UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number: 0-27331
FINDWHAT.COM
(Exact name of registrant as specified in its charter)
NEVADA 88-0348835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5220 SUMMERLIN COMMONS BOULEVARD, FORT MYERS, FLORIDA 33907
(Address of principal executive offices, including zip code)
(239) 561-7229
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 the
filing requirements for at least 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 Exchange Act). YES NO X
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 18,956,339 shares of
Common Stock, $.001 par value, were outstanding at April 30, 2003.
FORM 10-Q
FINDWHAT.COM
TABLE OF CONTENTS
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated Balance Sheets 3
December 31, 2002 and March 31, 2003
Unaudited Condensed Consolidated Statements of Income 4
For the Three Months Ended
March 31, 2002 and 2003
Unaudited Condensed Consolidated Statements of Cash Flows 5
For the Three Months Ended
March 31, 2002 and 2003
Notes to Interim Condensed Consolidated Unaudited 6
Financial Statements For the Three Months Ended
March 31, 2002 and 2003
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk. N/A
Item 4. Controls and Procedures. 24
PART II.. OTHER INFORMATION
Item 1. Legal Proceedings. 25
Item 2. Changes in Securities and Use of Proceeds. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K. 25
Signatures. 27
Certifications of CEO and CFO under Section 302 of the Sarbanes-Oxley Act of 2002. 28
2
ITEM 1. FINANCIAL STATEMENTS
FindWhat.com and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
ASSETS March 31, December 31,
2003 2002
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 27,676 $ 17,982
Short-term investments -- 3,157
Accounts receivable, less allowance for doubtful accounts of
$101 and $95 at March 31, 2003 and December 31, 2002, respectively 2,297 1,920
Deferred tax asset 212 446
Prepaid expenses and other current assets 408 519
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Total current assets 30,593 24,024
EQUIPMENT AND FURNITURE - NET 3,317 3,121
OTHER ASSETS 172 167
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Total assets $ 34,082 $ 27,312
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 5,495 $ 3,809
Current portion of capital lease obligations -- 4
Deferred revenue 1,194 1,243
Other current liabilities 80 80
-------- --------
Total current liabilities 6,769 5,136
OTHER LIABILITIES 35 8
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized,
500 shares; none issued and outstanding -- --
Common stock, $.001 par value; authorized, 50,000
shares; 18,754 and 18,177 respectively, issued; and 18,747 and
18,170 respectively, outstanding 19 18
Additional paid-in capital 24,920 22,506
Treasury stock; 7 shares, at cost (82) (82)
Accumulated earnings (deficit) 2,421 (274)
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Total stockholders' equity 27,278 22,168
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Total liabilities and stockholders' equity $ 34,082 $ 27,312
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
FindWhat.com and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three months ending Three months ending
March 31, 2003 March 31, 2002
Revenues $15,849 $ 8,712
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Operating expenses
Search serving 610 493
Marketing, sales and service 8,969 4,803
General and administrative 1,754 1,386
Product development 298 86
------- -------
Total operating expenses 11,631 6,768
------- -------
Income from operations 4,218 1,944
Other income
Interest income, net 127 31
------- -------
Income before provision for
income taxes 4,345 1,975
Income tax expense 1,650 --
------- -------
Net income $ 2,695 $ 1,975
======= =======
Net income per share
Basic $ 0.15 $ 0.12
======= =======
Diluted $ 0.13 $ 0.10
======= =======
Weighted-average number of common
shares outstanding
Basic 18,553 16,842
======= =======
Diluted 21,337 18,881
======= =======
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
FindWhat.com and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended Three months ended
March 31, 2003 March 31, 2002
Cash Flows from Operating Activities
Net income $ 2,695 $ 1,975
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for doubtful accounts 6 90
Depreciation and amortization 368 190
Equity based compensation -- 15
Deferred income taxes 234 --
Loss on sale of assets 10 --
Changes in operating assets and liabilities
Accounts receivable (377) (564)
Prepaid expenses and other current assets 111 5
Other assets (5) (82)
Deferred revenue (49) (134)
Accounts payable, accrued expenses and other liabilities 1,716 252
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Net Cash Provided by Operating Activities 4,709 1,747
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Cash Flows from Investing Activities
Proceeds from the sale of short-term investments 3,157 --
Purchase of short-term investments -- (7)
Purchase of equipment and furniture (583) (729)
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Net Cash Provided By (Used In) Investing Activities 2,574 (736)
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Cash Flows from Financing Activities
Payments made on capital leases (4) (5)
Proceeds received from exercise of stock options and warrants 2,415 427
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Net Cash Provided by Financing Activities 2,411 422
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Increase in Cash and Cash Equivalents 9,694 1,433
Cash and Cash Equivalents, Beginning of Period 17,982 5,498
-------- --------
Cash and Cash Equivalents, End of Period $ 27,676 $ 6,931
======== ========
Supplemental disclosures of cash flow information
Note receivable arising from sale of asset $ 8 $ --
Taxes paid $ 18 $ --
Interest paid $ 3 $ 4
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
FindWhat.com and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
NOTE A - NATURE OF BUSINESS
FindWhat.com was organized under the laws of the State of Nevada under
the name Collectibles America, Inc. and, in June 1999, merged with
BeFirst Internet Corporation, a Delaware corporation, which became a
wholly owned subsidiary. On June 17, 1999, the Company changed its name
from Collectibles America, Inc. to BeFirst.com. In September 1999, the
Company changed its name from BeFirst.com to FindWhat.com.
FindWhat.com and its subsidiary (collectively, the "Company") are
developers and providers of performance-based marketing services for
the Internet. FindWhat.com currently offers two primary proprietary
performance-based services: the FindWhat.com Network, a
keyword-targeted advertisement service that distributes millions of
advertisements throughout the Internet each day based on a
bid-for-position, pay-per-click pricing model; and a private label
service, which offers large portals, search engines and high traffic
websites the opportunity to brand and sell their own pay-per-click,
keyword-targeted advertisement service using FindWhat.com's turn-key
operation.
NOTE B - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly
FindWhat.com's financial position as of March 31, 2003, and the results
of its operations for the three months ended March 31, 2003 and 2002,
and the cash flows for the three months ended March 31, 2003 and 2002.
Certain financial information which is normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States, but which is not required for interim
reporting purposes, has been condensed or omitted. The accompanying
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes for the year ended December 31, 2002, which were included in the
Company's Form 10-KSB/A, as filed with the Securities and Exchange
Commission (the "SEC").
Results of the interim period are not necessarily indicative of results
that may be expected for the entire year.
The Company follows Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation." As
permitted by SFAS No. 123, the Company elected to follow Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees," and related interpretations, in accounting for
employee stock options. As opposed to SFAS No. 123, which is a fair
value-based method, APB No. 25 provides that compensation expense
related to the Company's employee stock options be measured based on
the intrinsic value of the stock option. SFAS No. 123 requires
companies that elect to follow APB No. 25 to provide pro forma
disclosure of the impact
6
FindWhat.com and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
NOTE B - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of applying the fair value method of SFAS No. 123. The Company expects
to continue following the guidance under APB No. 25 for stock-based
compensation to employees.
If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for awards under the Plan, consistent
with the methodology prescribed by SFAS No. 123, then the Company's net
income and net income per share would be decreased to the pro forma
amounts indicated below (in thousands, except per share amounts):
March 31, March 31,
2003 2002
Net income, as reported $2,695 $1,975
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects (384) (552)
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Pro forma net income $2,311 $1,423
====== ======
Earnings per share:
Basic--as reported $ 0.15 $ 0.12
====== ======
Basic--pro forma $ 0.12 $ 0.08
====== ======
Diluted--as reported $ 0.13 $ 0.10
====== ======
Diluted--pro forma $ 0.11 $ 0.08
====== ======
NOTE C - EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consisted of the following (in
thousands):
March 31, December 31,
2003 2002
Network equipment $ 4,501 $ 4,162
Furniture and fixtures 277 237
Office equipment 541 372
Leasehold improvements 33 62
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5,352 4,833
Less accumulated depreciation and amortization (2,035) (1,712)
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$ 3,317 $ 3,121
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7
FindWhat.com and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following (in
thousands):
March 31, December 31,
2003 2002
Accounts payable $ 367 $ 394
Revenue-sharing agreements 2,873 2,480
Income taxes 1,051 --
Accrued compensation 771 865
Miscellaneous accrued expenses 433 70
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$ 5,495 $ 3,809
======= =======
NOTE E - PER SHARE DATA
For the period ending March 31, 2003 there were 26,667 weighted outstanding
plan options at a price range of $8.78 - $12.00, which were excluded from
the dilutive earnings per share calculation because the effect would be
anti-dilutive.
