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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________________ to _________________

Commission File Number: 000-28871


SWITCHBOARD INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)

Delaware 04-3321134
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)


120 Flanders Road, Westboro, MA 01581
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (508) 898-8000

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Title of Class Shares Outstanding as of October 31, 2002
-------------- -----------------------------------------
Common Stock, par value $0.01 per share 18,840,928


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical fact,
included in this Quarterly Report on Form 10-Q regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Quarterly Report on Form 10-Q, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project" and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. We cannot guarantee future results,
levels of activity, performance or achievements and you should not place undue
reliance on our forward-looking statements. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or strategic alliances. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including the risks described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors Affecting Operating Results, Business Prospects and Market Price of
Stock" and elsewhere in this Quarterly Report on Form 10-Q. The forward-looking
statements provided by Switchboard in this Quarterly Report on Form 10-Q
represent Switchboard's estimates as of the date this report is filed with the
SEC. We anticipate that subsequent events and developments will cause our
estimates to change. However, while we may elect to update our forward-looking
statements in the future we specifically disclaim any obligation to do so. Our
forward-looking statements should not be relied upon as representing our
estimates as of any date subsequent to the date this report is filed with the
SEC.

WEB SITE ADDRESSES

Our Web site address is www.switchboard.com. References in this Quarterly
Report on Form 10-Q to www.switchboard.com, switchboard.com, any variations of
the foregoing or any other uniform resource locator or URL, are inactive textual
references only. The information on our Web site or at any other URL is not
incorporated by reference into this Quarterly Report on Form 10-Q and should not
be considered to be a part of this document.


1



SWITCHBOARD INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I - Financial Information

Item 1. - Financial Statements



Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001 (audited)........................ 3

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001
(unaudited)........................................................................................................ 4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (unaudited)................. 5

Notes to Consolidated Financial Statements.............................................................................. 6

Item 2. -- Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 11

Item 3. -- Quantitative and Qualitative Disclosures About Market Risk................................................... 29

Item 4. -- Controls and Procedures...................................................................................... 30

PART II - Other Information

Item 1. -- Legal Proceedings............................................................................................ 30

Item 2. -- Changes in Securities and Use of Proceeds.................................................................... 31

Item 6. -- Exhibits and Reports on Form 8-K............................................................................. 31

Signatures.............................................................................................................. 32

Certifications.......................................................................................................... 33



2


PART I -- FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

SWITCHBOARD INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)



September 30, 2002 December 31, 2001
------------------ -----------------
(unaudited) (audited)
Assets:

Cash and cash equivalents $ 36,057 $ 4,212
Short-term marketable securities 6,917 36,547
Restricted cash 2,036 874
Accounts receivable, net of allowance of $380 and $500, respectively 1,606 1,635
Unbilled receivables 115 623
Other current assets 643 631
-------- --------
Total current assets 47,374 44,522

Long-term marketable securities 9,155 18,333
Property and equipment, net 2,219 2,885
Other assets, net - 95
-------- --------

Total assets $ 58,748 $ 65,835
======== ========

Liabilities and stockholders' equity:
Accounts payable $776 $2,279
Accrued expenses 1,850 3,253
Deferred revenue 356 761
Payable related to acquisition 2,000 2,000
Note payable, current portion 1,099 -
Capital lease obligation, current portion - 357
-------- --------
Total current liabilities 6,081 8,650

Note payable, net of current portion 1,399 -
Capital lease obligation, net of current portion - 518
-------- --------
Total liabilities 7,480 9,168

Stockholders' equity:
Common stock, $0.01 par value per share; authorized 85,000,000 shares, issued
18,840,928 shares as of September 30,
2002 and 18,265,065 shares as of December 31, 2001 192 183
Treasury stock, at cost, 386,302 shares as of September 30, 2002 and none as
of December 31, 2001 (1,255) -
Additional paid-in capital 162,436 160,681
Note receivable for issuance of restricted common stock (1,502) -
Unearned compensation (214) (334)
Accumulated other comprehensive income 176 923
Accumulated deficit (108,565) (104,786)
-------- --------
Total stockholders' equity 51,268 56,667
-------- --------

Total liabilities and stockholders' equity $ 58,748 $ 65,835
======== ========



The accompanying notes are an integral part of these consolidated financial
statements.


3


SWITCHBOARD INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except per share data)



For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2002 2001 2002 2001
------- -------- ------- --------
(restated) (restated)


Revenue $ 3,325 $ 3,172 $10,362 $ 9,540
Consideration given to a customer 49 (1,012) (2,000) (3,036)
------- -------- ------- --------
Net revenue 3,374 2,160 8,362 6,504

Cost of revenue 951 853 2,981 2,543
------- -------- ------- --------

Gross profit 2,423 1,307 5,381 3,961

Operating expenses:
Sales and marketing 1,127 10,033 3,699 22,238
Research and development 1,378 1,797 4,200 4,797
General and administrative 1,606 1,154 3,036 3,093
Amortization of goodwill and intangibles - 173 - 630
------- -------- ------- --------
Total operating expenses 4,111 13,157 10,935 30,758
------- -------- ------- --------

Loss from operations (1,688) (11,850) (5,554) (26,797)

Other income (expense):
Interest income, net 306 785 1,775 2,744
Loss on disposal of fixed assets - - - (173)
------- -------- ------- --------
Total other income (expense) 306 785 1,775 2,571
------- -------- ------- --------

Net loss $(1,382) $(11,065) $(3,779) $(24,226)
======= ======== ======= ========

Basic and diluted net loss per share $(0.07) $(0.44) $(0.20) $(0.97)
======= ======= ====== =======

Shares used in computing basic and
Diluted net loss per share 18,525 24,980 18,506 24,953



The accompanying notes are an integral part of these consolidated financial
statements.


4


SWITCHBOARD INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)



Nine months ended September,
----------------------------
2002 2001
------- --------
(restated)
Cash flows from operating activities:

Net loss $(3,779) $(24,226)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,173 2,000
Amortization of unearned compensation 120 54
Loss on disposal of property and equipment - 173
Non-cash interest income (53) -
Gain on sales of marketable securities (431) -
Non-cash advertising and promotion expense - 9,377
Other-than-temporary unrealized loss on available for sale investments 6 -
Amortization of AOL assets 2,000 3,036

Changes in operating assets and liabilities:
Accounts receivable 29 3,884
Unbilled receivables 508 369
Other current assets (12) (5,062)
Other assets 95 2,138
Accounts payable (1,504) 865
Accrued expenses (167) (297)
Payable related to directory agreement (2,000) -
Accrued restructuring (927) -
Deferred revenue (405) (445)
------- --------
Net cash used in operating activities (5,347) (8,134)

Cash flows from investing activities:
Purchases of property and equipment (815) (2,077)
Increase in restricted cash (1,162) (959)
Proceeds from (purchases of) investments 38,485 (2,920)
------- --------
Net cash provided by (used in) investing activities 36,508 (5,956)

Cash flows from financing activities:
Proceeds from issuance of common stock, net 316 138
Purchase of treasury stock (1,255) -
Proceeds from sale leaseback arrangement - 1,101
Proceeds from issuance of note payable 2,747 -
Payments on capital leases and notes payable (1,124) (113)
------- --------
Net cash provided by financing activities 684 1,126

Net increase (decrease) in cash and cash equivalents 31,845 (12,964)

Cash and cash equivalents at beginning of period 4,212 18,772
------- --------
Cash and cash equivalents at end of period $36,057 $ 5,808
======= ========

Supplemental statement of non-cash financing activity:
Note receivable from officer for issuance of common stock $1,499 -


The accompanying notes are an integral part of these consolidated financial
statements.


5


SWITCHBOARD INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. NATURE OF BUSINESS

Switchboard Incorporated, a Delaware corporation (the "Company"), commenced
operations in February 1996. From the Company's inception (February 19, 1996)
until March 7, 2000, the Company was a unit and later a subsidiary of ePresence,
Inc. (formerly Banyan Worldwide, "ePresence"). As of September 30, 2002,
ePresence beneficially owned approximately 52.0% of the Company's common stock.
The Company is a provider of Web-hosted directory technologies and customized
yellow pages platforms to yellow pages publishers, newspaper publishers and
Internet portals that offer online local directory advertising solutions to
national retailers and brick and mortar merchants across a full range of
Internet and wireless platforms. The Company offers a broad range of functions,
content and services, including yellow and white pages, product searching,
location based searching and interactive maps and driving directions. The
Company's Web site, Switchboard.com, is a showcase for the Company's technology
and breadth of directory product offerings, and is a resource for consumers and
businesses alike. The Company offers its users local information about people
and businesses across the United States. The Company operates in one business
segment as a provider of Web-hosted directory technologies and customized yellow
pages platforms.

The Company is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet, acceptance and effectiveness of Internet
advertising, dependence on principal products and third-party technology, new
product development, new product introductions and other activities of
competitors, dependence on key personnel, security and privacy issues,
dependence on strategic relationships and limited operating history.

The Company has also experienced substantial net losses since its inception
and, as of September 30, 2002, had an accumulated deficit of $108.6 million.
Such losses and accumulated deficit resulted from the Company's lack of
substantial revenue and significantly increased costs incurred in the
development of the Company's products and services and in the preliminary
establishment of the Company's infrastructure. The Company expects to continue
to incur significant operating expenses in order to execute its current business
plan, particularly sales and marketing and product development expenses. The
Company believes that the funds currently available would be sufficient to fund
operations through at least the next 12 months.

2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, that, in the
opinion of management, are necessary to present fairly the financial information
set forth therein. Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. Results of
operations for the three- and nine-month periods ended September 30, 2002 are
not necessarily indicative of future financial results. Certain previously
reported amounts have been reclassified to conform to the current method of
presentation.

