UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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
of incorporation) Identification No.)
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
October 31, 2003 was 4,350,375.
APTIMUS, INC.
INDEX TO THE FORM 10-Q
For the quarterly period ended September 30, 2003
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance sheets as of December 31, 2002 and September 30, 2003.................. 1
Statements of Operations for the three and nine months ended
September 30, 2002 and 2003.................................................... 2
Condensed Statements of Cash Flows for the nine months ended
September 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..................... 14
ITEM 4. CONTROLS AND PROCEDURES........................................................ 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................. 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................... 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 16
ITEM 5. OTHER INFORMATION.............................................................. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 16
SIGNATURES................................................................................ 19
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APTIMUS, INC.
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
December 31, September 30,
2002 2003
---------------- -----------------
ASSETS
Cash and cash equivalents $ 667 $ 140
Accounts receivable, net 530 950
Prepaid expenses and other assets 159 51
Short-term investments 51 --
---------------- -----------------
Total current assets 1,407 1,141
Fixed assets, net 440 348
Intangible assets, net 24 35
Long-term investments 40 40
Deposits 30 26
---------------- -----------------
$ 1,941 $ 1,590
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Line-of-credit $ -- $ 100
Accounts payable 297 747
Accrued and other liabilities 344 368
Current portion of capital lease obligations 68 102
---------------- -----------------
Total current liabilities 709 1,317
Convertible notes payable -- 262
Commitments and contingent liabilities (note 5)
---------------- -----------------
Total Liabilities 709 1,579
Shareholders' equity
Common stock, no par value; 100,000 shares authorized, 4,221 and
4,294 issued and outstanding at December 31, 2002 and September
30, 2003, respectively 60,282 60,305
Additional paid-in capital 2,506 2,574
Deferred stock compensation (2) --
Accumulated deficit (61,554) (62,868)
---------------- -----------------
Total shareholders' equity 1,232 11
---------------- -----------------
$ 1,941 $ 1,590
================ =================
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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2002 2003 2002 2003
------------ ----------- ----------- ------------
Net revenues $ 537 $ 1,405 $ 2,092 $ 3,254
Operating expenses
Sales and marketing 537 310 1,676 981
Connectivity and network costs 340 278 1,079 905
Partner fees 184 552 754 961
Research and development 152 132 451 401
General and administrative 436 319 1,343 997
Depreciation and amortization 357 68 1,083 257
Equity-based compensation 2 16 9 17
Loss (gain) on disposal of long-term 131 (4) 100 40
assets
Lease renegotiation costs and
impairment of leasehold improvements 402 -- 402 --
------------ ----------- ----------- ------------
Total operating expenses 2,541 1,671 6,897 4,559
------------ ----------- ----------- ------------
Operating loss (2,004) (266) (4,805) (1,305)
Interest expense (5) (12) (20) (16)
Interest income 9 5 42 7
------------ ----------- ----------- ------------
Net loss $ (2,000) $ (273) $ (4,783) $ (1,314)
============ =========== =========== ============
Basic and diluted net loss per share $ (0.49) $ (0.06) $ (1.19) $ (0.31)
============ =========== =========== ============
Weighted-average shares used in 4,067 4,270 4,025 4,237
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)
Nine Months Ended September 30,
----------------------------------------
2002 2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,783) $ (1,314)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 1,084 257
Bad debt expense (8) 25
Amortization of deferred compensation 9 19
(Gain) loss on disposal of long-term assets (7) 40
Impairment of fixed assets from lease renegotiation 377 --
Write-off of shareholder notes receivable 27 --
Cash paid for restructuring costs (15) --
Loss on long-term investments 107 --
Amortization of discount on short-term investments (4) --
Changes in assets and liabilities, net of impact of acquisitions:
Accounts receivable 47 (445)
Prepaid expenses and other assets 98 112
Accounts payable 143 450
Accrued and other liabilities (97) 27
------------------ ------------------
Net cash used in operating activities (3,022) (829)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (29) (61)
Proceeds from disposal of assets 32 17
Payments for intangible assets -- (35)
Purchase of short-term investments (1) --
Sale of short-term investments 1,000 51
------------------ ------------------
Net cash provided by (used in) investing activities 1,002 (28)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital leases (63) (103)
Proceeds from notes payable -- 305
Repayment of notes payable (89) --
Proceeds from line-of-credit -- 100
Notes issued to shareholders (27) --
Issuance of common stock, net of issuance stocks 5 28
------------------ ------------------
Net cash provided by (used in) financing activities (174) 330
------------------ ------------------
Net decrease in cash and cash equivalents (2,194) (527)
------------------ ------------------
Cash and cash equivalents at beginning of period 3,651 667
------------------ ------------------
Cash and cash equivalents at end of period $ 1,457 $ 140
------------------ ------------------
The accompanying notes are an integral part of these financial statements.