The following is a reconciliation of the number of shares used in the basic
and diluted computation of income per share (in thousands):
March 31, March 31,
2003 2002
Weighted-average number of common
shares outstanding - basic 18,553 16,842
Dilution from stock options and
Warrants 2,784 2,039
------ ------
Weighted-average number of common
shares and common share equivalents
outstanding - diluted 21,337 18,881
====== ======
8
FindWhat.com and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
NOTE F - LITIGATION
One of the Company's competitors, Overture Services, Inc., purports to be
the owner of a United States patent that was issued on July 31, 2001
entitled "System and method for influencing a position on a search result
list generated by a computer network search engine" (the "July 2001
Patent"). Additionally, Overture Services has announced it acquired an
issued patent that may apply to FindWhat.com's current bid-for-position
business model. Overture Services has advised the Company that they believe
FindWhat.com's current bid-for-position business model infringes their
patents; however, the Company believes that it does not infringe any valid
and enforceable claim of the patents. On January 17, 2002, the Company
filed a complaint to challenge Overture's July 2001 Patent in the District
Court for the Southern District of New York. Subsequently, on January 25,
2002, Overture commenced litigation against the Company in the District
Court for the Central District of California in Los Angeles, alleging that
the Company is infringing the July 2001 Patent. In the litigation, the
Company is seeking a declaration that the July 2001 Patent is invalid and
unenforceable and not infringed by the Company, and Overture is seeking a
permanent injunction against any act by the Company deemed by the court to
infringe Overture's July 2001 Patent, an award of unspecified monetary
damages, and attorney's fees, costs, and expenses. In an Opinion and Order
dated February 13, 2003, despite finding that FindWhat.com's complaint was
properly brought in New York, Judge Mukasey in the Southern District of New
York ordered the action transferred to the Central District of California
based largely on the convenience of the expected witnesses in this case. As
a result, the Company has asserted its claims for declaratory judgment
against Overture for invalidity, unenforceability, and non-infringement of
the July 2001 Patent in an Answer the Company filed on March 25, 2003 in
the California action, and simultaneously dismissed the transferred New
York action without prejudice. All claims are now pending before the
District Court for the Central District of California in Los Angeles and
the litigation is ongoing. A trial in this matter is not expected before
August 2004.
The Company expenses all legal fees as incurred, and is a defendant in
various legal proceedings from time to time, regarded as normal to its
business and, in the opinion of management, the ultimate outcome of such
proceedings, including the Overture matter as discussed above, are not
expected to have a material adverse effect on the Company's financial
position or the results of its operations. As such, no accruals have been
made related to the Company's legal proceedings.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This management's discussion and analysis or plan of operation contains
forward-looking statements, the accuracy of which involves risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends," "projects," and similar expressions to identify
forward-looking statements. This management's discussion and analysis also
contains forward-looking statements attributed to certain third parties relating
to their estimates regarding the growth of the Internet, Internet advertising,
and online commerce markets and spending. Readers should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this report. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons.
OVERVIEW
We are a leading developer and provider of performance-based marketing
services for the Internet. Our clients only pay us for each Internet user we
deliver to their websites. We currently offer two primary proprietary
performance-based services: the FindWhat.com Network, a keyword-targeted
advertisement service that distributes millions of advertisements throughout the
Internet each day based on a bid-for-position, pay-per-click pricing model; and
a private label service, which offers large portals, search engines, and other
high traffic websites the opportunity to brand and sell their own pay-per-click,
keyword-targeted advertisement service using our turn-key operation.
Our main focus is the operation of online marketplaces that connect the
prospects that are most likely to purchase specific goods and services to the
advertisers that provide those goods and services. Advertisers create
advertisements, or keyword-targeted ads, which are comprised of titles,
descriptions, URL links, and relevant keywords or keyword phrases. For each
keyword, the advertisers determine what price they are willing to pay for a
qualified click-through. The pricing process is an open, automated,
bid-for-position system. The highest bidder for a particular keyword or phrase
receives the first place position, with all other bidders on that same keyword
or phrase listed in descending bid order. Through our Account Management Center,
or similar centers created for private label partners' sites, advertisers can
sign-up and manage their accounts themselves, 24 hours a day, seven days a week.
They can control and track their bids, the placement of their keyword ads, their
total expenditures, their cost per visitor, and their return on investment, all
in a real-time environment. As a result, they can easily determine and work to
improve the value they derive from FindWhat.com's services. Our editors review
every keyword to ensure that the ad is appropriate for that advertiser's
website. This methodology produces extremely relevant commercial listings for
Internet users looking for products and services, and drives highly qualified
traffic to our managed advertisers.
Along with our private label partners, such as Terra Lycos's Lycos.com
and HotBot, we distribute advertisements to millions of Internet users each day,
often in direct response to search or directory queries. The FindWhat.com
Network includes hundreds of distribution partners, including search engines
like CNET's Search.com, Excite, Webcrawler, NBCi, MetaCrawler, Dogpile, Go2Net,
and Microsoft Internet Explorer Auto Search. We recognize 100% of the revenue
from paid click-throughs on the sites in the FindWhat.com Network, and then
share that revenue with those sites. We recognize only our share of the revenue
generated from private label initiatives. With both the FindWhat.com Network and
the private label service, our services are a source of revenue and relevant
keyword-targeted ads for our partners, while providing our managed advertisers
with exposure to potential customers across the Internet. As with the Yellow
Pages in the offline world, our managed advertisers get their message in front
of prospects at the exact time they are looking for the advertisers' products
and services. Unlike the Yellow Pages, advertisers only pay for those visitors
that "walk" into their virtual stores.
10
Key metrics for the FindWhat.com Network and our private label service
include paid click-throughs, average revenue per click-through, and managed
active advertiser accounts. The following table lists these key metrics for each
of the last ten quarters for the FindWhat.com services, which, beginning with Q3
2002, represent the aggregate key metrics from the FindWhat.com Network and our
private label service.
QUARTER PAID AVG. REVENUE PER MANAGED ACTIVE
CLICK-THROUGHS CLICK-THROUGH ADVERTISER ACCOUNTS
(IN MILLIONS)
Q1 2003 89.2 $0.18 25,400
Q4 2002 75.3 $0.18 22,400
Q3 2002 60.8 $0.18 18,500
Q2 2002 54.2 $0.18 17,100
Q1 2002 50.8 $0.17 16,500
Q4 2001 46.2 $0.17 15,300
Q3 2001 36.0 $0.15 12,400
Q2 2001 33.3 $0.13 10,200
Q1 2001 22.9 $0.10 7,500
Q4 2000 13.2 $0.11 6,800
Among other things, our growth rate and results depend on our ability
to continue to increase the number of advertisers who use our services, the
amount our managed advertisers spend on our services, and the number of Internet
users who have access to our advertisers' keyword ads. We anticipate these
variables to fluctuate, affecting our growth rate and our financial results. In
particular, it is difficult to project how many click-throughs we will deliver
to our managed advertisers and how much advertisers' will spend with us, and
even more difficult to anticipate the average revenue per click-through, because
our advertisers are solely responsible for determining the prices they pay via
an automated bidding environment. In addition, we believe we will experience
seasonality. Although seasonality is difficult to predict, we expect that the
fourth quarter of the calendar year will realize more activity than the first
quarter, with the second and third quarters being the least active, due to lower
usage of the Internet during warmer weather months.
FindWhat.com Network click-through revenue and private label revenue
are recognized when earned, which is based on the actual click-through activity,
and then only to the extent that the advertiser has deposited sufficient funds
with us, or collection is probable.