Investors should read these interim consolidated financial statements in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Amendment No. 1 to Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, as filed with the Securities and Exchange
Commission on September 19, 2002.

6


3. ADOPTION OF EITF 01-9

Effective January 2002, the Company adopted Emerging Issues Task Force
Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)" ("EITF 01-9"), which became
effective for fiscal years beginning after December 15, 2001. The Company has
concluded that EITF 01-9 is applicable to the accounting for its directory and
local advertising platform services agreement with AOL ("Directory Agreement").
The 2001 quarterly results have been adjusted to conform to the presentation
required by EITF 01-9. Accordingly, the Company has decreased its merchant
network revenue by $433,000 and $1.0 million for the three months ended
September 30, 2002 and 2001 and $2.5 million and $3.0 million for the nine
months ended September 30, 2002 and 2001, respectively, and reduced its
operating expenses by a corresponding amount in the three and nine months ended
September 30, 2002 and 2001, respectively. Offsetting amortization of
consideration given to AOL in the three and nine months ended September 30, 2002
is an adjustment to year-to-date amortization of $482,000 as a result of the
execution in August 2002 of the third amendment to the Directory Agreement (See
Note 12). The adoption of EITF 01-9 had no effect on net income or the Company's
capital resources. The following table illustrates the effect of the application
of EITF 01-9:



Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(restated) (restated)

Gross revenue $3,325 $3,172 $10,362 $9,540
Less: Amortization of consideration
given to AOL(a) 49 (1,012) (2,000) (3,036)
-- ------- ------- ------
Net revenue $3,374 $2,160 $8,362 $6,504
====== ====== ====== ======

Operating expenses $4,062 $14,169 $12,935 $33,794
Less: Amortization of consideration
given to AOL 49 (1,012) (2,000) (3,036)
-- ------- ------- -------
Net operating expenses $4,111 $13,157 $10,935 $30,758
====== ======= ======= =======


(a) Amortization of consideration given to AOL exceeded revenue derived from AOL
by $279,000 and $765,000 in the three and nine months ended September 30, 2001.

4. NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding less any restricted shares. Diluted net loss
per share does not differ from basic net loss per share, since potential common
shares from conversion of preferred stock, stock options, warrants and
restricted stock are antidilutive for all periods presented and are therefore
excluded from the calculation. As of September 30, 2002 and 2001, options to
purchase 3,578,256 and 4,550,480 shares of common stock, preferred stock
convertible into none and one share of common stock, warrants to purchase
918,468 and 1,451,937 shares of common stock, and 300,000 and 746,260 shares of
restricted stock, respectively, were not included in the computation of diluted
net loss per share since their inclusion would be antidilutive.

5. CONCURRENT TRANSACTIONS

There were no revenues from barter transactions, in the three and nine
months ended September 30, 2002, in which the Company received promotion in
exchange for promotion on its Web site. The Company had advertising barter
transactions totaling $180,000 and $656,000, or 8.3% and 10.1% of net revenues,


7


for the three- and nine-month periods ended September 30, 2001, respectively.
Revenue from advertising barter has been valued based on similar cash
transactions which have occurred within six months prior to the date of the
barter transaction. In accordance with Emerging Issues Task Force Issue No.
99-17 "Accounting for Advertising Barter Transactions" (EITF 99-17"), barter
transactions are recorded at the fair value of the goods or services provided or
received, whichever is more readily determinable. The Company had other
concurrent transactions totaling $42,000 for the nine months ended September 30,
2001, in which the Company received marketing assets in exchange for promotion
on its Web site. There were no revenues from other concurrent transactions in
the three and nine months ended September 30, 2002. Revenue from other
concurrent transactions is recorded at the fair value of the goods or services
provided or received, whichever is more readily determinable.

6. COMPREHENSIVE LOSS

Other comprehensive loss includes unrealized gains or losses on the
Company's available-for-sale investments.



Nine Months Ended September 30,
-------------------------------
2002 2001
---- ----
(restated)
(unaudited, in thousands)


Net loss $(3,779) $(24,226)
Other comprehensive (loss) income:
Unrealized (loss) gain on investment (747) 734
----- ---
Comprehensive loss $(4,526) $(23,492)
======== =========


Of the $747,000 change in other comprehensive loss in the nine months ended
September 30, 2002, $402,000 results from realized gains resulting from the
Company's liquidation of certain marketable securities as part of its transition
of its banking relationship from Fleet National Bank to Silicon Valley Bank.
Such realized gains have been included in interest income in the accompanying
statement of operations.

7. ADVERTISING EXPENSE

Advertising costs are expensed as incurred. For the three and nine months
ended September 30, 2001, advertising expenses totaled $7.3 million and $14.8
million, of which $5.6 million and $9.4 million was related to non-cash
advertising received from Viacom Inc. ("CBS non-cash advertising"),
respectively. The Company's advertising expense in the three and nine months
ended September 30, 2002 was $7,000 and $34,000, respectively, none of which was
related to CBS non-cash advertising.

8. CAPITAL LEASE

In March 2001, the Company entered into a computer equipment sale-leaseback
agreement with Fleet Capital Corporation ("FCC") under which the Company was
able to lease up to $3.0 million of equipment. Under the agreement, the Company
was to have leased computer equipment over a three-year period ending on June
28, 2004, and had utilized $1.1 million of this lease facility. The agreement
had an estimated effective annual percentage rate of approximately 7.90%. Under
the terms of the agreement, the Company was required to maintain on deposit with
Fleet National Bank ("FNB") a compensating balance, restricted as to use, in an
amount equal to the principal outstanding under the lease. The Company had
accounted for the transaction as a capital lease.

8


In May 2002, the Company paid $794,000 to FCC to terminate its lease
obligations with FCC through an early buy-out. The $794,000 was comprised of
$764,000 in outstanding principal under the lease and $30,000 in expenses
associated with the early termination. In exchange for the amount paid, the
Company assumed all right and title to the assets leased under the facility.
Additionally, the Company's requirement to maintain a compensating balance with
FNB was eliminated.

9. NOTES PAYABLE AND LINE OF CREDIT

In June 2002, the Company entered into a loan and security agreement (the
"Agreement") with Silicon Valley Bank ("SVB"), under which the Company has the
ability to borrow up to $4.0 million for the purchase of equipment. Amounts
borrowed under the facility accrue interest at a rate equal to prime plus 0.25%,
and are repaid monthly over a 30 month period. As of September 30, 2002, the
Company had utilized $2.7 million of this facility. The Company may utilize the
facility to fund additional equipment purchases of up to $1.3 million through
March 31, 2003. The agreement also provides for a $1.0 million revolving line of
credit at an interest rate equal to prime. At September 30, 2002, the Company
had no outstanding borrowings under the revolving line of credit. The Company
has recorded a note payable to SVB on its balance sheet totaling $2.5 million
for equipment financed as of September 30, 2002, of which $1.1 million is
classified as a current liability.

As a condition of the Agreement, the Company is required to maintain in
deposit or investment accounts at SVB not less than 95% of its cash, cash
equivalents and marketable securities. Covenants in the Agreement require the
Company to maintain in deposit or in investment accounts with SVB at least $20.0
million in unrestricted cash. Borrowings under the Agreement are collateralized
by all of the Company's tangible and intangible assets, excluding intellectual
property.

10. PAYABLE RELATED TO ACQUISITION

In November 2000, the Company acquired Envenue, Inc. ("Envenue"), a
wireless provider of advanced searching technologies designed to drive leads to
traditional retailers. The total purchase price included consideration of $2.0
million in cash to be paid on or before May 24, 2002, which the Company has
classified as a payable related to acquisition within current liabilities. As of
September 30, 2002, the Company had not paid this amount, as it is in a
contractual dispute with the previous owners of Envenue. In June 2002, the
Company placed into escrow $2.0 million, which will be held in escrow until the
contractual dispute has been resolved. The Company has recorded this amount as
restricted cash. Subsequently, in October 2002, the Company paid $400,000, plus
interest, representing a portion of the purchase price, to the former owners of
Envenue. The remaining $1.6 million remains in dispute. Additionally, an earnout
payment of up to $2.0 million was contingent upon meeting certain performance
criteria on or before May 24, 2002. These performance criteria were not met, and
no liability for this amount has been recorded.

11. TREASURY STOCK

On February 27, 2002, Viacom Inc. exercised its warrant to purchase 533,468
shares of the Company's common stock at $1.00 per share pursuant to a cashless
exercise provision in the warrant, resulting in the net issuance of 386,302
shares of common stock. On March 12, 2002, the Company repurchased these 386,302
shares of common stock from Viacom at a price of $3.25 per share, for a total
cost of $1.3 million. The Company has recorded the value of these shares as
treasury stock at cost.

12. AMERICA ONLINE, INC.

In December 2000, the Company entered into a Directory Agreement with AOL
to develop a new directory and local advertising platform and product set to be
featured across specified AOL properties (the "Directory Platform"). In November
2001, in April 2002 and again in August 2002, certain terms of the agreement


9


were amended. Under the four-year term of the amended Directory Agreement, the
Company shares with AOL specified directory advertisement revenue. In general,
the Company receives a majority of the first $12.0 million of such directory
advertisement revenue and a lesser share of any additional directory
advertisement revenue pursuant to the August 2002 amendment. The Company paid
AOL and recorded an asset of $13.0 million at the signing of the Directory
Agreement. Following the incorporation of the Directory Platform on the AOL.com,
AOL Service and Digital City properties ("AOL Roll-In") in January 2002, the
Company recorded a second asset and a liability related to future payments of
$13.0 million. In April 2002, the Company established an additional asset and
liability of $1.0 million and paid $2.0 million upon the execution of the April
2002 amendment. Under the April 2002 amended agreement, the Company was
scheduled to make six additional quarterly payments of $2.0 million each,
replacing the $13.0 million originally owed upon the AOL Roll-In. The August
2002 amendment, among other things, eliminated the $12.0 million in remaining
additional payments established in the April 2002 amendment. AOL committed to
pay the Company at least $2.0 million in consulting or service fees under a
payment schedule which ended in September 2002, of which AOL has paid all $2.0
million and the Company has delivered all $2.0 million in services to AOL as of
September 30, 2002. In addition, the Company is required to provide up to 300
hours of engineering services per month to AOL at no charge, if requested by AOL
for the term of the agreement. Any engineering services provided by the Company
in excess of 300 hours per month are charged to AOL on a time and materials
basis. The August 2002 amended Directory Agreement has an initial term of four
years, and is subject to earlier termination upon the occurrence of specified
events, including, without limitation (a) the Company being acquired by one of
certain third parties, or (b) AOL acquiring one of certain third parties and AOL
pays the Company a termination fee of $25.0 million.