-3-
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 September 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 September 30, 2003, we had accumulated
losses of approximately $62.9 million.
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
could 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 September 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 September 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 nine months ended September 30:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2003 2002 2003
---- ---- ---- ----
Net loss, as reported........................................... $ (2,000) $ (273) $ (4,783) $ (1,314)
Add: Total stock-based employee compensation expense,
included in the determination of net income as reported,
net of related tax effects...................................... 2 16 9 17
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects.......................................... (64) (98) (302) (187)
--------- ------- --------- ---------
Pro forma net loss.............................................. $ (2,062) $ (355) $ (5,076) $ (1,484)
========= ======= ========= =========
-5-
Earnings per share:
Basic - as reported.......................................... $ (0.49) $(0.06) $ (1.19) $ (0.31)
========= ======= ========= =========
Basic - pro forma............................................ $ (0.51) $(0.08) $ (1.26) $ (0.35)
========= ======= ========= =========
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 Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2002 2003 2002 2003
- --------------------------------------------------------------------------------------------------------------------
Numerator:
Net loss.............................................. $(2,000) $ (273) $(4,783) $(1,314)
Denominator:
Weighted average shares used in computing net loss
per share.......................................... 4,067 4,270 4,025 4,237
Potentially dilutive securities consist of the
following:
Options to purchase common stock 1,262 1,613 1,262 1,613
Warrants to purchase common stock.................. 16 127 16 127
--------- -------- --------- --------
1,278 1,740 1,278 1,740
========= ======== ========= ========
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
$7,000 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
------ ------
Three months ending December 31, 2003........... $ 61 $ 41
Year ending December 31, 2004................... 66 46
-------- ---------
Total minimum lease payments...................... 127 $ 87
======== =========
Less: Amount representing interest................ (25)
--------
Present value of capital lease obligations........ 102
Less: Current portion............................. (102)
--------
Capital lease obligations, net of current portion. $ --
========
-6-
6. LINE-OF-CREDIT AND CONVERTIBLE NOTE PAYABLE
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.
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. At September 30,
2003 there was $100,000 outstanding under 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, 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 September 30,
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 that
-8-
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 September 30, 2002 and 2003 our ten largest clients
accounted for 59.5% and 75.0% of our net revenues, respectively. During the
quarter ended September 30, 2002 Kraft Foods N.A. - Gevalia Division accounted
for 11.7% of our revenues and Blue Dolphin Group accounted for 10.5% of our
revenues. No other client accounted for more than 10% of our net revenues in the
quarter ended September 30, 2002. During the quarter ended September 30, 2003
The Proctor & Gamble Company accounted for 34.8% of our revenues and CNET
Networks, Inc. accounted for 11.5% of our net revenues. No other client
accounted for more than 10% of our net revenues in the quarter ended September
30, 2003. For the nine months ended September 30, 2002 and 2003 our ten largest
clients accounted for 46.2% and 65.1% of our net revenues, respectively. During
the nine months ended September 30, 2002, MyPoints.com, Inc. accounted for 11.3%
of our revenues and Kraft Foods N.A. - Gevalia Division accounted for 10.3% of
our revenues. No other client accounted for more than 10% of our net revenues in
the nine months ended September 30, 2002. During the nine months ended September
30, 2003 The Proctor and Gamble Company accounted for 19.0% of our net revenues.