In order to increase overall revenue, we must increase one or more of
the following: the number of managed advertisers, the number of click-throughs,
average revenue per click-through, and the number and quality of our
distribution partners and private label partners. We believe these elements are
complementary, meaning adding distribution partners and private label partners
can lead to increased managed advertisers, which can lead to higher average
revenue per click-through, and, subsequently, more distribution partners and
private label partners. For example, we inherently increase the number of
keyword-targeted ads and related keyword coverage as we increase the number of
overall managed advertiser accounts. An increase in the number of managed
advertisers can lead to greater competition among advertisers, which we believe
can lead to increases in average revenue per click-through. Increased advertiser
competition can lead to a higher quality of paid keyword ads displayed,
including higher relevancy. As relevancy and coverage increases, we are able to
deliver higher revenue to our distribution partners and higher returns on
investment to our advertisers, thus adding value for both.
The largest component of our expenses relate to marketing costs
incurred to attract consumers and businesses to our advertisers' websites
through our distribution network. Our future success is dependent upon managing
our click-through acquisition costs and increasing the revenue we derive from
this traffic. In order to significantly increase revenues, we will be required
to incur a significant expansion of our operations, including hiring additional
management and staff, and enhancing our overall technical infrastructure and
plant facilities. The proposed increases in capital and expenditures will
significantly increase future operating expenses.
We were organized under the laws of the State of Nevada under the name
Collectibles America, Inc. and, in June 1999, we merged with BeFirst Internet
Corporation, a Delaware corporation. As a result of the merger, the stockholders
of BeFirst Internet Corporation acquired control of us and BeFirst Internet
Corporation became a wholly owned subsidiary. On June 17, 1999, we changed our
name from Collectibles America, Inc. to BeFirst.com. In September 1999, we
11
changed our name from BeFirst.com to FindWhat.com. We have offered our BeFirst
RankPro service, which provides search engine optimization services to Internet
advertisers, since March 1998, although it currently makes an insignificant
contribution to our operations. The FindWhat.com Network was commercially
launched in September 1999, and currently represents the vast majority of our
revenue. We launched our private label service in September 2002, providing a
bid-for-position, pay-per-click, keyword-targeted advertisement service for
Terra Lycos's Lycos and HotBot. Our limited operating history and the uncertain
nature of the markets we address or intend to address make prediction of our
future results of operations difficult.
RESULTS OF OPERATIONS
Three months ended March 31, 2003 and March 31, 2002
Our fiscal year runs from January 1 through December 31. As previously
noted, we began offering our search engine optimization service in March 1998,
we commercially launched the FindWhat.com (SM) Network in September 1999, and
our first private label service agreement commenced in September 2002. When
making comparisons between the three months ending March 31, 2003 and the three
months ending March 31, 2002 readers should note that we do not anticipate our
historical growth rate to continue.
REVENUE
Revenue was approximately $15.8 million for the three months ending
March 31, 2003, compared to approximately $8.7 million for the three months
ending March 31, 2002. The increase was primarily due to the growth in revenue
from the FindWhat.com Network, and the launch of our private label service in
September 2002, due to the increased number of paid click-throughs and the
average revenue per paid click-through (see table above).
No advertiser represented more than 5% of our total revenue during the
three months ending March 31, 2003 and 2002, and we had one distribution partner
with which we generated more than 10%, but less than 20%, of our total revenue
for the period ending March 31, 2003 and 2002.
OPERATING EXPENSES
Search Serving. Search serving expense consists primarily of costs
associated with designing and maintaining the FindWhat.com Network and private
label service, providing our search engine optimization service, and fees paid
to telecommunications carriers for Internet connectivity. Costs associated with
maintaining the FindWhat.com Network and private label service include salaries
and benefits of related technical personnel, depreciation of related computer
equipment, co-location charges for our network equipment, and software license
fees.
Search serving expense increased to approximately $610,000 for the
three months ending March 31, 2003, compared to approximately $493,000 for the
three months ending March 31, 2002. The increase was primarily due to increases
in Internet connectivity fees, depreciation of equipment, and personnel expense.
We anticipate search serving expense will continue to increase as our traffic
and number of managed active advertiser accounts increase.
Marketing, Sales and Service. Marketing, sales and service expense
consists primarily of:
o revenue-sharing or other arrangements with our FindWhat.com
distribution partners;
o advertising expenditures for the FindWhat.com Network, such as,
banner advertising campaigns and sponsorships;
o promotional expenditures such as sponsorships of seminars, trade
shows and expos;
o referral fees and other expenses to attract advertisers to our
services;
o fees to marketing and public relations firms; and
o payroll and related expenses for personnel engaged in marketing,
customer service, business development, and sales functions.
Our marketing, sales and service expense was approximately $9.0 million
for the three months ending March 31, 2003, compared to $4.8 million for the
three months ending March 31, 2002. The increase in marketing, sales and service
expense was related primarily to increases in: revenue-sharing payments and
other fees paid to our FindWhat.com distribution partners, which increase as our
revenue increases, personnel costs due to expanding the number of business
development, marketing, customer service, and sales employees, and consulting
fees. Revenue sharing and other fees paid to distribution partners represent the
12
largest component of our marketing, sales, and service expense. We believe that
continued investment in marketing, sales and service, including attracting
advertisers to utilize the FindWhat.com Network, attracting distribution
partners to display our keyword-targeted ads, and obtaining additional private
label partners is critical to attaining our strategic objectives. As a result,
we expect these costs to continue increasing in the future.
General and Administrative. General and administrative expense consists
primarily of payroll and related expenses for executive and administrative
personnel; credit card fees; costs related to leasing, maintaining and operating
our facilities; insurance; recruiting fees; bad debt; fees for professional
services, including consulting, legal, and auditing fees; expenses and fees
associated with the reporting and other obligations of a public company; travel
costs; depreciation of furniture and equipment for non-technical employees; and
other general corporate expenses; as well as fees to affiliates which provide
office space and other general and administrative services. General and
administrative expenses increased to approximately $1.8 million for the three
months ending March 31, 2003, compared to approximately $1.4 million for the
three months ending March 31, 2002. The increase in general and administrative
expenses was primarily due to increases in credit card fees, depreciation on
furniture and equipment, compensation expense, rent expense, and expenses
relating to being a public company. We expect additional increases in general
and administrative expenses in the future as we continue to expand our staff and
incur costs related to the growth of our business, and as we litigate
patent-related lawsuits with Overture Services, Inc.
Product Development. Product development expense consists primarily of
payroll and related expenses for personnel responsible for the development and
maintenance of features and functionality for our FindWhat.com services and
depreciation for related equipment used in product development. Product
development expense was approximately $298,000 for the three months ending March
31, 2003, as compared to approximately $86,000 for the three months ending March
31, 2002. The increase was primarily due to an increase in personnel expense. We
believe that continued investment in product development is critical to
attaining our strategic objectives and as a result, expect product development
expenses to increase in the future. We periodically evaluate our product
development expenses to determine if amounts should be capitalized, and to date,
we have concluded that these amounts are not material.
INTEREST INCOME, NET
Interest income, net, consists primarily of earnings on our cash and
cash equivalents, net of interest expense. Net interest income was approximately
$127,000 for the three months ending March 31, 2003, compared to approximately
$31,000 for the three months ending March 31, 2002. The increase in interest
income was due to higher average cash and cash equivalent balances and
short-term liquid investments offset in part by lower interest rates.
INCOME TAXES
For the period ending March 31, 2003 we recorded an income tax
provision of approximately $1.7 million, which represents an approximately 38%
effective tax rate. For the period ending March 31, 2002, the Company's taxable
income was offset by NOL carryforwards; accordingly, we did not recognize an
income tax provision for the period ending March 31, 2002.