In connection with entering into the Directory Agreement, in December 2000
the Company issued to AOL 746,260 shares of its common stock, which were
restricted from transfer until the AOL Roll-In, which occurred on January 2,
2002, and agreed to issue to AOL an additional 746,260 shares of common stock if
the Directory Agreement continued after two years and a further 746,260 shares
of common stock if the Directory Agreement continued after three years. Under
the amended agreement, the requirement to issue additional shares upon the two
and three-year continuations has been eliminated. If the Company renews the
Directory Agreement with AOL for at least an additional four years after the
initial term, it agreed to issue to AOL a warrant to purchase up to 721,385
shares of common stock at a per share purchase price of $4.32.

The value of the $13.0 million paid and stock issued upon the signing of
the Directory Agreement was amortized on a straight-line basis over the original
four-year estimated life of the agreement. As of December 2001, the remaining
unamortized amounts were written down to zero as a result of an impairment
analysis as of December 31, 2001. In 2002, the Company recorded amortization
based upon the remaining net book value of its AOL Assets subject to each
amendment to the agreement on a straight-line basis over the remaining term of
the amended agreement. As a result of the elimination in the August 2002
amendment of the remaining $12.0 million owed to AOL, an adjustment to
amortization of consideration given to a customer of $482,000 was recorded in
the three months ended September 30, 2002, offsetting amortization recorded in
the period. Throughout the remaining initial term of the amended agreement, the
Company will no longer record amortization of consideration given to a AOL as
these assets are now fully amortized and no further consideration is due AOL.
Amortization of assets related to AOL has been reflected as a reduction of
revenue in accordance with EITF 01-9.

Revenue recognized from AOL, net of amortization of consideration given to
AOL, was 52.6% and 37.2% of net revenue for the three and nine months ended
September 30, 2002, respectively. Revenue from AOL, net of amortization of
consideration given to AOL, was (12.9)% and (11.8)% of net revenue, for the
three and nine months ended September 30, 2001, respectively. Net amounts due
from AOL included in accounts receivable at September 30, 2002 and December 31,
2001 were $1.0 million and $774,000, respectively. Unbilled receivables related
to AOL at September 30, 2002 and December 31, 2001 were none and $618,000,
respectively.



10


13. SPECIAL CHARGES

In December 2001, the Company recorded net pre-tax special charges of
approximately $17.3 million, comprised primarily of $15.6 million for the
impairment of certain assets, $1.0 million for costs related to facility
closures and $700,000 in severance costs related to the reduction of
approximately 21% of the Company's workforce. The restructuring resulted in 21
employee separations.

Of the total $1.7 million charge, the Company currently estimates that $1.4
million is cash related. As of September 30, 2002, $1.1 million was expended.
The Company has recorded a remaining liability of $306,000 on its balance sheet
as of September 30, 2002. This remaining liability relates primarily to a
default contingency related to a sublease of a leased facility.

14. NOTE RECEIVABLE FOR THE ISSUANCE OF RESTRICTED COMMON STOCK

In January 2002, the Company recorded a note receivable from its Chief
Executive Officer, who is also a member of its Board of Directors, for
approximately $1.5 million arising from the issuance of 450,000 shares of its
common stock as restricted stock to that individual. As of September 30, 2002,
300,000 of such shares were unvested and restricted from transfer. The note
bears interest at a rate of 4.875%, which is deemed to be fair market value,
compounding annually and is 100% recourse as to principal and interest. The note
is payable upon the earlier of the occurrence of the sale of all or part of the
restricted shares by the issuer of the note, or January 4, 2008. At September
30, 2002, the Company recorded $1.5 million as a note receivable within
stockholders' equity. During the three and nine month period ended September 30,
2002, the Company recorded $18,000 and $53,000 in interest income resulting from
this note receivable.


ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

You should read the following discussion together with the condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q. This Item contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities and Exchange Act of 1934 that involve risks and uncertainties.
Actual results may differ materially from those included in such forward-looking
statements. Factors which could cause actual results to differ materially
include those set forth under "Factors Affecting Operating Results, Business
Prospects and Market Price of Stock" commencing on page 20, as well as those
otherwise discussed in this section and elsewhere in this Quarterly Report on
Form 10-Q. See "Forward-Looking Statements."

OVERVIEW

Beginning in February 1996 when we commenced operations, we derived our
revenue principally from the sale of banner and site sponsorship advertising. We
now primarily derive revenue from our merchant network, which includes revenue
which we previously classified as merchant services and syndication and
licensing.

Net merchant network revenue includes revenue from various licensing
agreements with our merchant network alliance partners. These agreements
involve: engineering work to develop a Web-hosted platform for our alliance
partners which looks and feels like the alliance partner's own Web site and
includes our searching functionality; a license fee based upon the size and
complexity of the platform we create for the alliance partner; and a
per-merchant fee per month based upon the number of merchants they promote in
the platform. Net merchant network revenue also includes revenue from activities
in which we run trademark and display ads in the Switchboard.com yellow pages
directory, build and host Web sites for local merchants and send related direct


11


electronic mail-based promotions. In addition, included as an offset to revenue
is consideration given to customers, for which the benefits of such
consideration are not separately identifiable from the revenue obtained from
those customers. During the three months ended September 30, 2002, approximately
88.4% of our net revenue was derived from our local merchant network.

We also generate revenue from the sale of national advertising and site
sponsorship revenue on white and yellow pages, as well as maps pages, across
both Switchboard.com and the Switchboard partner network. Such revenue is
derived from banner advertisements, sponsorships, direct electronic mail-based
promotions and other forms of national advertising that are sold on either a
fixed fee, cost per thousand impressions or cost per action basis. During the
three months ended September 30, 2002, approximately 11.6% of our net revenue
was derived from the sale of national advertising and site sponsorships.

Our cost of revenue consists primarily of expenses paid to third parties
under data licensing and Web site creation and hosting agreements, as well as
other direct expenses incurred to maintain the operations of our Web site. These
direct expenses consist of data communications expenses related to Internet
connectivity charges, salaries and benefits for operations personnel, equipment
costs and related depreciation, costs of running our data centers, which include
rent and utilities, and a pro rata share of occupancy and information system
expenses. Cost of revenue as a percentage of revenue has varied in the past,
primarily as a result of the amount of revenue recognized in the period, as well
as fluctuations in our Web site traffic, resulting in associated changes in
variable costs and, to a lesser extent, the cost of third-party content and
technology.

Our sales and marketing expense consists primarily of employee salaries and
benefits, costs associated with channel marketing programs, collateral
production expenses, promotional advertising, third-party commission costs,
advertising and creative production expenses, public relations, market research,
provision for bad debts and a pro rata share of occupancy and information system
expenses. A significant portion of our Web site promotion costs have resulted
from non-cash advertising expenses attributable to advertising provided to us by
Viacom Inc. under an advertising and promotion agreement with Viacom. In October
2001, we restructured our relationship with Viacom, under which, among other
things, we terminated our right to the placement of advertising on Viacom's CBS
properties with a net present value of approximately $44.5 million in exchange
for, primarily, the reconveyance by Viacom to us of approximately 7.5 million
shares of our capital stock and the cancellation of warrants held by Viacom to
purchase 533,469 shares of our common stock. As a result of that restructuring,
we anticipate sales and marketing expenses to decrease in both absolute dollars
and as a percentage of net revenue in 2002 when compared to the comparable
period in 2001.

Our research and development expense consists primarily of employee
salaries and benefits, fees for outside consultants and related costs
associated with the development of new services and features on our Web site,
the enhancement of existing products, quality assurance, testing, documentation
and a portion of occupancy and information system expenses based on employee
headcount.

Our general and administrative expense consists primarily of employee
salaries and benefits and other personnel-related costs for executive and
financial personnel, as well as legal expenses, directors and officers insurance
and accounting costs, and a portion of occupancy and information system expenses
based on employee headcount.

Our amortization of goodwill, intangibles and other assets consists
primarily of amortization of goodwill resulting from our acquisition of Envenue,
Inc. in November 2000 and the amortization of other long-term assets.

12


We have experienced substantial net losses since our inception. As of
September 30, 2002, we had an accumulated deficit of $108.6 million. These net
losses and accumulated deficit resulted from our lack of substantial revenue and
the significant costs incurred in the development of our Web site and the
establishment of our corporate infrastructure and organization. To date, we have
made no provision for income taxes.

