revenues, in the quarter ended June 30,
2003 from $149,000, or 19% of net revenues, in the same quarter of 2002. For the
six months ended June 30, 2003 research and development expenses have decreased
by $30,000 to $269,000, or 15% of net revenues, from $299,000, or 19% of net
revenues, in the first six months of 2002. This decrease in research and
development expense was primarily due to a decrease in rent expense as a result
of renegotiation of the Company's Seattle lease. Research and development
expense for the remaining quarters of 2003 is expected to be similar to the
second quarter of 2003.
General and Administrative
General and administrative expenses primarily consist of management, financial
and administrative personnel expenses and related costs and professional service
fees. General and administrative expenses decreased by $110,000 to $329,000, or
35% of net revenues, in the quarter ended June 30, 2003 from $439,000, or 56% of
net revenues, in the same quarter of 2002. For the six months ended June 30,
2003 general and administrative expenses have decreased by $229,000 to $678,000,
or 37% of net revenues, from $907,000, or 58% of net revenues, in the first six
months of 2002. There are four significant items that compose the majority of
the decrease in general and administrative expenses. Reduction in professional
service fees, primarily legal fees, as a result of fewer issues requiring
assistance from outside council in the current year to date, a decrease in labor
related costs as a result of additional reductions in administrative staff, a
decrease in rent expense resulting from renegotiation of the Company's office
leases and a reduction in business taxes resulting from the inclusion of an
additional California tax liability in the first quarter of 2002. On a year to
date basis these four items contributed 17%, 33%, 29%, and 15% of the decrease
in general and administrative expense.
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General and administrative expense for the remaining quarters of 2003 is
expected to be similar to the second quarter of 2003.
Depreciation and Amortization
Depreciation and amortization expenses consist of depreciation on leased and
owned computer equipment, software, office equipment and furniture and
amortization on intellectual property and purchased email lists. Depreciation
and amortization expenses decreased by $299,000 to $64,000, or 7% of net
revenues, in the quarter ended June 30, 2003 compared to $363,000, or 46% of net
revenues, in the same quarter of 2002. For the six months ended June 30, 2003
depreciation and amortization expenses have decreased by $537,000 to $189,000,
or 10% of net revenues, from $726,000, or 47% of net revenues, in the first six
months of 2002. The continued decrease in depreciation and amortization is a
result of the many assets becoming fully depreciated and the disposal of
additional assets during 2002, primarily leasehold improvements. Depreciation
and amortization is expected to be slightly higher in the remaining two quarters
of 2003 compared to the second quarter of 2003 due to fixed asset additions made
at the end of the second quarter and the beginning of the third quarter.
Equity-Based Compensation
Equity-based compensation expenses consist of amortization of unearned
compensation recognized in connection with stock options and stock grants
granted to employees and directors at prices below the fair market value of our
common stock. Unearned compensation is recorded based on the intrinsic value
when we issue stock options to employees and directors at an exercise price
below the estimated fair market value of our common stock at the date of grant.
Unearned compensation is also recorded based on the fair value of the options
granted as calculated using the Black-Scholes option pricing model when options
or warrants are issued to advisors and other service providers. Unearned
compensation is amortized over the vesting period of the option or warrant.
Equity-based compensation expenses decreased by $3,000 to $0, in the quarter
ended June 30, 2003 compared to $3,000, or less than 1% of net revenues, in the
same quarter of 2002. For the six months ended June 30, 2003 equity-based
compensation expenses have decreased by $6,000 to $1,000, or less than 1% of net
revenues, from $7,000, or less than 1%, in the first six months of 2002. The
decrease results from the continued decline in the unearned compensation balance
resulting from amortization of the balance. Equity based compensation for the
remaining quarters of 2003 is expected to be minimal.
Loss (gain) on disposal of long-term assets
Loss (gain) on disposal of long-term assets consists of gains and losses on
disposals of assets and impairments on long-term investments. Gain on disposal
of long-term assets totaled $14,000, or 2% of revenue, in the quarter ended June
30, 2003. This gain was primarily resulted from a lower bargain purchase option
than was estimated in recording the lease. In the comparable period of the prior
year there was a $8,000 gain from disposal of long-term assets. This gain
resulted from the sale of various small assets no longer needed as a result of
the decrease in the number of employees.
Interest Expense
Interest expense in the current year results from capital equipment leases. In
the prior year interest expense also resulted from notes payable used to finance
the Company's D&O insurance premiums. Interest expense totaled $1,000 in the
quarter ended June 30, 2003 and $7,000 in the same quarter of 2002. The decrease
in interest expense is a result of the D&O premiums not being financed in the
current year and lower principle balances on the capital leases than in the
prior year.