NET INCOME
As a result of the factors described above, we generated net income of
approximately $2.7 million, or $0.15 per basic share and $0.13 per diluted
share, for the three months ending March 31, 2003, compared to net income of
approximately $2.0 million, or $0.12 per basic share and $0.10 per diluted
share, for the three months ending March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
We historically have satisfied our cash requirements primarily through
private placements of equity securities, cash flows provided by operations, and
proceeds from the exercise of options and warrants. Through March 31, 2003 we
have raised net proceeds of approximately $13.6 million through private equity
financings, and received approximately $3.8 million in proceeds from the
exercise of warrants and options. Through February 2003, space and support
13
services in New York City were provided to us by WPI Advertising, Inc., an
affiliate of our co-founder, Robert D. Brahms. We have been billed our pro rata
share of applicable expenses. Beginning in Q2 2001, we began generating cash
flows from operations. In 2001, our cash flows provided by operations were
approximately $4.1 million. We continued to generate cash during 2002, with cash
flows from operations of approximately $11.7 million. In Q1 2003 we generated
cash flows from operations of $4.7 million. We started to generate positive cash
flows from our operations primarily due to the increase in the number of
advertisers bidding for keyword-targeted ads in the FindWhat.com Network, and
the increase in the number of distribution partners displaying our keyword ads,
along with increases in the number of paid click-throughs delivered by existing
distribution partners. If we fail to continue to provide our managed advertisers
with high quality click-throughs (or visitors to their websites), they may
reduce or cease their spending with us and our private label partners, which may
lead to lower average revenue per paid click-through, and our revenue and cash
flows may decline. If we fail to offer our distribution partners with
competitive keyword-targeted advertisements in terms of the average revenue per
paid click-through, the revenue share paid to the distribution partners, the
relevancy and coverage of our keyword ads, and the speed of delivery of such
ads, among other factors - they may display fewer FindWhat.com results, or stop
showing our keyword-targeted ads altogether, which would lead to lower revenue
and cash flows. The number and quality of providers of keyword-targeted ads is
increasing, which may adversely impact: our ability to keep or grow our
advertiser and distribution partner relationships, our average revenue per paid
click-through, and the amount of payments owed to, and the payment terms of our
contracts with, our distribution partners, all of which may reduce our revenue
and cash flows.
Net cash provided by operating activities totaled approximately $4.7
million for the quarter ended March 31, 2003. The net cash provided was based
primarily on net income of approximately $2.7 million, plus an increase in
accounts payable and accrued expenses of approximately $1.7 million, the
recognition of non-cash depreciation and amortization expense for the period of
approximately $368,000, and the decrease in the deferred tax benefit of
approximately $234,000. The increase in cash for the period was partially offset
by the net increase in accounts receivable (adjusted by the increase in the
allowance for doubtful accounts) of approximately $377,000.
Net cash provided by investing activities totaled approximately $2.6
million for the quarter ended March 31, 2003, and consisted of investment
proceeds of approximately $3.2 million in short-term highly liquid investments,
offset by approximately $583,000 in capital expenditures for equipment,
furniture and fixtures.
Net cash provided by financing activities totaled approximately $2.4
million for the quarter ended March 31, 2003. We received approximately $2.4
million from the exercise of stock options and warrants for the three months
ending March 31, 2003.
Our principal sources of liquidity consisted of approximately $27.7
million of cash and cash equivalents as of March 31, 2003. Although we have no
material long-term commitments for capital expenditures, we anticipate an
increase in capital expenditures consistent with anticipated growth of
operations, infrastructure, and personnel. As of March 31, 2003, utilizing the
straight-line method of accounting we had approximately $35,000 recorded in
deferred lease expense relating to payments due under our operating lease on our
Fort Myers, Florida and New York facilities. The Fort Myers, Florida lease
represents our largest operating lease commitment; it is a 10-year obligation
with minimum lease payments of approximately $450,000 per year, not including
our pro rata share of the building's operating expenses. We do not believe we
have any other material operating leases. Our largest ongoing contractual cash
payments are to our distribution partners, which are funded by payments from our
advertisers for the paid click-throughs (visitors), delivered to them via our
distribution partners. We are engaged in patent litigation with our largest
competitor, Overture Services, Inc. We believe that the litigation will not be
resolved over the next 12 months, and will require a run-rate of approximately
$1 million per annum in legal expenses until it is resolved. Our patent
litigation with Overture Services may be time-consuming, expensive, and result
in the diversion of our time and attention. Accordingly, such patent litigation
could negatively impact our business and, consequently, our cash position, even
if we prevail. If it is determined that our bid-for-position business model
infringes one or more valid and enforceable claims of the patents held by
Overture Services, our business, prospects, financial condition and results of
operations could be materially and adversely affected and we could be subject to
damages and forced to obtain a license from Overture Services or revise our
business model. We can offer no assurance that a license would be available on
acceptable terms or at all, or that we will be able to revise our business model
economically, efficiently, or at all.
14
We currently anticipate that our cash and cash equivalents as of March
31, 2003 together with cash flows from operations will be sufficient to meet the
anticipated liquidity needs for working capital and capital expenditures over
the next 12 months. In the future, we may seek additional capital through the
issuance of debt or equity depending upon results of operations, market
conditions, or unforeseen opportunities. Our future liquidity and capital
requirements will depend upon numerous factors. The pace of expansion of our
operations will affect our capital requirements. We may also have increased
capital requirements in order to respond to competitive pressures. In addition,
we may need additional capital to fund acquisitions of complementary products,
technologies, or businesses. As we require additional capital resources, we may
seek to sell additional equity or debt securities or obtain a bank line of
credit. The sale of additional equity or convertible debt securities could
result in additional dilution to existing stockholders. There can be no
assurance that any financing arrangements will be available in amounts or on
terms acceptable to us, if at all. Our forecast of the period of time through
which our financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties and actual
results could vary materially as a result of the factors described above.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements or special purpose
entities.
USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
This Management's Discussion and Analysis of Financial Condition and
Plan of Operation are based upon our condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. When preparing our condensed
consolidated financial statements, we make estimates and judgments that affect
the reported amounts on our balance sheets and income statements, and our
related disclosure about contingent assets and liabilities. We continually
evaluate our estimates, including those related to allowance for doubtful
accounts, and valuation allowance for deferred income tax assets. We base our
estimates on historical experience and on various other assumptions which we
believe to be reasonable in order to form the basis for making judgments about
the carrying values of assets and liabilities that are not readily ascertained
from other sources. Actual results may deviate from these estimates if
alternative assumptions or condition are used.
Revenue
We derive revenue primarily from the following sources: through
click-throughs on keyword ads on the FindWhat.com Network, and from management
fees generated from click-throughs from our private label agreements. Revenue
from click-throughs is recognized when generated.
We have entered into agreements with various websites to display
FindWhat.com keyword-targeted ads. We pay a fee to the websites that list our
results for each click-through on a FindWhat.com advertiser listing. In
accordance with the guidance of Emerging Issue Task Force No. 99-19, "Reporting
Revenue Gross as a Principal Versus Net as an Agent," the revenues related to
these click-throughs on keyword ads are reported gross of the fees paid in the
Condensed Consolidated Financial Statements, as we are the primary obligor and
are responsible for the fulfillment of the services.
On our private label agreement we recognize revenue in accordance with
the contractual revenue share payment agreement. Following the guidance of
Emerging Issue Task Force No. 99-19, "Reporting Revenue Gross as a Principal
Versus Net as an Agent," FindWhat.com recognizes private label revenues at net.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses
resulting from non-payments by our billable advertisers for services rendered.
The allowance for doubtful accounts was approximately $101,000 at March 31,
2003. If our billable advertisers were to contest amounts legitimately owed to
us, or if their ability to pay our invoices were to suffer, resulting in the
likelihood that we would not be paid for services rendered, additional
allowances may be necessary which would result in an additional general and
administrative expense in the period such determination was made.
15
Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax basis of assets and liabilities, loss
carryforwards and tax credit carryforwards for which income tax benefits are
expected to be realized in future years. A valuation allowance is established to
reduce deferred tax assets if it is more likely than not that all, or some
portion, of such deferred tax assets will not be realized.
At March 31, 2003 the Company has utilized all of its remaining net
operating loss carry-forwards, and had a remaining deferred tax asset of
approximately $419,000 and a related valuation allowance of approximately
$183,000. The remaining valuation allowance relates to possible future tax
benefits of service options and warrants.
BUSINESS RISKS
We desire to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The following factors have
affected or could affect FindWhat.com's actual results and could cause such
results to differ materially from those expressed in any forward-looking
statements we may make. Investors should consider carefully the following risks
and speculative factors inherent in and affecting the business of FindWhat.com
and an investment in our common stock. Factors that might cause such a
difference include, but are not limited to, those discussed below.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AND HAVE ONLY RECENTLY LAUNCHED OUR FINDWHAT.COM SERVICES.