ADOPTION OF EITF 01-9

Effective January 2002, we adopted Emerging Issues Task Force Issue 01-9
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)" ("EITF 01-9"), which became effective for
fiscal years beginning after December 15, 2001. We have concluded that EITF 01-9
is applicable to the accounting for our directory and local advertising platform
services agreement with AOL ("Directory Agreement"). The 2001 quarterly results
have been adjusted to conform to the presentation required by EITF 01-9.
Accordingly, we have decreased our merchant network revenue by $433,000 and $1.0
million for the three months ended September 30, 2002 and 2001 and $2.5 million
and $3.0 million for the nine months ended September 30, 2002 and 2001,
respectively, and reduced our operating expenses by a corresponding amount in
the three and nine months ended September 30, 2002 and 2001, respectively.
Offsetting amortization of consideration given to AOL in the three and nine
months ended September 30, 2002 is an adjustment to amortization of $482,000 as
a result of the execution in August 2002 of the third amendment to the Directory
Agreement. The adoption of EITF 01-9 had no effect on net income or our capital
resources. The following table illustrates the effect of the application of EITF
01-9:



Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(restated) (restated)

Gross revenue $3,325 $3,172 $10,362 $9,540
Less: Amortization of consideration
given to AOL(a) 49 (1,012) (2,000) (3,036)
-- ------- ------- ------
Net revenue $3,374 $2,160 $8,362 $6,504
====== ====== ====== ======

Operating expenses $4,062 $14,169 $12,935 $33,794
Less: Amortization of consideration
given to AOL 49 (1,012) (2,000) (3,036)
-- ------- ------- -------
Net operating expenses $4,111 $13,157 $10,935 $30,758
====== ======= ======= =======


(a) Amortization of consideration given to AOL exceeded revenue derived from AOL
by $279,000 and $765,000 in the three and nine months ended September 30, 2001.

SIGNIFICANT RELATIONSHIP

In December 2000, we entered into a Directory Agreement with AOL to develop
a new directory and local advertising platform and product set to be featured
across specified AOL properties (the "Directory Platform"). In November 2001, in
April 2002 and again in August 2002, certain terms of the agreement were
amended. Under the four-year term of the amended Directory Agreement, we share
with AOL specified directory advertisement revenue. In general, we receive a
majority of the first $12.0 million of such directory advertisement revenue and
a lesser share of any additional directory advertisement revenue pursuant to the
August 2002 amendment. We paid AOL and recorded an asset of $13.0 million at the
signing of the Directory Agreement. Following the incorporation of the Directory
Platform on the AOL.com, AOL Service and Digital City properties ("AOL Roll-In")
in January 2002, we recorded a second asset and a liability of $13.0 million. In
April 2002, we established an additional asset and liability of $1.0 million and


13


paid $2.0 million upon the execution of the April 2002 amendment. Under the
April 2002 amended agreement, we were scheduled to make six additional quarterly
payments of $2.0 million each, replacing the $13.0 million originally owed upon
the AOL Roll-In. The August 2002 amendment, among other things, eliminated the
$12.0 million in remaining additional payments established in the April 2002
amendment. AOL committed to pay us at least $2.0 million in consulting or
service fees under a payment schedule which ended in September 2002, of which
AOL has paid all $2.0 million and we have delivered all $2.0 million in services
to AOL as of September 30, 2002. In addition, we are required to provide up to
300 hours of engineering services per month to AOL at no charge, if requested by
AOL for the term of the agreement. Any engineering services provided by us in
excess of 300 hours per month are charged to AOL on a time and materials basis.
The Directory Agreement as amended in August 2002 has an initial term of four
years, and is subject to earlier termination upon the occurrence of specified
events, including, without limitation (a) we are acquired by one of certain
third parties, or (b) AOL acquires one of certain third parties and AOL pays us
a termination fee of $25.0 million.

In connection with entering into the Directory Agreement, in December 2000
we issued to AOL 746,260 shares of our common stock, which were restricted from
transfer until the AOL Roll-In, which occurred on January 2, 2002, and agreed to
issue to AOL an additional 746,260 shares of common stock if the Directory
Agreement continued after two years and a further 746,260 shares of common stock
if the Directory Agreement continued after three years. Under the Directory
Agreement as amended in April 2002, the requirement to issue additional shares
upon the two and three-year continuations was eliminated. If we renew the
Directory Agreement with AOL for at least an additional four years after the
initial term, we agreed to issue to AOL a warrant to purchase up to 721,385
shares of common stock at a per share purchase price of $4.32.

The value of the $13.0 million paid and stock issued upon the signing of
the Directory Agreement was amortized on a straight-line basis over the original
four-year estimated life of the agreement. As of December 2001, the remaining
unamortized amounts were written down to zero as a result of an impairment
analysis as of December 31, 2001. In 2002, we recorded amortization based upon
the remaining net book value of our AOL Assets subject to each amendment to the
agreement on a straight-line basis over the remaining term of the amended
agreement. As a result of the elimination in the August 2002 amendment of the
remaining $12.0 million owed to AOL, an adjustment to amortization of
consideration given to a customer of $482,000 was recorded in the three months
ended September 30, 2002, offsetting amortization recorded in the period.
Throughout the remaining initial term of the amended agreement, we will no
longer record amortization of consideration given to AOL as these assets are now
fully amortized and no further consideration is due AOL. Amortization of assets
related to AOL has been reflected as a reduction of revenue in accordance with
EITF 01-9.

Revenue recognized from AOL, net of amortization of consideration given to
AOL, was 52.6% and 37.2% of net revenue for the three and nine months ended
September 30, 2002, respectively. Revenue from AOL, net of amortization of
consideration given to AOL, was (12.9)% and (11.8)% of net revenue, for the
three and nine months ended September 30, 2001, respectively. Net amounts due
from AOL included in accounts receivable at September 30, 2002 and December 31,
2001 were $1.0 million and $774,000, respectively. Unbilled receivables related
to AOL at September 30, 2002 and December 31, 2001 were none and $618,000,
respectively.

RESULTS OF OPERATIONS

Net revenue. Net revenue increased $1.2 million, or 56.2%, to $3.4 million
for the three-month period ended September 30, 2002, from $2.2 million for the
comparable period in 2001. Net revenue increased $1.9 million, or 28.6%, to $8.4
million for the nine-month period ended September 30, 2002, from $6.5 million


14


for the comparable period in 2001. The increase for both the three- and
nine-month periods ended September 30, 2002 were due to an increase in net
merchant network revenue, offset in part by a decrease in national advertising
revenue.

Net merchant network revenue increased $1.6 million, or 109.9%, to $3.0
million in the three months ended September 30, 2002, as compared to $1.4
million in the comparable period in 2001. Net merchant network revenue increased
$3.2 million, or 78.1%, to $7.4 million in the nine months ended September 30,
2002, as compared to $4.1 million in the comparable period in 2001. The increase
for the three months ended September 30, 2002 was primarily due to the
elimination of amortization of consideration given to a customer as a result of
the August 2002 amendment to the Directory Agreement with AOL, an increase in
merchant licensing revenues from our merchant network alliance partners and an
increase in engineering and other services revenue. The increase for the nine
months ended September 30, 2002 was primarily due to a decrease in amortization
of consideration given to a customer as a result of the August 2002 amendment to
the Directory Agreement, new licensing agreements with merchant network alliance
partners, increased membership in our merchant network and revenue attributable
to additional services offered to existing local merchants, offset in part by a
decrease in engineering and other services revenue.

National advertising and site sponsorship revenue decreased $348,000, or
47.1%, to $391,000 for the three months ended September 30, 2002, as compared to
$739,000 in the comparable period in 2001. National advertising and site
sponsorship revenue decreased $1.4 million, or 58.0%, to $1.0 million for the
nine months ended September 30, 2002, as compared to $2.4 million in the
comparable period in 2001. The decrease in national advertising and site
sponsorship revenue for the three and nine months ended September 30, 2002
resulted from a decrease in both the number of advertisers on the site, as well
as the per impression fee charged to those customers. We attribute these
decreases to a decline in demand for Internet advertising services as well as
the overall state of the U.S. economy.

There was no revenue from barter transactions, in which we receive
promotion in exchange for promotion in exchange for promotion on our Web site,
in the three and nine months ended September 30, 2002. Barter revenue was 8.3%
and 10.1% of total net revenue for the three- and nine-month periods ended
September 30, 2001.

Cost of revenue. Cost of revenue increased $98,000, or 11.5%, to $1.0
million, or 28.2% of net revenue, for the three months ended September 30, 2002,
compared to $853,000, or 39.5% of net revenue, for the three months ended
September 30, 2001. Cost of revenue increased $438,000, or 17.2%, to $3.0
million, or 35.6% of net revenue, for the nine months ended September 30, 2002,
compared to $2.5 million, or 39.1% of net revenue, for the nine months ended
September 30, 2001. The dollar increase for the three months ended September 30,
2002 was primarily the result of increases in depreciation associated with
additional equipment necessary to support our Web site and those of our merchant
network alliance partners and the cost of third-party data, as well as an
increase in revenue from lower margin merchant network services, offset in part
by a decrease in third-party Web site creation and hosting expenses associated
with our merchant services programs. The dollar increase for the nine months
ended September 30, 2002 was primarily the result of lower margin merchant
network services performed in the three months ended June 30, 2002, as well as
increases in depreciation associated with additional equipment necessary to
support our Web site and those of our merchant network alliance partners and the
cost of third-party data, offset in part by decreases in third-party Web site
creation and hosting expenses associated with our merchant services programs and
equipment related expenses incurred to support our local merchant network
partners.

Gross profit. Gross profit increased $1.1 million, or 85.4%, to $2.4
million for the three months ended September 30, 2002 compared to $1.3 million
for the corresponding period in 2001. Gross profit increased $1.4 million, or
35.8%, to $5.4 million for the nine months ended September 30, 2002 compared to


15


$4.0 million for the corresponding period in 2001. As a percentage of net
revenue, gross profit for the three and nine months ended September 30, 2002
increased to 71.8% and 64.4% from 60.5% and 60.9% for the corresponding periods
in 2001, respectively. The increases in both gross profit dollars and percentage
in the three and nine months ended September 30, 2002 were primarily the result
of a relatively fixed cost base being spread over higher net revenue.