No other client accounted for more than 10% of our net revenues in the nine
months ended September 30, 2003.
Our business has been operating at a loss and generating negative cash
flows from operations since inception. As of September 30, 2003, we had an
accumulated deficit of approximately $62.9 million. With the reductions in
continuing operating expenses that have been made and growth in revenues, we
anticipate achieving positive earnings and cash flows, on a monthly basis, 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.
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 $868,000, or 162%, to $1.4 million in the
quarter ended September 30, 2003 from $537,000 in the same quarter of 2002. For
the nine months ended September 30, 2003, net revenues have increased by $1.2
million or 56% to $3.3 million, from $2.1 million in the first nine 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 an increase in revenues
related to the growth and expansion of our Client and Partner network.
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 $227,000 to $310,000, or 22% of net revenues, in the
quarter
-9-
ended September 30, 2003 from $537,000, or 100% of net revenues, in the same
quarter of 2002. For the nine months ended September 30, 2003 sales and
marketing expenses have decreased by $695,000 to $981,000, or 30% of net
revenues, from $1.7 million, or 80% of net revenues, in the first nine 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 quarter of 2003 is
expected to slighter higher than the third quarter of 2003 as we bring on
additional salespeople in an effort to increase sales.
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 $62,000 to $278,000, or 20% of net revenues, in the quarter
ended September 30, 2003 from $340,000, or 63% of net revenues, in the same
quarter of 2002. For the nine months ended September 30, 2003 connectivity and
network costs have decreased by $174,000 to $905,000, or 28% of net revenues,
from $1.1 million, or 52% of net revenues, in the first nine 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 16%, 45%, and 21% of the decrease in connectivity and network
costs, respectively. Connectivity and network costs for the remaining quarter of
2003 are expected to be less than the third quarter of 2003. In July of 2003 we
terminated our external hosting relationship and have in its place created an in
house version that is approximately $25,000 per month less costly.
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 increased by $368,000 to $552,000, or 39% of
net revenues, in the quarter ended September 30, 2003 from $184,000, or 34% of
net revenues, in the same quarter of 2002. For the nine months ended September
30, 2003 partner fees have increased by $207,000 to $961,000, or 30% of net
revenues, from $754,000, or 36% of net revenues, in the first nine months of
2002. Partner fees have increased on an absolute and a percentage of revenue
basis in the current quarter as a result of the increase in the volume of leads
obtained through co-registration agreements and a corresponding decrease in
revenue derived from email. Email has a higher effective gross margin than
co-registration. For the nine months ended September 30, 2003 partner fees are
lower than the comparable period of 2002 as a result of the increase in email
based marketing campaigns and purchases of email lists during the first two
quarters of the year. 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 $20,000 to $132,000, or 9% of net revenues, in the quarter ended September
30, 2003 from $152,000, or 28% of net revenues, in the same quarter of 2002. For
the nine months ended September 30, 2003 research and development expenses have
decreased by $50,000 to $401,000, or 12% of net revenues, from $451,000, or 22%
of net revenues, in the first nine 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 quarter of 2003 is expected to be similar to the third
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 $117,000 to $319,000, or
23% of net revenues, in the quarter ended September 30, 2003 from $436,000, or
81% of net revenues, in the same quarter of 2002. For the nine months ended
September 30, 2003 general and administrative expenses have
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decreased by $346,000 to $997,000, or 31% of net revenues, from $1.3 million, or
64% of net revenues, in the first nine months of 2002. There are two significant
items that compose the majority of the decrease in general and administrative
expenses. A decrease in labor related costs as a result of reductions in
administrative staff, and a decrease in rent expense resulting from
renegotiation of the Company's office leases. On a year to date basis these two
items contributed 45% and 31% of the decrease in general and administrative
expense. General and administrative expense for the remaining quarter of 2003 is
expected to be similar to the third 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 $289,000 to $68,000, or 5% of net
revenues, in the quarter ended September 30, 2003 compared to $357,000, or 67%
of net revenues, in the same quarter of 2002. For the nine months ended
September 30, 2003 depreciation and amortization expenses have decreased by
$826,000 to $257,000, or 8% of net revenues, from $1.1 million, or 52% of net
revenues, in the first nine 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 for the remaining quarter
of 2003 is expected to be similar to the third quarter of 2003.