Interest Income
Interest income results from earnings on the Company's available cash reserves.
Interest income totaled $1,000 in the quarter ended June 30, 2003 and $13,000 in
the same quarter of 2002. The decrease in interest income is primarily a result
of lower cash balances available for investment.
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Income Taxes
No provision for federal income taxes has been recorded for any of the periods
presented due to the Company's current loss position.
LIQUIDITY AND CAPITAL RESOURCES
Since we began operating as an independent company in July 1997, we have
financed our operations primarily through the issuance of equity securities.
Gross proceeds from the issuance of stock through June 30, 2003 totaled $65.7
million, including $21.5 million raised from Fingerhut Companies. As of June 30,
2003, we had approximately $71,000 in cash and cash equivalents and a working
capital deficit of $230,000. No off-balance sheet assets or liabilities existed
at June 30, 2003.
Net cash used in operating activities was $575,000 and $2.0 million in the six
months ended June 30, 2003 and 2002, respectively. Cash used in operating
activities in the six months ended June 30, 2003 resulted primarily from $1.0
million of net loss. Net cash outflows from operations were decreased by
$254,000 of non-cash expenses, a $88,000 decrease in prepaid expenses and other
assets, and a $167,000 increase in accounts payable. Net cash outflows from
operations were increased by a $15,000 increase in accounts receivable and a
$28,000 decrease in accrued and other liabilities. Cash used in operating
activities in the six months ended June 30, 2002 resulted primarily from $2.8
million of net loss. Net cash outflows from operations were increased by $15,000
of restructuring costs paid in the period, $31,000 of gains on equipment sales,
$4,000 in amortization of discount on short-term investments, and a $164,000
increase in accounts receivable. Net cash outflows were offset by $734,000 of
non-cash expenses, a $93,000 decrease in prepaid expenses and other assets, a
$115,000 increase in accounts payable and a $57,000 increase in accrued and
other liabilities.
Net cash provided by investing activities was $12,000 and $1.0 million in the
six months ended June 30, 2003 and 2002, respectively. In the six months ended
June 30, 2003, $51,000 was received from the maturity of a certificate of
deposit. In addition to the maturity of the certificate of deposit, $13,000 was
received from the sale of long-term assets and $52,000 was used for the purchase
of additional equipment and intangible assets. In the six months ended June 30,
2002, $1.0 million was received from the maturity of commercial paper purchased
in 2001. In addition to the maturity of commercial paper $23,000 was received
from the disposal of fixed assets that was offset by $14,000 of equipment
purchases.
Net cash used in financing activities was $33,000 and $142,000 in the six months
ended June 30, 2003 and 2002, respectively. In the six months ended June 30,
2003, net cash used in financing activities resulted from $83,000 in principal
payments made on capital leases and $50,000 received from the issuance of a note
payable. In the six months ended June 30, 2002, net cash used in financing
activities resulted from $76,000 in principal payments made on a note payable,
$44,000 in principle payments on capital leases, and $27,000 loaned to officers
for the purchase of company stock. These uses of cash were offset by $5,000
received for the issuance of common stock resulting from exercise of stock
options.
We believe our current cash and cash equivalents, after raising $305,000 in
convertible debt instruments and securing a $500,000 line-of-credit will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for the next three to six months. Thereafter, we may need to raise
additional capital to meet our long-term operating requirements. Subject to the
receipt of such additional financing, if required, on terms favorable to the
Company, we anticipate achieving positive earnings and cash flows in the near
future. However, there are still many challenges to achieving this goal and the
achievement is by no means assured.
Our cash requirements depend on several factors, including the level of
expenditures on advertising and brand awareness, the rate of market acceptance
of our services and the extent to which we use cash for acquisitions and
strategic investments. Unanticipated expenses, poor financial results or
unanticipated opportunities requiring financial commitments could give rise to
earlier financing requirements. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our shareholders would be reduced, and these securities might have rights,
preferences or privileges senior to those of our common stock. Additional
financing may not be available on terms favorable to us, or at all. The
delisting from the Nasdaq SmallCap Market and the going
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concern contingency contained in our audit report may make raising additional
capital more difficult. If adequate funds are not available or are not available
on acceptable terms, our ability to fund our expansion, take advantage of
business opportunities, develop or enhance services or products or otherwise
respond to competitive pressures would be significantly limited, and we might
need to significantly restrict our operations.
The following table summarizes the contractual obligations and commercial
commitments entered into by the Company.