Sales and marketing. Sales and marketing expense decreased $8.9 million, or
88.8%, to $1.1 million for the three months ended September 30, 2002 compared
with $10.0 million for the corresponding period in 2001. Sales and marketing
expense decreased $18.5 million, or 83.4%, to $3.7 million for the nine months
ended September 30, 2002 compared with $22.2 million for the corresponding
period in 2001. The decrease for the three and nine months ended September 30,
2002 was primarily related to the elimination of the non-cash advertising
expense related to our former agreement with Viacom, which accounted for $5.6
million and $9.4 million of our sales and marketing expense during the three and
nine months ended September 30, 2001. The decrease for the three and nine months
ended September 30, 2002 was also attributable to decreases in other corporate
marketing programs expenses, employee salaries and benefits resulting primarily
from actions taken during our corporate restructuring activities in the three
months ended December 31, 2001, merchant program expenses and provision for
doubtful accounts. As a percentage of net revenue, sales and marketing expenses
were 33.4% and 44.2% for the three and nine months ended September 30, 2002
compared with 464.5% and 341.9% for the corresponding periods in 2001.

Research and development. Research and development expense decreased
$419,000, or 23.3%, to $1.4 million for the three months ended September 30,
2002 compared with $1.8 million for the corresponding period in 2001. Research
and development expense decreased $597,000, or 12.4%, to $4.2 million for the
nine months ended September 30, 2002 compared with $4.8 million for the
corresponding period in 2001. The decrease for the three months ended September
30, 2002 was due primarily to decreases in outside consulting expenses and costs
associated with leased facilities and an increase in billable engineering
efforts for which employee salaries and benefits associated therewith, that
would otherwise be performing research and development activities, were
reclassified as a component of cost of revenue. The decrease in the nine months
ended September 30, 2002 was primarily due to decreases in outside consulting
expenses, costs associated with leased facilities and recruiting activities. As
a percentage of net revenue, research and development expenses were 40.8% and
50.2% for the three and nine months ended September 30, 2002 compared with 83.2%
and 73.8% for the corresponding periods in 2001.

General and administrative. General and administrative expense increased
$452,000, or 39.2%, to $1.6 million for the three months ended September 30,
2002 as compared to $1.2 million for the corresponding period in 2001. General
and administrative expense decreased $57,000, or 1.8%, to $3.0 million for the
nine months ended September 30, 2002 as compared to $3.1 million for the
corresponding period in 2001. The increase for the three months ended September
30, 2002 was primarily due to expenses for professional services incurred as a
result of amendments to our Annual Report on Form 10-K for the year ended
December 31, 2001 and our Quarterly Report on Form 10-Q for the three months
ended March 31, 2002 and the restatement of the financial statements included
therein, offset in part by a decrease in salaries and benefits resulting
primarily from actions taken during our corporate restructuring activities in
the three months ended December 31, 2001 and a decrease in costs associated with
leased facilities. The decrease for the nine months ended September 30, 2002 was
primarily due to a decrease in salaries and benefits resulting primarily from
actions taken during our corporate restructuring activities in the three months
ended December 31, 2001 and a decrease in costs associated with leased
facilities, offset in part by professional services incurred as a result of the
aforementioned restatements and an increase in insurance expense. As a
percentage of net revenue, general and administrative expenses were 47.6% and
36.3% for the three and nine months ended September 30, 2002 compared with 53.4%
and 47.6% for the corresponding periods in 2001.

Amortization of goodwill, intangibles and other assets. After consideration
of the impact of EITF 01-9, amortization of goodwill, intangibles and other


16


assets was zero in the three and nine months ended September 30, 2002, as
compared to $173,000 and $630,000 for comparable periods in 2001. The decrease
was due primarily to the absence in 2002 of amortization of goodwill resulting
from our acquisition of Envenue and amortization expense associated with a
software license, which were written off in December 2001.

Other income (expense) net. Other income decreased $479,000, or 61.0%, to
$306,000 for the three months ended September 30, 2002 as compared to $785,000
for the corresponding period in 2001. Other income decreased $796,000, or 31.0%,
to $1.8 million for the nine months ended September 30, 2002 as compared to $2.6
million for the corresponding period in 2001. The decrease in other income in
the three months ended September 30, 2002 was due primarily to a decrease in
interest income as a result of reduced funds available for investment and a
decline in interest rates. The decrease in other income in the nine months ended
September 30, 2002 was due primarily to a decrease in interest income earned as
a result of reduced funds available for investment and a decline in interest
rates, offset in part by a loss on disposal of fixed assets in 2001.

Net loss. Our losses decreased $9.7 million, or 87.5%, to $1.4 million for
the three months ended September 30, 2002, from $11.1 million for the
corresponding period in 2001. Our losses decreased $20.4 million, or 84.4%, to
$3.8 million for the nine months ended September 30, 2002, from $24.2 million
for the corresponding period in 2001. As of September 30, 2002, our accumulated
deficit totaled $108.6 million.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2002, we had cash and cash equivalents totaling $36.1
million. We also had short and long-term investments valued at $16.1 million and
restricted cash of $2.0 million. During the nine months ended September 30,
2002, cash and cash equivalents increased by $31.8 million, primarily due to net
cash provided by investing activities of $36.5 million and net cash provided by
financing activities of $684,000, offset in part by net cash used in operating
activities of $5.3 million.

Net cash used for operating activities for the nine months ended September
30, 2002 was $5.3 million, primarily due to a net loss of $3.8 million, a
payment of $2.0 million to AOL related to our Directory Agreement, a decrease in
accounts payable of $1.5 million and a decrease in accrued restructuring of
$927,000, offset in part by amortization of AOL assets of $2.0 million and
depreciation and amortization of $1.2 million. Under our Directory Agreement
with AOL, we paid $13.0 million to AOL at the signing of the Directory Agreement
in December 2000 and $2.0 million upon the execution of the April 2002 amendment
to that agreement. Under the August 2002 amendment to the Directory Agreement,
our requirement to make additional payments to AOL was eliminated.

Net cash provided by investing activities for the nine months ended
September 30, 2002 was $36.5 million. Investing activities for the period were
primarily related to net proceeds from investments of $38.5 million, offset in
part by an increase in restricted cash of $1.2 million and purchases of property
and equipment of $815,000.

Net cash provided by financing activities for the nine months ended
September 30, 2002 was $684,000, primarily due to the issuance of a note payable
for $2.7 million related to the financing of equipment purchases and proceeds of
$316,000 from the issuance of stock, offset in part by the purchase of $1.3
million in treasury stock, and the payment of a capital lease and payments on
notes payable of $1.1 million. In February 2002, Viacom Inc. exercised its
warrant to purchase 533,468 shares of our common stock pursuant to a cashless
exercise provision in the warrant, resulting in the net issuance of 386,302
shares of common stock. In March 2002, we repurchased the 386,302 shares of our
common stock from Viacom at $3.25 per share. The repurchased shares are being
held as treasury stock.

17


In May 2002, we paid $794,000 to Fleet Capital Corporation to terminate our
lease obligations with Fleet Capital Corporation through an early buy-out. In
exchange for the amount paid, we assumed all right and title to the assets
leased under the facility. Additionally, our requirement to maintain a
compensating balance with Fleet National Bank ("Fleet") was eliminated.

In June 2002, we entered into a loan and security agreement (the "SVB
Financing Agreement") with Silicon Valley Bank ("SVB"), under which we have the
ability to borrow up to $4.0 million for the purchase of equipment. Amounts
borrowed under the facility accrue interest at a rate equal to prime plus 0.25%,
and are repaid monthly over a 30-month period. As of September 30, 2002, we had
utilized $2.7 million of this facility. We may utilize the facility to fund
additional equipment purchases of up to $1.3 million through March 31, 2003. The
agreement also provides for a $1.0 million revolving line of credit. At
September 30, 2002, we had no outstanding borrowings under the revolving line of
credit.

As a condition of the SVB Financing Agreement, we are required to maintain
in deposit or investment accounts at SVB not less than 95% of our cash, cash
equivalents and marketable securities. Additionally, covenants in the agreement
require us to maintain in deposit or in investment accounts with SVB at least
$20.0 million in unrestricted cash. As part of the transition to SVB, we
liquidated $35.7 million in marketable securities previously held at Fleet for
transfer to SVB. As a result of this liquidation, we recorded $402,000 in
realized gains during the nine months ended September 30, 2002. These amounts
have been transfered to SVB. Of this $35.7 million liquidated, $31.5 million is
currently held in an interest bearing money market fund.

In November 2000, we acquired Envenue, Inc., a wireless provider of
advanced product searching technologies designed to drive leads to traditional
retailers. The total purchase price included consideration of $2.0 million in
cash to be paid on or before May 24, 2002. We have not paid this amount, as we
are in a contractual dispute with the previous owners of Envenue. In June 2002,
we placed into escrow $2.0 million, which will be held in escrow until the
contractual dispute is resolved. We have recorded this amount as restricted
cash. In October 2002, we paid $410,000, representing the undisputed portion of
the purchase price plus interest from the original maturity date to the former
stockholders of Envenue.

Since our inception through December 2001, we have significantly increased
our operating expenses. While operating expenses have decreased in the three and
nine months ended September 30, 2002 when compared to the corresponding periods
in 2001, we anticipate that our operating expenses and capital expenditures will
continue to constitute a material use of our cash resources. For advertising, we
previously relied on our non-cash CBS-related advertising, which is no longer
available to us. We expect that we may need to incur advertising expense in
future periods, which will require us to spend cash in order to continue to
brand our name and increase traffic to our Web site. In addition, we may utilize
cash resources to fund acquisitions or investments in businesses, technologies,
products or services that are strategic or complementary to our business. We
believe that the cash and marketable securities currently available will be
sufficient to meet our anticipated cash requirements to fund operations for at
least the next 12 months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have identified the policies below as critical to the understanding of
our results of operations. Note that our preparation of this Quarterly Report on
Form 10-Q requires us to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of our financial statements, and the reported amounts of
revenue and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, bad debts, investments, intangible assets, compensation
expenses, third-party commissions, restructuring costs, contingencies and
litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments


18


about the carrying values of assets and liabilities that are not readily
apparent from other sources. There can be no assurance that actual results will
not differ from those estimates.