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 increased by $14,000 to $16,000, or 1% of net
revenues, in the quarter ended September 30, 2003 compared to $2,000, or less
than 1% of net revenues, in the same quarter of 2002. For the nine months ended
September 30, 2003 equity-based compensation expenses have increased by $8,000
to $17,000, or less than 1% of net revenues, from $9,000, or less than 1%, in
the first nine months of 2002. The increase results from the issuance of an
option to purchase 25,000 shares of Aptimus common stock to Tim Choate for a
personal guarantee of and pledge of certain securities as security for the
line-of-credit with Comerica bank.
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 $4,000, or less than 1% of revenue, in the quarter
ended September 30, 2003. In the comparable period of the prior year there was a
$131,000 loss from disposal of long-term assets. This loss primarily resulted
from a $107,000 impairment on long-term investments, with the remaining amount
related to the disposal of many smaller fixed assets.
Interest Expense
Interest expense in the current year results from capital equipment leases and
accrued and mortised interest relate to the notes payable. In the prior year
interest expense also resulted from notes payable used to finance the Company's
D&O insurance premiums. Interest expense totaled $12,000 in the quarter ended
September 30, 2003 and $5,000 in the same quarter of 2002. The increase in
interest expense is a result of interest accrued on the convertible notes
payable and the amortization of the discount resulting from recording the
warrants issued in conjunction with the convertible notes payable.
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Interest Income
Interest income results from earnings on the Company's available cash reserves.
Interest income totaled $5,000 in the quarter ended September 30, 2003 and
$9,000 in the same quarter of 2002. The interest income in the current quarter
is primarily related to interest on a tax refund.
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 September 30, 2003 totaled
$68.1. As of September 30, 2003, we had approximately $140,000 in cash and cash
equivalents and a working capital deficit of $176,000. No off-balance sheet
assets or liabilities existed at September 30, 2003.
Net cash used in operating activities was $829,000 and $3.0 million in the nine
months ended September 30, 2003 and 2002, respectively. Cash used in operating
activities in the nine months ended September 30, 2003 resulted primarily from
$1.3 million of net loss. Net cash outflows from operations were decreased by
$341,000 of non-cash expenses, a $112,000 decrease in prepaid expenses and other
assets, a $450,000 increase in accounts payable, and an increase in accrued and
other liabilities of $27,000. Net cash outflows from operations were increased
by a $445,000 increase in accounts receivable. Cash used in operating activities
in the nine months ended September 30, 2002 resulted primarily from $4.8 million
of net loss. Net cash outflows from operations were increased by $15,000 of
restructuring costs paid in the period, $4,000 in amortization of discount on
short-term investments, and a $97,000 decrease in accrued and other liabilities.
Net cash outflows were offset by $1.6 million of non-cash expenses, a $47,000
decrease in accounts receivable, a $98,000 decrease in prepaid expenses and
other assets and a $143,000 increase in accounts payable.
Net cash (used in) provided by investing activities was ($28,000) and $1.0
million in the nine months ended September 30, 2003 and 2002, respectively. In
the nine months ended September 30, 2003, $51,000 was received from the maturity
of a certificate of deposit. In addition to the maturity of the certificate of
deposit, $17,000 was received from the sale of long-term assets and $96,000 was
used for the purchase of additional equipment and intangible assets. In the nine
months ended September 30, 2002, $1.0 million was received from the maturity of
commercial paper purchased in 2001. In addition to the maturity of commercial
paper, $32,000 was received from the disposal of fixed assets, $29,000 was used
for the purchase of additional equipment and $1,000 was reinvested in a
certificate of deposit.