Payments Due by Period
----------------------
Contractual Obligations Total 2003 2004
----------------------- ----- ---- ----
Capital lease obligations................. 146 102 44
Operating leases.......................... 155 109 46
Other long-term obligations............... 105 105 --
-------- -------- ------
Total Contractual Cash Obligations.... $ 406 $ 316 $ 90
======== ======== ======
The operating agreement included in other long-term obligations has been
terminated.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 2 to the financial
statements included in Item 8 of the Annual Report on Form 10-K, filed with the
SEC on March 31, 2003. We believe our most critical accounting policies include
revenue recognition, allowance for doubtful accounts and fixed assets.
The Company currently derives revenue from providing lead generation activities
through a network of partners and e-mail mailings. Revenue earned for lead
generation though the Aptimus network is based on a fee per lead and is
recognized when the lead information is delivered to the client. Revenue earned
for e-mail mailings can be based on a fee per lead, a percentage of revenue
earned from the mailing, or a cost per thousand e-mails sent. Revenue from
e-mail mailings sent on a cost per thousand basis is recognized when the e-mail
is delivered. Revenue from e-mail mailings sent on a fee per lead or a
percentage of revenue earned from the mailing basis is recognized when amounts
are determinable, generally when the customer receives the leads.
Revenues generated through network partners and opt-in email list owners are
recorded on a gross basis in accordance with Emerging Issues Task Force
consensus 99-17 (EITF 99-19). Fees paid to network partners and opt-in email
list owners related to these revenues were $409,000 and $570,000 for the six
months ended June 30, 2003 and 2002, respectively. These fees are shown as
Partner fees on the Statement of Operations. Email based campaigns that are sent
to Company owned lists do not have partner fees associated with them.
The company has evaluated the guidance provided by Emerging Issues Task Force
consensus 99-17 (EITF 99-19) as it relates to determining whether revenue should
be recorded gross or net of the payments made to network partners and opt-in
email list owners. The Company has determined the recording of revenues gross is
appropriate based upon the following factors:
o Aptimus acts as a principal in these transactions;
o Aptimus and its customer are the only companies identified in the
signed contracts;
o Aptimus is solely responsible to the client for fulfillment of the
contract;
o Aptimus determines how the offer will be presented across the network;
and
o Amounts earned are based on leads or emails delivered and are not
based on amounts paid to partners.
The estimate of allowance for doubtful accounts is comprised of two parts, a
specific account analysis and a general reserve. Accounts where specific
information indicates a potential loss may exist are reviewed and a specific
reserve
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against amounts due is recorded. As additional information becomes available
such specific account reserves are updated. Additionally, a general reserve is
applied to the aging categories based on historical collection and write-off
experience. As trends in historical collection and write-offs change, the
percentages applied against the aging categories are updated.
Property and equipment are stated at cost less accumulated depreciation and are
depreciated using the straight-line method over their estimated useful lives.
Leasehold improvements are amortized on a straight-line method over their
estimated useful lives or the term of the related lease, whichever is shorter.
Equipment under capital leases, which all contain bargain purchase options, is
recorded at the present value of minimum lease payments and is amortized using
the straight-line method over the estimated useful lives of the related assets.
The estimated useful lives are as follows:
Office furniture and equipment Five years
Computer hardware and software Three years
Leasehold improvements Three to Five years
The cost of normal maintenance and repairs are charged to expense as incurred
and expenditures for major improvements are capitalized. Gains or losses on the
disposition of assets in the normal course of business are reflected in
operating expenses as part of the results of operations at the time of disposal.
Changes in circumstances such as technological advances or changes to the
Company's business model can result in the actual useful lives differing from
the Company's estimates. In the event the Company determines that the useful
life of a capital asset should be shortened the Company would depreciate the net
book value in excess of the estimated salvage value, over its remaining useful
life thereby increasing depreciation expense. Long-lived assets, including fixed
assets and intangible assets other than goodwill, are reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of the
asset may not be recoverable. A review for impairment involves developing an
estimate of undiscounted cash flow and comparing this estimate to the carrying
value of the asset. The estimate of cash flow is based on, among other things,
certain assumptions about expected future operating performance. The Company's
estimates of undiscounted cash flow may differ from actual cash flow due to,
among other things, technological changes, economic conditions, changes to our
business model or changes in our operating performance.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123. This Statement amends SFAS 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, it
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The adoption of this standard has not resulted in an
impact to results of operations or financial position of the Company as the
Company continues to follow the intrinsic value method to account for
stock-based employee compensation. The additional disclosure requirements of
this Statement have been adopted.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The adoption of this standard has not resulted in
an impact to results of operations or financial position of the Company, as the
Company has no financial instruments that fall within the scope of this
standard.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of the Company's cash equivalents and capital lease obligations are at fixed
interest rates and therefore the fair value of these instruments is affected by
changes in market interest rates. As of June 30, 2003, however, the Company's
cash equivalents mature within one month. As of June 30, 2003, the Company
believes the reported amounts of cash equivalents and capital lease obligations
to be reasonable approximations of their fair values. As a
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result, the Company believes that the market risk and interest risk arising from
its holding of financial instruments is minimal.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were effective in
timely alerting them to the material information relating to us required to be
included in the reports we file or submit under the Exchange Act.