Critical accounting polices are those policies that are reflective of
significant judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions. We believe our
most critical accounting policies are as follows:

REVENUE RECOGNITION

We generate our revenue primarily from our merchant network and banner and
site sponsorship advertising. Generally, revenue is recognized as services are
provided, so long as no significant obligations remain and collection of the
resulting receivable is probable. We believe that we are able to make reliable
judgments regarding the creditworthiness of our customers based upon historical
and current information available to us. There can be no assurances that our
payment experience with our customers will be consistent with past experience or
that the financial condition of these customers will not decline in future
periods, the result of which could be our failure to collect on invoiced
amounts. Some of these amounts could be material, resulting in an increase in
our provision for bad debts.

Revenues earned under the merchant network consist of advertising and
platform services. Through our merchant network, we offer certain merchant
alliance partners the ability to sell Switchboard.com distribution to their
merchant advertisers. These efforts are reflected in our merchant network
advertising revenues. For these advertising services, the merchant network
alliance partners pay us a monthly fee based on the number of advertisements
placed into Switchboard.com. We recognize this monthly fee as revenue as it is
earned. Platform services relate to our offerings to our merchant network
alliance partners, under which those alliance partners can enter into a
development and licensing arrangement with us whereby we create and/or modify a
private labeled web-hosted directory platform. Once the web-hosted directory
platform is operational, we also earn additional fees based on the number of
merchants promoted within the platform. Revenue received by us for such
development and licensing arrangements is deferred until such time as the
customer accepts the platform. After acceptance by the customer, revenue from
such development and licensing agreements is recognized ratably over the life of
the agreement. Any per merchant license fees or additional engineering or other
services fees earned are recognized as earned due to their variable nature. In
addition, included as an offset to revenue is consideration given to customers,
for which the benefits of such consideration are not separately identifiable
from the revenue obtained from those customers.

Revenues earned under our banner and site sponsorships consist principally
of advertising revenue earned though our Switchboard.com web site. Specifically,
we offer both site-wide banner and category specific banner programs on the
Switchboard.com Web site.

Deferred revenue is principally comprised of billings in excess of
recognized revenue relating to advertising agreements and licensing fees
received pursuant to advertising or services agreements in advance of revenue
recognition. Unbilled receivables are principally comprised of revenues earned
and recognized in advance of invoicing customers, resulting primarily from
contractually defined billing schedules.

CONCURRENT TRANSACTIONS

We had advertising barter transactions totaling $180,000, or 8.3% of net
revenues, and $656,000, or 10.1% of net revenues, for the three and nine months
ended September 30, 2001, in which we received promotion in exchange for
promotion on our Web site. There were no revenues from barter transactions in


19


the three and nine months ended September 30, 2002. Revenue from advertising
barter has been valued based on similar cash transactions which have occurred
within six months prior to the date of the barter transaction. In accordance
with Emerging Issues Task Force Issue No. 99-17 "Accounting for Advertising
Barter Transactions" (EITF 99-17"), barter transactions are recorded at the fair
value of the goods or services provided or received, whichever is more readily
determinable. The Company had other concurrent transactions totaling $42,000 for
the nine months ended September 30, 2001, in which the Company received
marketing assets in exchange for promotion on its Web site. Revenue from other
concurrent transactions is recorded at the fair value of the goods or services
provided or received, whichever is more readily determinable. Accounting rules
applicable to concurrent transactions continue to evolve. Any further changes to
these accounting rules could affect the valuation of any future concurrent
transactions.

RISKS, CONCENTRATIONS AND UNCERTAINTIES

We invest our cash and cash equivalents primarily in deposits, money market
funds and investment grade securities with financial institutions. We have not
experienced any realized losses to date on our invested cash. A potential
exposure is a concentration of credit risk in trade accounts receivable. We
maintain reserves for credit losses and, to date, such losses have been within
our expectations. These expectations are based on historical experience,
analysis of information currently available to us with respect to our customer's
financial position, as well as various other factors. While we believe we can
make reliable estimates of these matters, it is possible that these estimates
may change in the near future. A change in estimates could negatively affect our
results of operations.


FACTORS AFFECTING OPERATING RESULTS, BUSINESS PROSPECTS AND
MARKET PRICE OF STOCK

We caution you that the following important factors, among others, in the
future could cause our actual results to differ materially from those expressed
in forward-looking statements made by or on behalf of Switchboard in filings
with the Securities and Exchange Commission, press releases, communications with
investors, and oral statements. Any or all of our forward-looking statements in
this Quarterly Report on Form 10-Q and in any other public statements we make
may turn out to be wrong. They can be affected by inaccurate assumptions we
might make or by known or unknown risks and uncertainties. Many factors
mentioned in the discussion below will be important in determining future
results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially. We undertake no obligation to publicly
update any forward-looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult any further
disclosures we make in our reports filed with the Securities and Exchange
Commission.


20


RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF INCURRING NET LOSSES, WE EXPECT OUR NET LOSSES TO
CONTINUE FOR THE NEXT SEVERAL QUARTERS AND WE MAY NEVER ACHIEVE PROFITABILITY

We have incurred significant net losses in each fiscal quarter since our
inception. From inception to September 30, 2002, we have incurred net losses
totaling $108.6 million. As a result, we need to generate significant additional
revenue to fund our operations. It is possible that we may never achieve
profitability and, even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis in the future. If we do
not achieve sustained profitability, we will eventually be unable to continue
our operations.

IF THE DIRECTORY SERVICES AGREEMENT WE ENTERED INTO WITH AMERICA ONLINE, INC.
("AOL"), A SUBSIDIARY OF AOL TIME WARNER, INC., IS NOT SUCCESSFUL, IT WOULD HAVE
A MATERIALLY NEGATIVE EFFECT ON OUR RESULTS OF OPERATIONS

The Directory Agreement we entered into with AOL may not generate
anticipated revenues or other benefits. Even though we have recently amended the
agreement, the agreement may still be prematurely terminated by breach or it
otherwise fails to be successful. Our revenue from AOL in recent quarters has
been lower than anticipated, due to AOL's longer-than-expected transition to a
new sales model in its directory advertising business, and it is possible that
this and other factors may lead to revenue from AOL being lower than anticipated
in future periods as well. Local merchants may not view the alliance as an
effective advertising vehicle for their products and services. Even if the
Directory Agreement is not successful, AOL may not have to return any of the
consideration, including cash and stock, which we have paid to AOL, and we may
have continuing contractual obligations to AOL under the agreement.

In 2001 and the first nine months of 2002, revenue derived from AOL
represented a significant portion of our revenue. AOL accounted for 52.6% and
37.2% of total net revenue in the three and nine months ended September 30,
2002, respectively. We anticipate that AOL will continue to represent greater
than 50% of our net revenue during the remainder of 2002 and will be a material
component of our overall business. The termination of our agreement with AOL or
the failure of our agreement with AOL to generate these anticipated revenues
would have a material adverse effect on our results of operations and financial
condition.

OUR QUARTERLY RESULTS OF OPERATIONS ARE LIKELY TO FLUCTUATE AND, AS A RESULT,
WE MAY FAIL TO MEET THE EXPECTATIONS OF OUR INVESTORS AND SECURITIES ANALYSTS,
WHICH MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE

Our quarterly revenue and results of operations are volatile and are
particularly difficult to predict. Our quarterly results of operations have
fluctuated significantly in the past and are likely to fluctuate significantly
from quarter to quarter in the future. We do not believe that period-to-period
comparisons of our results of operations are necessarily meaningful and you
should not rely upon these comparisons as indicators of our future performance.


21


Factors that may cause our results of operations to fluctuate include:

* the addition, loss or success of relationships with third parties that
are our source of new merchants or that license our services for use on
their own Web sites;
* the amount and timing of expenditures for expansion of our operations,
including the hiring of new employees, capital expenditures and related
costs;
* technical difficulties or failures affecting our systems or the Internet
in general;
* the cost of acquiring, and the availability of, content, including
directory information and maps; and
* the fact that our expenses are only partially based on our expectations
regarding future revenue and are largely fixed in nature, particularly in
the short term.

As a result of these or other factors, results in any future quarter may be
below the expectations of securities analysts or investors. If so, the market
price of our common stock may decline significantly.

WE DEPEND ON ALLIANCE PARTNERSHIPS WITH THIRD PARTIES TO GROW OUR BUSINESS AND
OUR BUSINESS MAY NOT GROW IF THE ALLIANCE PARTNERSHIPS UPON WHICH WE DEPEND FAIL
TO PRODUCE THE EXPECTED BENEFITS OR ARE TERMINATED

Our business depends upon our ability to maintain and benefit from our
existing alliance partnerships and to establish additional alliance
partnerships. For our business to be successful, we must expand our merchant
network and generate significant revenue from that initiative. The success of
our merchant network depends in substantial part upon our ability to access a
broad base of local merchants. The merchant base is highly fragmented. Local
merchants are difficult to contact efficiently and cost-effectively.
Consequently, we depend on relationships with merchant network partners to
provide us with local merchant contacts and to provide billing and other
administrative services relating to our merchant services. The termination of
any strategic relationship with a channel partner would significantly impair our
ability to attract potential local merchant customers and deliver our merchant
services to our current customers. Furthermore, we cannot be certain that we
will be able to develop or maintain relationships with new channel partners on
terms acceptable to us or at all.

In addition to our relationship with AOL and our existing relationships
with merchant aggregators, we have entered into relationships with merchant
network alliance partners and third-party content providers. These parties may
not perform their contractual obligations to us and, if they do not, we may not
be able to require them to do so. Some of our strategic relationships may be
terminated by either party on short notice.