We began offering search engine optimization marketing services through
our BeFirst.com service in March 1998, and in September 1999 we commercially
launched the FindWhat.com Network, our bid-for-position, keyword targeted
advertising service. In September 2002, we launched our private label service
and currently we have one private label partner. Accordingly, we have a limited
relevant operating history upon which an investor can make an evaluation of the
likelihood of our success. An investor in our securities must consider the
uncertainties, expenses, and difficulties frequently encountered by companies
such as ours that are in the early stages of development. An investor should
consider the likelihood of our future success to be highly speculative in light
of our limited operating history, as well as the problems, limited resources,
expenses, risks, and complications frequently encountered by similarly situated
companies in the early stages of development, particularly companies in new and
rapidly evolving markets, such as e-commerce. To address these risks, we must,
among other things:
o maintain and increase our client base;
o implement and successfully execute our business and marketing strategy;
o continue to develop and upgrade our technology;
o continually update and improve our service offerings and features;
o provide superior customer service;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to do so,
our business, prospects, financial condition, and results of operations would be
materially and adversely affected.
WE HAVE LIMITED MARKETING EXPERIENCE; THE SUCCESS OF THE FINDWHAT.COM NETWORK IS
DEPENDENT UPON OUR ABILITY TO ESTABLISH ONLINE MARKETING RELATIONSHIPS.
We have limited marketing experience and limited financial, personnel
and other resources to undertake extensive marketing activities. Our ability to
generate revenue from the FindWhat.com Network is dependent upon our ability to
attract advertisers and generate traffic to our advertisers' websites. If we are
unable to enter into additional agreements to generate significant traffic to
16
our advertisers' websites on commercially acceptable terms, or are unable to
implement successfully current agreements, which drive traffic to our
advertisers' websites, it could have a material adverse effect on our business,
prospects, financial condition, and results of operations.
OUR PRINCIPAL COMPETITOR MAY HAVE PATENT RIGHTS WHICH COULD PREVENT US FROM
OPERATING THE FINDWHAT.COM SERVICES IN THEIR PRESENT FORM.
Our principal competitor, Overture Services, Inc., purports to be the
owner of U.S. Patent No. 6,269,361, which was issued on July 31, 2001 and is
entitled "System and method for influencing a position on a search result list
generated by a computer network search engine." Additionally, Overture Services
has announced it acquired an issued patent that may apply to our current
bid-for-position pay-per-click business model. Overture Services has advised us
that they believe our current bid-for-position pay-per-click business model
infringes their patents; however, we believe that we do not infringe any valid
and enforceable claim of the patents. On January 17, 2002, we filed a complaint
to challenge the `361 patent in the District Court for the Southern District of
New York. Subsequently, Overture commenced litigation against us in the District
Court for the Central District of California in Los Angeles, alleging that we
are infringing the `361 patent. Our complaint has been transferred to the
District Court for the Central District of California in Los Angeles. As a
result, we have asserted our claims for declaratory judgment against Overture
for invalidity, unenforceability, and non-infringement of the '361 patent in an
Answer we filed on March 25, 2003 in the California action, and simultaneously
dismissed the transferred New York action without prejudice. All claims are now
pending before the District Court for the Central District of California in Los
Angeles, and the litigation is ongoing. Our patent litigation with Overture
Services may be time-consuming, expensive, and result in the diversion of our
time and attention. Accordingly, such patent litigation could negatively impact
our business, even if we prevail. If it is determined that our bid-for-position
business model infringes one or more valid and enforceable claims of the patents
held by Overture Services, our business, prospects, financial condition, and
results of operations could be materially and adversely affected and we could be
subject to damages and forced to obtain a license from Overture Services or
revise our business model. We can offer no assurance that a license would be
available on acceptable terms or at all, or that we will be able to revise our
business model economically, efficiently or at all.
OUR BUSINESS IS DEPENDENT UPON OUR RELATIONSHIPS WITH OUR DISTRIBUTION PARTNERS.
Our distribution partners are very important to our revenue and
results of operations. Any adverse changes in our relationship with key
distribution partners could have a material adverse impact on our revenue and
results of operations. Our agreements with our distribution partners vary in
duration, and depending on the agreement with any one particular distribution
partner, may be terminable upon the occurrence of certain events, including our
failure to meet certain service levels, general breaches of agreement terms, and
changes in control in certain circumstances. We may not be successful in
renewing our existing distribution partnership agreements, or if they are
renewed, any new agreement may not be on as favorable terms.
WE PARTIALLY DEPEND ON THIRD PARTIES FOR CERTAIN SOFTWARE AND INTERNET SERVICES
FOR THE FINDWHAT.COM NETWORK.
We partially depend on third-party software to operate the FindWhat.com
Network. Although we believe that several alternative sources for this software
are available, any failure to obtain and maintain the rights to use such
software would have a material adverse effect on our business, prospects,
financial condition, and results of operations. We also are dependent upon third
parties to provide Internet services to allow us to connect to the Internet with
sufficient capacity and bandwidth so that the FindWhat.com Network can function
properly and our FindWhat.com website can handle current and anticipated
traffic. We currently have contracts with Sprint, UUNet, Internap, and KMC
Telecom for these services. Any restrictions or interruption in our connection
to the Internet would have a material adverse effect on our business, prospects,
financial condition and results of operations.
WE RELY ON INTERNALLY DEVELOPED SYSTEMS WHICH MAY PUT US AT A COMPETITIVE
DISADVANTAGE.
We use internally developed systems for a portion of our
keyword-targeted paid listing request processing software. We developed these
systems primarily to increase the number of appropriate paid keyword-targeted
ads for each related keyword request made on our network, for our private label
partners, and for customer service. A significant amount of manual effort may be
required to update these systems if our competitors develop superior processing
methods. This manual effort is time-consuming and costly and may place us at a
competitive disadvantage when compared to competitors with more efficient
17
systems. We intend to upgrade and expand our processing systems and to integrate
newly-developed and purchased modules with our existing systems in order to
improve the efficiency of our paid listing methods and support increased
transaction volume, although we are unable to predict whether these upgrades
will improve our competitive position when compared to our competitors.
OUR MANAGEMENT TEAM IS RELATIVELY NEW; MANY OF OUR EMPLOYEES HAVE RECENTLY
JOINED US AND MUST BE INTEGRATED INTO OUR OPERATIONS.
Some of our officers have no prior senior management experience in
public companies. At March 31, 2003 we have 128 full time employees; our new
employees include a number of key managerial, technical, financial, marketing
and operations personnel as of March 31, 2003 who have not yet been fully
integrated into our operations; and we expect to add additional key personnel in
the near future. Our failure to fully integrate our new employees into our
operations could have a material adverse effect on our business, prospects,
financial condition, and results of operations.
WE MAY HAVE DIFFICULTY ATTRACTING AND RETAINING QUALIFIED, HIGHLY SKILLED
PERSONNEL.
We expect the expansion of our business to place a significant strain
on our limited managerial, operational, and financial resources. We will be
required to expand our operational and financial systems significantly and to
expand, train, and manage our work force in order to manage the expansion of our
operations. We will need to attract and retain highly qualified, technical
personnel in order to maintain and update our products and services and meet our
business objectives. Competition for such personnel is intense. We may not be
successful in attracting and retaining such qualified technical personnel on a
timely basis, on competitive terms, or at all. If we are unable to attract and
retain the necessary technical personnel, it would have a material and adverse
effect on our business, prospects, financial condition, and results of
operations.
CURRENT CAPACITY CONSTRAINTS MAY REQUIRE US TO EXPAND OUR NETWORK INFRASTRUCTURE
AND CUSTOMER SUPPORT CAPABILITIES.
Our ability to provide high-quality customer service largely depends on
the efficient and uninterrupted operation of our computer and communications
systems in order to accommodate any significant increases in the numbers of
advertisers using our services and the queries and paid click-throughs we
receive. We believe we will be required to expand our network infrastructure and
customer support capabilities to support an anticipated expanded number of
queries and paid click-throughs. Any such expansion will require us to make
significant upfront expenditures for servers, routers, computer equipment, and
additional Internet and intranet equipment, and to increase bandwidth for
Internet connectivity. Any such expansion or enhancement will need to be
completed and integrated without system disruptions. Failure to expand our
network infrastructure or customer service capabilities either internally or
through third parties, if and when necessary, would materially adversely affect
our business, prospects, financial condition, and results of operations.