Changes in Internal Control Over Financial Reporting
During the fiscal quarter ended June 30, 2003, there has been no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company is a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, we believe that the final outcome of
such matters will not have a material adverse effect on our business, financial
condition, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sales of Unregistered Securities
In July 2003, the Company completed a private round of financing pursuant to
which the Company issued Convertible Secured Promissory Notes to seven investors
for an aggregate purchase price of $305,000. The Notes have a three year term,
bear interest at the annual rate of 6%, and are convertible into the Company's
common stock commencing the earlier of (a) 12 months from the Note's issuance
date, or (b) the merger or sale of all or substantially all of the Company's
assets, at a predetermined conversion price of $0.80/share. The Company's
quarterly interest payment obligation commences one year from the date of
issuance. The Company's obligation under the Notes is secured by a general
security interest in all of the Company's assets.
As part of the referenced financing, the Company issued Common Stock Warrants to
the investors for an aggregate of 127,095 shares of the Company's common stock.
Each Warrant has a term of five years from the date of issuance and has a strike
price of $0.50/share.
The sales and issuances of such notes and warrants were exempt from Securities
Act registration pursuant to Rule 506 under Regulation D under the Securities
Act, as all investors were "accredited investors" as defined in Rule 501(a) of
Regulation D.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2003 Annual Meeting of Shareholders held on June 10, 2003,
Timothy C. Choate, John B. Balousek, Eric Helgeland and Robert W. Wrubel were
each elected as a director of the Company, to serve until the next Annual
Meeting of Shareholders and until his successor is elected and qualified. In
addition, our shareholders ratified the selection of Moss Adams LLP as the
Company's independent accountant.
(a) Election of a Board of Directors consisting of the following four (4)
directors:
NAME VOTES FOR VOTES WITHHELD
Timothy C. Choate 2,372,690 31,103
John B. Balousek 2,361,990 41,803
Eric Helgeland 2,361,990 41,803
Robert W. Wrubel 2,361,990 41,803
(b) The proposal to ratify the selection of Moss Adams LLP as the Company's
independent auditors passed with the following vote results: 2,364,590 for;
13,600 against; 25,603 abstain; and 0 broker non-votes.
ITEM 5. OTHER INFORMATION
See Part II "Other Information," Item 2 regarding a private placement of
securities completed in July 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
3.1* Second Amended and Restated Articles of Incorporation of
registrant.
3.1.1^^ Articles of Amendment filed September 16, 2000.
3.1.2+ Articles of Amendment filed March 29, 2002.
3.2* Amended and Restated Bylaws of registrant.
4.1* Specimen Stock Certificate.
4.2* Form of Common Stock Warrant.
4.3^^^ Rights Agreement dated as of March 12, 2002 between
registrant and Mellon Investor Services LLC, as rights
agent.
10.1*++ Form of Indemnification Agreement between the registrant
and each of its directors.
10.2. *++ 1997 Stock Option Plan, as amended.
10.3. *++ Form of Stock Option Agreement.
10.4* Investor Subscription Agreement, dated December 10, 1998,
between registrant and Fingerhut Companies, Inc.
10.5* Warrant Agreement, dated December 10, 1998, between
registrant and Fingerhut Companies, Inc.
10.6* Stockholders Agreement, dated December 10, 1998, among
registrant, Timothy C. Choate, John P. Ballantine and
Fingerhut Companies, Inc.
10.7* Asset Purchase Agreement, dated May 5, 1999, among
registrant, Travel Companions International, Inc., Jeff
Mohr and Janet Mohr.
10.8* Asset Purchase Agreement, dated May 6, 1999, among
registrant, Commonsite LLC and Alan Bennett.
10.9* Registration Rights Agreement, dated May 6, 1999,
between registrant and Commonsite LLC.
10.10* Loan and Security Agreement, dated September 18, 1998,
between registrant and Imperial Bank.