Our strategic relationships are in early stages of development. These
relationships may not provide us benefits that outweigh the costs of the
relationships. If any strategic partner demands a greater portion of revenue or
requires us to make payments for access to its Web site, we may need to
terminate or refuse to renew that relationship, even if it had been previously
profitable or otherwise beneficial. In addition, if we lose a significant
strategic partner, we may be unable to replace that relationship with other
strategic relationships with comparable revenue potential, content or user
demographics.

OUR LIMITED OPERATING HISTORY AS A STAND-ALONE COMPANY MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS AND OUR ABILITY TO ADDRESS THE RISKS AND UNCERTAINTIES
THAT WE FACE

We have only a limited operating history on which you can evaluate our
business and prospects. Since commencing operations in 1996 and prior to our
initial public offering in 2000, we had been a subsidiary of ePresence, formerly
known as Banyan Worldwide. As of the October 2001 restructuring of our


22


relationship with Viacom, we are again a majority-owned subsidiary of ePresence;
however, we do not anticipate that the change in ePresence's ownership interest
in us will lead ePresence to increase its support, financial or otherwise, of
us. Consequently, we have a limited operating history as a stand-alone company
and limited experience in addressing various business challenges without the
support of a corporate parent. We may not successfully address the risks and
uncertainties which confront stand-alone companies, particularly companies in
new and rapidly evolving markets such as ours.

IF WE CANNOT DEMONSTRATE THE VALUE OF OUR MERCHANT SERVICES, LOCAL MERCHANT
CUSTOMERS MAY STOP USING OUR SERVICES, WHICH COULD REDUCE OUR REVENUE

We may be unable to demonstrate to our local merchant customers the value
of our merchant services. If local merchants cancel our various services, which
are generally provided on a month-to-month basis, our revenue could decline and
we may need to incur additional expenditures to obtain new local merchant
customers. We do not presently provide our local merchant customers with data
demonstrating the number of leads generated by our merchant services. Regardless
of whether our merchant services effectively produce leads, our local merchant
customers may not know the source of the leads and may cancel our merchant
services.

THE ATTRACTIVENESS OF OUR SERVICES COULD DIMINISH IF WE ARE NOT ABLE TO
LICENSE ACCURATE DATABASE INFORMATION FROM THIRD-PARTY CONTENT PROVIDERS

We principally rely upon single third-party sources to provide us with our
business and residential listings data, e-mail data, and mapping data. The loss
of any one of these sources or the inability of any of these sources to collect
their data could significantly and adversely affect our ability to provide
information to consumers. Although other sources of database information exist,
we may not be able to integrate data from these sources into our database
systems in a timely, cost-effective manner, or without an inordinate disruption
of internal engineering resources. Other sources of data may not be offered on
terms acceptable to us. Moreover, a consolidation by Internet-related businesses
could reduce the number of content providers with which we could form
relationships.

We typically license information under arrangements that require us to pay
royalties or other fees for the use of the content. In the future, some of our
content providers may demand a greater portion of advertising revenue or
increase the fees that they charge us for their content. If we fail to enter
into and maintain satisfactory arrangements with existing or substitute content
providers, we may be unable to continue to provide our services.

The success of our business depends on the quality of our services and that
quality is substantially dependent on the accuracy of data we license from third
parties. Any failure to maintain accurate data could impair the reputation of
our brand and our services, reduce the volume of users attracted to our Web
site, and diminish the attractiveness of our service offerings to our strategic
partners, advertisers and content providers.

ePRESENCE'S MAJORITY OWNERSHIP INTEREST IN US WILL PERMIT ePRESENCE TO CONTROL
MATTERS SUBMITTED FOR APPROVAL OF OUR STOCKHOLDERS, WHICH COULD DELAY OR PREVENT
A CHANGE IN CONTROL OR DEPRESS OUR STOCK PRICE

As of September 30, 2002, ePresence beneficially owned approximately 52.0%
of our common stock. Based upon this majority interest in us, ePresence is
generally able to control all matters submitted to our stockholders for approval
and our management and affairs, including the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our assets.


23


Presently, three of the six members of our Board of Directors are officers or
directors of ePresence. ePresence's control over us could have the effect of
delaying or preventing a change of control of Switchboard that other
stockholders may believe would result in a more optimal return on investment. In
addition, this control could depress our stock price because purchasers will not
be able to acquire a controlling interest in us.

ePresence may elect to sell all or a substantial portion of its capital
stock to one or more third parties, in which case a third party with whom we
have no prior relationship could exercise the same degree of control over us as
ePresence presently does.

WE RELY ON A SMALL NUMBER OF CUSTOMERS, THE LOSS OF WHOM MAY SUBSTANTIALLY
REDUCE OUR REVENUE

We derive a substantial portion of our net revenue from a small number
customers. During the three and nine months ended September 30, 2002, revenue
derived from our top ten customers accounted for approximately 73.5% and 65.0%
of our total net revenue, respectively. Additionally, revenue derived from AOL
accounted for 52.6% and 37.2% of our total net revenue in the first three and
nine months of 2002, respectively. Consequently, our revenue may substantially
decline if we lose any of these customers. We anticipate that our future results
of operations will continue to depend to a significant extent upon revenue from
a small number of customers. In addition, we anticipate that the identity of
those customers will change over time.

IF WE DO NOT INTRODUCE NEW OR ENHANCED OFFERINGS TO OUR MERCHANT NETWORK
ALLIANCE PARTNERS, WE MAY BE UNABLE TO ATTRACT AND RETAIN THOSE MERCHANT NETWORK
ALLIANCE PARTNERS, WHICH WOULD SIGNIFICANTLY IMPEDE OUR ABILITY TO GENERATE
REVENUE

We need to introduce new or enhanced services to attract and retain
merchant network alliance partners, and remain competitive. Our industry has
been characterized by rapid technological change, changes in user and customer
requirements and preferences and frequent new product and service introductions
embodying new technologies. These changes could render our technology, systems
and Web site obsolete. If we do not periodically enhance our existing services,
develop new services and technologies that address sophisticated and varied
consumer needs, respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis and address
evolving customer preferences, our services may not be attractive to merchant
network alliance partners, which would significantly impede our revenue growth.
In addition, if any new product or service introduction, such as the Switchboard
Matrix system with enhanced search capabilities, is not favorably received, our
reputation and our brand could be damaged. We may also experience difficulties
that could delay or prevent us from introducing new services.

OUR BUSINESS MAY SUFFER IF WE LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER
OR FOUNDER

Our future success depends to a significant extent on the continued
services and effective working relationships of our senior management and other
key personnel, including, but not limited to, Douglas Greenlaw, our Chief
Executive Officer, and Dean Polnerow, our founder and President. Our business
may suffer if we lose the services of Mr. Greenlaw, Mr. Polnerow or other key
personnel.


24


IF WE ARE NOT ABLE TO ATTRACT AND RETAIN HIGHLY SKILLED MANAGERIAL AND
TECHNICAL PERSONNEL WITH INTERNET EXPERIENCE, WE MAY NOT BE ABLE TO IMPLEMENT
OUR BUSINESS MODEL SUCCESSFULLY

We believe that our management must be able to act decisively to apply and
adapt our business model in the rapidly changing Internet markets in which we
compete. In addition, we rely upon our technical employees to develop and
maintain much of the technology used to provide our services. Consequently, we
believe that our success depends largely on our ability to attract and retain
highly skilled managerial and technical personnel. We may not be able to hire or
retain the necessary personnel to implement our business strategy. In addition,
we may need to pay higher compensation to employees than we currently expect.

THE MARKETS FOR INTERNET CONTENT, SERVICES AND ADVERTISING ARE HIGHLY
COMPETITIVE, AND OUR FAILURE TO COMPETE SUCCESSFULLY WILL
LIMIT OUR ABILITY TO INCREASE OR RETAIN OUR MARKET SHARE

Our failure to maintain and enhance our competitive position would limit
our ability to increase or maintain our market share, which would seriously harm
our business. We compete in the markets for Internet content, services and
advertising. These markets are new, rapidly evolving and highly competitive. We
expect this competition to intensify in the future. We compete, or expect to
compete, with many providers of Internet content, information services and
products, as well as with traditional media, for audience attention and
advertising and sponsorship revenue. We license much of our database content
under non-exclusive agreements with third-party providers which are in the
business of licensing their content to many businesses, including our current
and potential competitors. Many of our competitors are substantially larger than
we are and have substantially greater financial, infrastructure and personnel
resources than we have. In addition, many of our competitors have
well-established, large, and experienced sales and marketing capabilities and
greater name recognition than we have. As a result, our competitors may be in a
stronger position to respond quickly to new or emerging technologies and changes
in customer requirements. They may also develop and promote their services more
effectively than we do. Moreover, barriers to entry are not significant, and
current and new competitors may be able to launch new Web sites at a relatively
low cost. We therefore expect additional competitors to enter these markets.

Many of our current customers have established relationships with our
current and potential competitors. If our competitors develop content that is
superior to ours or that achieves greater market acceptance than ours, we may
not be able to develop alternative content in a timely, cost-effective manner,
or at all, and we may lose market share.

WE MAY NOT BE ABLE TO DEDICATE THE SUBSTANTIAL RESOURCES REQUIRED TO EXPAND,
MONITOR AND MAINTAIN OUR INTERNALLY DEVELOPED SYSTEMS WITHOUT CONTRACTING WITH
AN OUTSIDE SUPPLIER AT SUBSTANTIAL EXPENSE

We will have to expand and upgrade our technology, transaction-processing
systems and network infrastructure if the volume of traffic on our Web site or
our merchant network partners' Web sites increases substantially. We could
experience temporary capacity constraints that may cause unanticipated system
disruptions, slower response times and lower levels of customer service. We may
not be able to project accurately the rate or timing of increases, if any, in
the use of our services or expand and upgrade our systems and infrastructure to
accommodate these increases in a timely manner. Our inability to upgrade and
expand as required could impair the reputation of our brand and our services,
reduce the volume of users able to access our Web site, and diminish the
attractiveness of our service offerings to our strategic partners, advertisers
and content providers. Because we developed these systems internally, we must
either dedicate substantial internal resources to monitor, maintain and upgrade
these systems or contract with an outside supplier for these services at
substantial expense.