OUR BUSINESS IS PARTIALLY SUBJECT TO SEASONALITY, WHICH MAY IMPACT OUR GROWTH
RATE.
We have historically experienced, and expect to continue to experience,
seasonal fluctuations in the number of click-throughs received by typical
distribution partners within the FindWhat.com Network. We expect that the first
and fourth quarters of each calendar year will realize more activity than the
second and third quarters, due to increased overall Internet usage during these
periods. Our operating results and growth rate may vary significantly in the
future, partly due to such seasonal fluctuations. It is possible that in some
future quarter our operating results will be below the expectations of public
market analysts and investors due to seasonality and in such event, the price of
our common stock could be materially adversely affected.
OUR TECHNICAL SYSTEMS ARE VULNERABLE TO INTERRUPTION AND DAMAGE.
A disaster could interrupt our services for an indeterminate length of
time and severely damage our business, prospects, financial condition, and
results of operations. Our systems and operations are vulnerable to damage or
interruption from fire, floods, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, penetration of our network by
unauthorized computer users and "hackers," and similar events. The occurrence of
a natural disaster or unanticipated problems at our technical operations
facilities could cause material interruptions or delays in our business, loss of
18
data, or render us unable to provide services to customers. Failure to provide
the data communications capacity we require, as a result of human error, natural
disaster, or other operational disruptions, could cause interruptions in our
services and websites. The occurrence of any or all of these events could
adversely affect our business, prospects, financial condition, and results of
operations.
WE MAY BE UNABLE TO OBTAIN THE INTERNET DOMAIN NAMES THAT WE HOPE TO USE.
The Internet domain name we are using for our paid keyword-targeted ad
website is "FindWhat.com." We believe that this domain name is an extremely
important part of our business. We may desire, or it may be necessary in the
future, to use other domain names in the United States and abroad. Governmental
authorities in different countries may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. These new domains may allow combinations and similar domain names
that may be confusingly similar to our own. Also, we may be unable to acquire or
maintain desired and relevant domain names in all countries in which we will
conduct business. In addition, there are other substantially similar domain
names that are registered by companies which may compete with us. There can be
no assurance that potential users and advertisers will not confuse our domain
name with other similar domain names. If that confusion occurs,
o we may lose business to a competitor; and
o some users of our services may have negative experiences with other
companies on their websites that those users erroneously associate with us.
WE MAY BE UNABLE TO PROMOTE AND MAINTAIN OUR BRANDS.
We believe that establishing and maintaining the brand identities of
our services is a critical aspect of attracting and expanding a large client
base. Promotion and enhancement of our brands will depend largely on our success
in continuing to provide high quality service. If businesses do not perceive our
existing services to be of high quality, or if we introduce new services or
enter into new business ventures that are not favorably received by businesses,
we will risk diluting our brand identities and decreasing their attractiveness
to existing and potential customers.
In order to attract and retain customers and to promote and maintain
brands in response to competitive pressures, we may also have to increase
substantially our financial commitment to creating and maintaining a distinct
brand loyalty among our customers. If we incur significant expenses in an
attempt to improve our services or to promote and maintain our brands, our
business, prospects, financial condition, and results of operations could be
materially adversely affected. Moreover, any brand identities we establish may
be diluted as a result of any inability to protect our service marks or domain
names, which could have a material adverse effect on our business, prospects,
financial condition, and results of operations.
OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT BE PROTECTABLE OR OF SIGNIFICANT VALUE
IN THE FUTURE.
We depend upon confidentiality agreements with specific employees,
consultants, and subcontractors to maintain the proprietary nature of our
technology. These measures may not afford us sufficient or complete protection,
and others may independently develop know-how and services similar to ours,
otherwise avoid our confidentiality agreements, or produce patents and
copyrights that would materially and adversely affect our business, prospects,
financial condition, and results of operations.
Legal standards relating to the validity, enforceability and scope of
protection of certain intellectual property rights in Internet-related
industries are uncertain and still evolving. The steps we take to protect our
intellectual property rights may not be adequate to protect our future
intellectual property. Third parties may also infringe or misappropriate any
copyrights, trademarks, service marks, trade dress, and other proprietary rights
we may have. Any such infringement or misappropriation could have a material
adverse effect on our business, prospects, financial condition, and results of
operations.
We own federal service mark registrations for "Be1st(R)," "BeFirst(R),"
"Find What You're Looking For(R)," and "FindWhat.com(R)." If other companies
also claim the words "Be1st," "BeFirst," "Find What You're Looking For," or
"FindWhat.com," we may be required to become involved in litigation or incur
additional expense. Effective service mark, copyright, and trade secret
protection may not be available in every country in which our services are
distributed or made available through the Internet.
19
The process and technology we use to operate the FindWhat.com Network
is critical to the success of our business. In February 2000, we filed a patent
application for our FindWhat.com Network with the United States Patent and
Trademark Office. Subsequently, we have filed additional patent applications
covering additional services and the evolution of our business model. These
applications are currently pending. Our patent applications may be rejected and
we may be unable to prevent third parties from infringing on our proprietary
rights. Further, our principal competitor has been granted a patent which may
cover our business model and has acquired an issued patent that may be
applicable to our business model. See "Our principal competitor may have patent
rights which could prevent us from operating our FindWhat.com Network in its
present form."
In addition, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
We may be unable to prevent third parties from acquiring domain names that are
similar to, infringe upon, or otherwise decrease the value of our trademarks and
other proprietary rights, which may result in the dilution of the brand identity
of our services. See "We may be unable to promote and maintain our brands."
Our current and future business activities may infringe upon the
proprietary rights of others, and third parties may assert infringement claims
against us. Any such claims and resulting litigation could subject us from time
to time to significant liability for damages, could result in the invalidation
of our proprietary rights, and have a material adverse effect on our business,
prospects, financial condition, and results of operations. Even if not
meritorious, such claims could be time-consuming, expensive to defend, and could
result in the diversion of our management's time and attention. In addition,
this diversion of managerial resources could have a material adverse effect on
our business, prospects, financial condition, and results of operations.
WE DEPEND ON THE EFFORTS OF OUR KEY PERSONNEL.
Our success is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends
substantially on the continued efforts of Craig A. Pisaris-Henderson, our
Chairman, Chief Executive Officer, and President, and Phillip R. Thune, our
Chief Operating Officer and Chief Financial Officer. Currently, we do not have
key person life insurance on Messrs. Pisaris-Henderson or Thune and we may be
unable to obtain such insurance in the near future due to high cost or other
reasons. We believe that the loss of the services of any of our executive
officers or other key employees could have a material adverse effect on our
business, prospects, financial condition and results of operations.
OUR CHARTER DOCUMENTS LIMIT THE LIABILITY OF OUR DIRECTORS AND OFFICERS.
Our articles of incorporation contain provisions which limit the
personal liability of our directors and officers for monetary damages arising
from a breach of their fiduciary duties as directors or officers. In addition,
our by-laws require us to indemnify any person who is or was involved in any
manner, or who is threatened to be involved in any pending or completed action
or proceeding, including a derivative action brought by us or in our name, by
reason of the fact that such person is or was a director, officer, employee, or
agent of ours, or was serving at our request as an officer, director, employee,
or agent of another entity, enterprise, or employee benefit plan, against all
liabilities and expenses actually and reasonably incurred by such person in
connection with any such action or proceeding.
OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE ADDITIONAL SHARES OF STOCK.
We are authorized to issue up to 50,000,000 shares of common stock
which may be issued by our board of directors for such consideration as they may
consider sufficient without seeking stockholder approval. The issuance of
additional shares of common stock in the future will reduce the proportionate
ownership and voting power of current stockholders.
Our Articles of Incorporation also authorize us to issue up to 500,000
shares of preferred stock, the rights and preferences of which may be designated
by our board of directors. These designations may be made without stockholder
approval. The designation and issuance of preferred stock in the future could
create additional securities which would have dividend and liquidation
preferences prior in right to the outstanding shares of common stock. These
provisions could also impede a non-negotiated change in control.
20
WE DO NOT INTEND TO PAY FUTURE CASH DIVIDENDS.
We currently do not anticipate paying cash dividends on our common
stock at any time in the near future. We may never pay cash dividends or
distributions on our common stock. Any credit agreements which we may enter into
with institutional lenders may restrict our ability to pay dividends. Whether we
pay cash dividends in the future will be at the discretion of our board of
directors and will be dependent upon our financial condition, results of
operations, capital requirements, and any other factors that the board of
directors decides is relevant.