Net cash provided by (used in) financing activities was $330,000 and ($174,000)
in the nine months ended September 30, 2003 and 2002, respectively. In the nine
months ended September 30, 2003, net cash provided by financing activities
resulted from $305,000 received for convertible notes payable issued, $100,000
was received from the draw down on the line-of-credit, and $28,000 received for
issuance of common stock pursuant to option exercises. Offsetting these sources
of cash $103,000 in principal payments were made on capital leases. In the nine
months ended September 30, 2002, net cash used in financing activities resulted
from $89,000 in principal payments made on a note payable, $63,000 in principle
payments on capital leases and $27,000 in issuance of notes to shareholders,
which were expenses in the three months ended September 30, 2002. These uses of
cash were offset by $5,000 received for the issuance of common stock resulting
from the exercise of stock options.
We believe our current cash and cash equivalents 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
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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 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................. 127 61 66
Operating leases.......................... 87 41 46
Other long-term obligations............... -- -- --
----- ---- ----
Total Contractual Cash Obligations.... $ 214 $ 102 $ 112
===== ====== ======
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 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 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 99-19 (EITF 99-19). Fees paid to network partners and opt-in email
list owners related to these revenues were $961,000 and $754,000 for the nine
months ended September 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 99-19 (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
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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 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.
-14-
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 September 30, 2003, however, the
Company's cash equivalents mature within one month. As of September 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 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 September 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.
In September 2003, California adopted SB 186 that may impact the way commercial
e-mails are distributed on the Internet. The new law goes into effect on January
1, 2004 making it illegal in the state to initiate or advertise in an
unsolicited commercial e-mail that is either sent from a computer located in
California or to a California e-mail address. Our computer hardware is located
Washington. However, the company and the third party E-mail service providers we
use to mail our owned or managed lists currently send e-mails to California
residents. We are currently evaluating our e-mail business practices to ensure
that they will conform to the new law's requirements if and when they become
effective. We are also evaluating to insure that any new controls are extended
to the third party e-mail service providers we use. Failure to comply with the
law could result in substantial penalties in each instance. We do not know what
legal challenges to the law may occur. However, they may include equal
protection, interstate commerce and free speech constitutional challenges,
challenges based on the definition of a California email address and recipient
consent, and other challenges. Nor do we know whether pending Federal
legislation will preempt the California law. However, in its current form the
California law, when and if effective, could have a material adverse effect on
our e-mail business, in particular, and could harm our business in general.
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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 secondary to the
line-of-credit with Comerica Bank and 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.
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 June 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.
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Exhibit
Number Description
------ -----------
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.
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).
-17-
Exhibit
Number Description
------ -----------
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!!o Change in Control Agreement, dated as of December 6,
2002, by and between registrant and Timothy C. Choate.
10.28!!o Form of Change in Control Agreement, dated as of
December 6, 2002, by and between registrant and
each of certain executive managers of registrant.
10.29o Lease Agreement, dated October 1, 2002, between registrant
and Merrill Place LLC.
10.30oo Form of Convertible Note Purchase Agreement, dated as
of July 1, 2003, by and between the Company and certain
investors.
10.31oo Form of Convertible Secured Promissory Note, dated July
2003, executed by and between the Company and payable to
the order of certain investors.
10.32oo Form of Common Stock Warrant, dated July 2003, by and
between the Company and certain investors.
10.33oo Form of Security Agreement, dated as of July 1, 2003, by
and between the Company and certain investors.
10.34oo 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.
*** 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.
o Incorporated by reference to the Company's Annual Report on Form 10-K,
dated March 28, 2003.
oo Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
dated August 14, 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.
(b) Reports on Form 8-K
July 24, 2003 - Results of Operations and Financial Condition
October 23, 2003 - Results of Operations and Financial Condition
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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: November 14, 2003 /s/ John A. Wade
Name: John A. Wade
Title: Chief Financial Officer,
authorized officer and principal financial officer
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