10.11* Lease Agreement, dated September 23, 1997 and amended as
of February 16, 1999, between registrant and Merrill
Place LLC.
10.11.1* Second Amendment to Lease, dated November 30, 1999,
between registrant and Merrill Place LLC.
10.12* Promotion Agreement, dated May 18, 1998 and amended as of
June 30, 1998 and September 30, 1998, between registrant
and CNET, Inc.
10.13+* Linkshare Network Membership Agreement, dated September
23, 1998, between registrant and Linkshare Corporation.
Exhibit
Number Description
------ -----------
10.14* Letter Agreement dated June 18, 1999 between registrant
and Fingerhut.
10.15* Escrow Agreement dated June 18, 1999 between registrant
and Fingerhut.
10.16* Common Stock Purchase Warrant dated January 26, 1998 in
favor of Karrie Lee.
10.17* Warrant to Purchase Stock dated September 18, 1998 in
favor of Imperial Bank.
10.18* Common Stock Purchase Warrant dated January 23, 1998 in
favor of Hallco Leasing Corporation.
10.19* Common Stock Purchase Warrant dated December 4, 1997 in
favor of Hallco Leasing Corporation.
10.20* Common Stock Purchase Warrant dated January 26, 1998 in
favor of Employco, Inc.
10.21+* Marketing Agreement with NewSub Services, Inc. effective
as of June 1, 1999.
10.22+* Marketing Agreement with eNews.com, Inc. dated December 8,
1999. (Incorporated by reference Exhibit 10.1 to the
Company's Report on Form 8-K filed January 12, 2000).
10.23** Asset Purchase Agreement, dated November 22, 2000, among
Aptimus, Inc. and XMarkstheSpot, Inc.
10.24*** Stock Redemption Agreement, dated as of April 16, 2001, by
and between registrant and Fingerhut Companies. Inc.
10.25^++ Aptimus, Inc. 2001 Stock Plan.
10.25.1^^++ Form of Stock Option Agreement.
10.25.2^^++ Form of Restricted Stock Agreement (for grants).
10.25.3^^++ Form of Restricted Stock Agreement (for rights to
purchase).
10.26^^ Letter Agreement, dated November 13, 2001, by and between
registrant and Fingerhut Companies, Inc.
10.27++(degree) Change in Control Agreement, dated as of December 6,
2002, by and between registrant and Timothy C. Choate
10.28++(degree) Form of Change in Control Agreement, dated as of
December 6, 2002, by and between registrant and each of
certain executive managers of registrant
10.29(degree) Lease Agreement, dated October 1, 2002, between registrant
and Merrill Place LLC.
10.30 Form of Convertible Note Purchase Agreement, dated as
of July 1, 2003, by and between the Company and certain
investors
10.31 Form of Convertible Secured Promissory Note, dated
July 2003, executed by and between the Company and
payable to the order of certain investors
10.32 Form of Common Stock Warrant, dated July 2003, by and
between the Company and certain investors
10.33 Form of Security Agreement, dated as of July 1, 2003,
by and between the Company and certain investors
10.34 Form of Registration Rights Agreement, dated as of
July 1, 2003, by and between the Company and certain
investors
31.1 Section 302 Certification of Timothy C. Choate, Chief
Executive Officer
31.2 Section 302 Certification of John A. Wade, Chief Financial
Officer
32.1 Section 906 Certification of Timothy C. Choate, Chief
Executive Officer
32.2 Section 906 Certification of John A. Wade, Chief Financial
Officer
99.1+++ Private Securities Litigation Reform Act of 1995 Safe
Harbor and Forward- Looking Statements Risk Factors
__________
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-81151).
** Incorporated by reference to the Company's Annual Report on Form 10-K,
dated April 2, 2001.
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*** Incorporated by reference to the Company's Current Report on Form 8-K,
dated April 16, 2001.
^ Incorporated by reference to the Company's Proxy Statement on Schedule 14A,
dated May 17, 2001.
^^ Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
dated November 14, 2001.
^^^ Incorporated by reference to the Company's Current Report on Form 8-K,
dated March 12, 2002. (degree) Incorporated by reference to the Company's
Annual Report on Form 10-K, dated March 28, 2003.
+ Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
dated May 15, 2002.
+ Confidential treatment has been granted as to certain portions of this
Exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
++ Management compensation plan or agreement.
+++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
dated May 14, 2003.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APTIMUS, INC.
Date: August 14, 2003 /s/ John A. Wade
Name: John A. Wade
Title: Chief Financial Officer,
authorized officer and principal financial officer