THE MARKET PRICE OF OUR SECURITIES MAY BE VOLATILE.
From time to time the market price of our common stock may experience
significant volatility. Our quarterly results, failure to meet analysts'
expectations, patents issued or not issued to us or our competitors,
announcements by us or our competitors regarding acquisitions or dispositions,
loss of existing clients, new procedures or technology, litigation, sales of
substantial amounts of our common stock, including shares issued upon the
exercise of outstanding options or warrants, changes in general conditions in
the economy and general market conditions could cause the market price of the
common stock to fluctuate substantially. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the trading prices of equity securities of many technology and Internet
companies. Frequently, these price and volume fluctuations have been unrelated
to the operating performance of the affected companies. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against such a company. This
type of litigation, regardless of the outcome, could result in substantial costs
and a diversion of management's attention and resources, which could materially
adversely affect our business, prospects, financial condition, and results of
operations.
SIGNIFICANT ADDITIONAL DILUTION WILL OCCUR IF OUTSTANDING OPTIONS AND WARRANTS
ARE EXERCISED.
As of March 31, 2003 we have outstanding stock options under our 1999
Stock Incentive Plan to purchase approximately 3.4 million shares of common
stock at a weighted average exercise price of $2.61 and warrants to purchase
approximately 1.8 million shares of common stock at a weighted average exercise
price of $3.34 per share. To the extent these options or warrants are exercised,
our stockholders will experience further dilution. In addition, in the event
that any future financing should be in the form of, be convertible into, or
exchangeable for, equity securities, and upon the exercise of options and
warrants, investors may experience additional dilution.
WE FACE SUBSTANTIAL AND INCREASING COMPETITION.
We may face increased pricing pressure for the sale of keyword-targeted
advertisements, which could materially adversely affect our business, prospects,
financial condition, and results of operations. Our competitors may have or
obtain certain intellectual property rights which may interfere or prevent the
use of our bid-for-position business model. The market for Internet-based
marketing services is relatively new, intensely competitive, and rapidly
changing. Our principal competitors for the FindWhat.com Network are Overture
Services and Google. We also compete against providers of Web directories and
search and information services, such as those provided by America Online,
Google, MSN, and Yahoo. Our principal competitors have longer operating
histories, larger customer bases, greater brand recognition, and greater
financial, marketing, and other resources than we have.
We are not aware of any other company with an offering exactly similar
to our private label service, although Ah-ha.com offers a "Guaranteed Inclusion"
program, primarily on behalf of InfoSpace's search properties, which allows
advertisers to pay a flat fee to submit their sites to be included in
InfoSpace's various search engines. In the future, other companies with greater
financial, marketing, and other resources may offer directly competing services.
Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, certain of which may be larger
and have greater financial and other resources than we have. Competition for
these acquisition targets will likely also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition.
We have filed applications for several patents, any of which could be
rejected, and have only a limited amount of other proprietary technology that
would preclude or inhibit competitors from entering the keyword-targeted
advertising market. Therefore, we must rely on the skill of our personnel and
the quality of our client service. The costs to develop and provide e-commerce
21
services are relatively low. Therefore, we expect that we continually will face
additional competition from new entrants into the market in the future, and we
are subject to the risk that our employees may leave us and may start competing
businesses, notwithstanding non-competition agreements. The emergence of these
enterprises could have a material adverse effect on our business, prospects,
financial condition, and results of operations.
WE MAY NOT BE ABLE TO ADAPT AS THE INTERNET, ELECTRONIC COMMERCE, INTERNET
ADVERTISING, AND CUSTOMER DEMANDS CONTINUE TO EVOLVE.
We may not be able to adapt as the Internet, electronic commerce,
Internet advertising, and customer demands continue to evolve. Our failure to
respond in a timely manner to changing market conditions or client requirements
would have a material adverse effect on our business, prospects, financial
condition and results of operations. The Internet e-commerce and the Internet
advertising industry are characterized by:
o rapid technological change;
o changes in user and customer requirements and preferences;
o frequent new product and service introductions embodying new technologies;
and
o the emergence of new industry standards and practices that could render
proprietary technology and hardware and software infrastructure obsolete.
Our success will depend, in part, on our ability to:
o enhance and improve the responsiveness and functionality of our
FindWhat.com Network and our private label service;
o license or develop technologies useful in our business on a timely basis,
enhance our existing services, and develop new services and technology that
address the increasingly sophisticated and varied needs of our prospective
or current customers; and
o respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
INTERNET SECURITY POSES RISKS TO OUR ENTIRE BUSINESS.
The process of e-commerce aggregation by means of our hardware and
software infrastructure involves the transmission and analysis of confidential
and proprietary information of the advertiser, as well as our own confidential
and proprietary information. The compromise of our security or misappropriation
of proprietary information could have a material adverse effect on our business,
prospects, financial condition, and results of operations. We rely on encryption
and authentication technology licensed from other companies to provide the
security and authentication necessary to effect secure Internet transmission of
confidential information, such as credit and other proprietary information.
Advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments may result in a compromise or breach of the
technology used by us to protect client transaction data. Anyone who is able to
circumvent our security measures could misappropriate proprietary information or
cause material interruptions in our operations. We may be required to expend
significant capital and other resources to protect against security breaches or
to minimize problems caused by security breaches. To the extent that our
activities or the activities of others involve the storage and transmission of
proprietary information, security breaches could damage our reputation and
expose us to a risk of loss or litigation and possible liability. Our security
measures may not prevent security breaches. Our failure to prevent these
security breaches may have a material adverse effect on our business, prospects,
financial condition, and results of operations.
22
OUR FUTURE SUCCESS WILL DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET.
Our future success will depend substantially upon continued growth in
the use of the Internet to support the sale of our advertising services and
acceptance of e-commerce transactions on the Internet. As this is a new and
rapidly evolving industry, the ultimate demand and market acceptance for
Internet-related services is subject to a high level of uncertainty. Significant
issues concerning the commercial use of the Internet and online services
technologies, including security, reliability, cost, ease of use, and quality of
service remain unresolved and may inhibit the growth of Internet business
solutions that utilize these technologies. In addition, the Internet or other
online services could lose their viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, or due to increased governmental regulation. In the event
that the use of the Internet and other online services does not continue to grow
or grows more slowly than we expect, or the Internet does not become a
commercially viable marketplace, our business, prospects, financial condition,
and results of operations would be materially adversely affected.
THE MARKET FOR OUR SERVICES IS UNCERTAIN AND IS STILL EVOLVING.
Internet marketing and advertising, in general, and advertising through
priority placement in keyword-targeted ads in particular, are at early stages of
development, are evolving rapidly, and are characterized by an increasing number
of market entrants. Our future revenues and profits are substantially dependent
upon the widespread acceptance and use of the Internet and other online services
as an effective medium of commerce by merchants and consumers. Rapid growth in
the use of and interest in, the Internet, the Web, and online services is a
recent phenomenon, and may not continue on a lasting basis. In addition,
customers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce. The demand and market acceptance for recently
introduced services is generally subject to a high level of uncertainty. Most
potential advertisers have only limited experience advertising on the Internet
and have not devoted a significant portion of their advertising expenditures to
Internet advertising. If this trend continues, the market for our existing
services, which are dependent upon increased Internet advertising, may be
adversely affected, which in turn will have a material adverse effect on our
business, prospects, financial condition, or results of operations.
WE WILL NEED TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE IN THE INTERNET SEARCH
AND ADVERTISING INDUSTRIES.
In order to remain competitive, we will be required continually to
enhance and improve the functionality and features of our existing FindWhat.com
services, which could require us to invest significant capital. If our
competitors introduce new products and services embodying new technologies, or
if new industry standards and practices emerge, our existing services,
technology, and systems may become obsolete and we may not have the funds or
technical know-how to upgrade our services, technology, and systems. If we face
material delays in introducing new services, products, and enhancements, our
users may forego the use of our services and select those of our competitors, in
which event, our business, prospects, financial condition, and results of
operations could be materially adversely affected.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.
We are not currently subject to direct regulation by any government
agency other than laws or regulations applicable generally to e-commerce. Due to
the increasing popularity and use of the Internet and other online services,
federal, state, and local governments may adopt laws and regulations, or amend
existing laws and regulations, with respect to the Internet or other online
services covering issues such as user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services. In 1998,
the United States Congress established the Advisory Committee on Electronic
Commerce which is charged with investigating, and making recommendations to
Congress regarding, the taxation of sales by means of the Internet. Furthermore,
the growth and development of the market for e-commerce may prompt calls for
more stringent consumer protection laws and impose additional burdens on
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our services and increase our cost
of doing business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations. Moreover, the
relevant governmental authorities have not resolved the applicability to the
Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership and personal privacy and it may take
time to resolve these issues definitively. Any new legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could have a material
adverse effect on our business, prospects, financial condition, and results of
operations.
23
IMPLEMENTATION OF OUR FINDWHAT.COM SERVICES AND OUR SEARCH ENGINE OPTIMIZATION
SERVICE FOR SOME CLIENTS MAY INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
In implementing our FindWhat.com services and our search engine
optimization service, we utilize promotional material generated by our clients
and our editing staff to promote websites. From time to time, third parties have
advised that the use of certain keywords in our FindWhat.com services and our
search engine optimization service have infringed on their intellectual property
rights. Although the terms and conditions of our services provide that our
clients are responsible for infringement of intellectual property rights of
others arising out of the use of keywords or content in their paid keyword ads
and on their websites, our involvement in disputes regarding these claims could
be time-consuming, expensive to defend, and could result in the diversion of our
management's time and attention, which could have a material adverse effect on
our business, prospects, financial condition, and results of operations.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING.
Although we have no material long-term commitments for capital
expenditures, we anticipate an increase in capital expenditures consistent with
anticipated growth of operations, infrastructure, and personnel. We currently
anticipate that our cash as of March 31, 2003, together with cash flows from
operations, will be sufficient to meet the anticipated liquidity needs for
working capital and capital expenditures over the next 12 months. In the future,
we may seek additional capital through the issuance of debt or equity depending
upon results of operations, market conditions, or unforeseen opportunities. Our
future liquidity and capital requirements will depend upon numerous factors. The
pace of expansion of our operations will affect our capital requirements. We may
also have increased capital requirements in order to respond to competitive
pressures. In addition, we may need additional capital to fund acquisitions of
complementary products, technologies, or businesses. Our forecast of the period
of time through which our financial resources will be adequate to support our
operations is a forward-looking statement that involves risks and uncertainties
and actual results could vary materially as a result of the factors described
above. As we require additional capital resources, we will seek to sell
additional equity or debt securities or obtain a bank line of credit. The sale
of additional equity or convertible debt securities could result in additional
dilution to existing stockholders. There can be no assurance that any financing
arrangements will be available in amounts or on terms acceptable to us, if at
all.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer along with our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon this evaluation, our
Chief Executive Officer along with our Chief Financial Officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated subsidiary)
required to be included in our periodic SEC reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
Since the date of our evaluation to the filing date of this Quarterly
Report, there have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our principal competitor, Overture Services, Inc. purports to be the owner of
U.S. Patent No. 6,269,361, which was issued on July 31, 2001 entitled "System
and method for influencing a position on a search result list generated by a
computer network search engine." Additionally, Overture Services has announced
it acquired an issued patent that may apply to our current bid-for-position
business model. Overture Services has advised us that they believe our current
bid-for-position business model infringes their patents; however, we believe
that we do not infringe any valid and enforceable claim of the patents. On
January 17, 2002, we filed a complaint to challenge Overture's `361 patent in
the District Court for the Southern District of New York. Subsequently, on
January 25, 2002, Overture commenced litigation against us in the District Court
for the Central District of California in Los Angeles, alleging that we are
infringing the `361 patent. In the litigation, we are seeking a declaration that
Overture's patent is invalid and unenforceable and not infringed by us, and
Overture is seeking a permanent injunction against any act by us deemed by the
court to infringe Overture's patent, an award of unspecified monetary damages,
and attorney's fees, costs, and expenses. In an Opinion and Order dated February
13, 2003, despite finding that our complaint was properly brought in New York,
Judge Mukasey in the Southern District of New York ordered the action
transferred to the Central District of California based largely on the
convenience of the expected witnesses in this case. As a result, we have
asserted our claims for declaratory judgment against Overture for invalidity,
unenforceability and non-infringement of the '361 patent in an Answer we filed
on March 25, 2003 in the California action, and simultaneously dismissed the
transferred New York action without prejudice. All claims are now pending before
the District Court for the Central District of California in Los Angeles, and
the litigation is ongoing. A trial in this matter is not expected before August
2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Quarterly Report on Form
10-Q:
(1) Exhibits:
Number Exhibit
2.1* Agreement and Plan of Reorganization dated June 17, 1999 by and
among BeFirst Internet Corporation, Collectibles America, Inc.
and Mick Jardine.
3.1* Articles of Incorporation of FindWhat.com (f/k/a Collectibles
America, Inc.).
3.2** Amended and Restated By-laws of FindWhat.com.
3.3*** Audit Committee Charter.
10.1##/+ Amended and Restated Executive Employment Agreement between
FindWhat.com and Craig A. Pisaris-Henderson.
10.2##/+ Amended and Restated Executive Employment Agreement between
FindWhat.com and Phillip R. Thune.
10.3*****/+ Executive Employment Agreement between FindWhat.com and
Courtney P. Jones.
10.4****/+ FindWhat.com 1999 Stock Incentive Plan, as amended.
10.5##/+ Form of Incentive Stock Option Agreement.
10.6##/+ Form of Non-Qualified Stock Option Agreement.
25
10.7##/+ Executive Employment Agreement between FindWhat.com and Dave
Rae.
10.8*****/+ Executive Employment Agreement between FindWhat.com and Robert
D. Brahms.
10.9## Colonial Bank Plaza office building lease dated January 31,
2002, as amended.
10.10#/+ Executive Employment Agreement between FindWhat.com and Anthony
Garcia.
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
* Incorporated by reference to the exhibit previously filed on September 14,
1999 with prior Form 10 of FindWhat.com (file no. 0-27331).
** Incorporated by reference to the exhibit previously filed on January 23, 2002
with FindWhat.com's Form 8-K.
*** Incorporated by reference to the exhibit previously filed on March 30, 2000
with Amendment to FindWhat.com's Form 10-K for the fiscal year ended December
31, 1999.
****Incorporated by reference to the exhibit previously filed on August 1, 2002,
with FindWhat.com's Form S-8.
*****Incorporated by reference to the extent previously filed on April 2, 2001
with FindWhat.com's Form 10-KSB for the year ended December 31, 2000.
#Incorporated by reference to the exhibit previously filed on May 15, 2001 with
FindWhat.com's Form 10-QSB for the fiscal quarter ended March 31, 2001.
##Incorporated by reference to the exhibit previously filed on November 6, 2002
with FindWhat.com's Form 10-QSB for the fiscal quarter ended September 30, 2002.
+Management compensatory contract or plan.
(b) Reports on Form 8-K
Report on Form 8-K/A filed March 25, 2003, regarding the termination of
Grant Thornton LLP, and the hiring of Ernst & Young, LLP as our independent
auditors (Items 4 and 7).
Report on Form 8-K filed March 18, 2003, regarding the termination of
Grant Thornton LLP as our independent auditors (Items 4 and 7).
Report on Form 8-K filed February 10, 2003, regarding Q4 2002 and full
year 2002 financial results and guidance for future financial performance for FY
2003 (Items 5 and 7).
26
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.
FINDWHAT.COM
Date: May 14, 2003 By: /s/ Phillip R. Thune
----------------------------------------------
Phillip R. Thune
Chief Operating Officer and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial and Accounting Officer)
27
CERTIFICATION
I, Craig A. Pisaris-Henderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
FindWhat.com;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Craig A. Pisaris-Henderson
-----------------------------------------------
Craig A. Pisaris-Henderson,
Chairman, Chief Executive Officer and President
FindWhat.com
28
CERTIFICATION
I, Phillip R. Thune, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
FindWhat.com;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Phillip R. Thune
---------------------------------------------------
Phillip R. Thune,
Chief Operating Officer and Chief Financial Officer
FindWhat.com
29