25


WE HAVE LIMITED EXPERIENCE ACQUIRING COMPANIES, AND ANY ACQUISITIONS WE
UNDERTAKE COULD LIMIT OUR ABILITY TO MANAGE AND MAINTAIN OUR BUSINESS, RESULT IN
ADVERSE ACCOUNTING TREATMENT AND BE DIFFICULT TO INTEGRATE INTO OUR BUSINESS

We have limited experience in acquiring businesses and have very limited
experience in acquiring complementary technologies. In May 1998, we acquired
MapsOnUs, and in November 2000, we acquired Envenue. In the future we may
undertake additional acquisitions. Acquisitions, in general, involve numerous
risks, including:

* diversion of our management's attention;
* future impairment of substantial goodwill, adversely affecting our
reported results of operations;
* inability to retain the management, key personnel and other employees of
the acquired business;
* inability to assimilate the operations, products, technologies and
information systems of the acquired business with our business; and
* inability to retain the acquired company's customers, affiliates, content
providers and advertisers.

OUR INTERNALLY DEVELOPED SOFTWARE MAY CONTAIN UNDETECTED ERRORS, WHICH COULD
LIMIT OUR ABILITY TO PROVIDE OUR SERVICES AND DIMINISH THE ATTRACTIVENESS OF OUR
SERVICE OFFERINGS

We use internally developed, custom software to provide our services. This
software may contain undetected errors, defects or bugs. Although we have not
suffered significant harm from any errors or defects to date, we may discover
significant errors or defects in the future that we may not be able to fix. Our
inability to fix any of those errors could limit our ability to provide our
services, impair the reputation of our brand and our services, reduce the volume
of users who visit our Web site and diminish the attractiveness of our service
offerings to our strategic partners, advertisers and content providers.

IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR
TECHNOLOGY AND INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US

We depend upon our internally developed and other proprietary technology.
If we do not effectively protect our proprietary technology, others may become
able to use it to compete against us. To protect our proprietary rights, we rely
on a combination of copyright and trademark laws, patents, trade secrets,
confidentiality agreements with employees and third parties and protective
contractual provisions. Despite our efforts to protect our proprietary rights,
unauthorized parties may misappropriate our proprietary technology or obtain and
use information that we regard as proprietary. We may not be able to detect
these or any other unauthorized uses of our intellectual property or take
appropriate steps to enforce our proprietary rights. In addition, others could
independently develop substantially equivalent intellectual property.

IF OUR SERVICES INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY BE
REQUIRED TO EXPEND SUBSTANTIAL RESOURCES TO REENGINEER OUR SERVICES AND TO INCUR
SUBSTANTIAL COSTS AND DAMAGES RELATED TO INFRINGEMENT CLAIMS

We are subject to the risk of claims alleging infringement of third-party
proprietary rights. If we are subject to claims of infringement of, or are
infringing on, the rights of third parties, we may not be able to obtain
licenses to use those rights on commercially reasonable terms. In that event, we


26


may need to undertake substantial reengineering to continue our service
offerings. Any effort to undertake such reengineering might not be successful.
In addition, any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management. Furthermore, a party making such a claim could secure a judgment
that requires us to pay substantial damages. A judgment could also include an
injunction or other court order that could prevent us from providing our
services.

WE MAY EXPERIENCE DIFFICULTY ESTABLISHING THE SWITCHBOARD BRAND WITHOUT THE
ABILITY TO USE VIACOM'S CBS TRADEMARKS

We used CBS trademarks in association with our own trademarks in our
brand-building efforts beginning in June 1999. Our use of those CBS trademarks
may have been a significant contributing factor in establishing our brand. Our
license to use the CBS trademarks terminated on January 26, 2002. Our efforts to
maintain and further develop our brand may not be as effective since our
trademarks are no longer associated with the CBS trademarks. Any harm to these
efforts could have a material adverse effect on our business.

TERMINATION OF OUR AGREEMENTS WITH VIACOM MAY NEGATIVELY AFFECT OUR
ADVERTISING INITIATIVES

Upon the termination of the advertising and promotion agreement pursuant to
the terms of our restructuring agreement with Viacom, our advertising rights
under our former advertising and promotion agreement with Viacom have
terminated, including our right to order from Viacom advertising and promotion
through June 2006 with an estimated net present value of $44.5 million.
Therefore, we will no longer benefit from the large advertising resources
previously available to us from Viacom at no cash cost, and will have to expend
other resources to obtain advertising. We have limited experience in obtaining
advertising outside the scope of our advertising and promotion agreement with
Viacom. Advertising from third parties may be more costly, difficult to obtain
or less effective than we anticipate.


RISKS RELATED TO THE INTERNET

IF THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING DOES NOT BECOME
FULLY ESTABLISHED, THE GROWTH OF OUR YELLOW PAGES, BANNER AND SITE SPONSORSHIP
ADVERTISING REVENUE WILL SUFFER

Our business model is heavily dependent upon increasing our sales of yellow
pages advertising to local merchants. If use of Internet yellow pages by
consumers does not increase, Internet yellow pages advertising will not become
more attractive to merchants and our yellow pages advertising revenue growth
will suffer.

Similarly, if Internet banner and site sponsorship advertising fails to
gain wide acceptance and to grow from year to year, our banner and site
sponsorship revenue will be affected. Even though we anticipate that revenue
from banner and site sponsorship advertisements will decline as a percentage of
our future revenue, our future success still depends, in part, on an increase in
the use of the Internet as an advertising medium. We generated 33.1% and 58.4%
of our net revenue from the sale of banner and site sponsorship advertisements
during the years ended December 31, 2001 and 2000, and 11.6% and 11.9% of our
net revenue in the three and nine months ended September 30, 2002 ,
respectively. The Internet advertising market is new and rapidly evolving, and
cannot yet be compared with traditional advertising media to gauge its
effectiveness. As a result, demand for and market acceptance of Internet
advertising is uncertain. Many of our current and potential local merchant
customers have little or no experience with Internet advertising and have
allocated only a limited portion of their advertising and marketing budgets to
Internet activities. The adoption of Internet advertising, particularly by


27


entities that have historically relied upon traditional methods of advertising
and marketing, requires the acceptance of a new way of advertising and
marketing.

These customers may find Internet advertising to be less effective for
meeting their business needs than traditional methods of advertising and
marketing. In addition, there are some software programs that limit or prevent
advertising from being delivered to a user's computer. Widespread adoption of
this software could significantly undermine the commercial viability of Internet
advertising. If the market for Internet advertising fails to develop or develops
more slowly than we expect, our advertising revenue will suffer.

There are currently no generally accepted standards for the measurement of
the effectiveness of Internet advertising. Standard measurements may need to be
developed to support and promote Internet advertising as a significant
advertising medium. Our advertising customers may challenge or refuse to accept
either our or third-party measurements of advertisement delivery.

IF WE ARE SUED FOR CONTENT DISTRIBUTED THROUGH, OR LINKED TO BY, OUR WEB SITE,
WE MAY BE REQUIRED TO SPEND SUBSTANTIAL RESOURCES TO DEFEND OURSELVES AND COULD
BE REQUIRED TO PAY MONETARY DAMAGES

We aggregate and distribute third-party data over the Internet. In
addition, third-party Web sites are accessible through our Web site. As a
result, we could be subject to legal claims for defamation, negligence,
intellectual property infringement and product or service liability. Other
claims may be based on errors or false or misleading information provided on our
Web site. Other claims may be based on links to sexually explicit Web sites and
sexually explicit advertisements. We may need to expend substantial resources to
investigate and defend these claims, regardless of whether we successfully
defend against them. While we carry general business insurance, the amount of
coverage we maintain may not be adequate. In addition, implementing measures to
reduce our exposure to this liability may require us to spend substantial
resources and limit the attractiveness of our content to users.

WE MAY NEED TO EXPEND SIGNIFICANT RESOURCES TO PROTECT AGAINST ONLINE SECURITY
RISKS THAT COULD RESULT IN MISAPPROPRIATION OF OUR PROPRIETARY INFORMATION OR
CAUSE INTERRUPTION IN OUR OPERATIONS

Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Someone who is able to circumvent security measures
could misappropriate our proprietary information or cause interruptions in our
operations. Internet and online service providers have experienced, and may in
the future experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
We may need to expend significant resources protecting against the threat of
security breaches or alleviating problems caused by breaches. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service.

WE MAY BE SUED FOR DISCLOSING TO THIRD PARTIES PERSONAL IDENTIFYING
INFORMATION WITHOUT CONSENT

Individuals whose names, addresses and telephone numbers appear in our
yellow pages and white pages directories have occasionally contacted us because
their phone numbers and addresses were unlisted with the telephone company.
While we have not received any formal legal claims from these individuals, we
may receive claims in the future for which we may be liable. In addition, if we
begin disclosing to third parties personal identifying information about our
users without consent or in violation of our privacy policy, we may face
potential liability for invasion of privacy.

28


WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES, WHICH COULD LIMIT OUR GROWTH

Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Laws and regulations may
be adopted covering issues such as user privacy, pricing, content, taxation and
quality of products and services. Any new legislation could hinder the growth in
use of the Internet and other online services generally and decrease the
acceptance of the Internet and other online services as media of communications,
commerce and advertising. Various U.S. and foreign governments might attempt to
regulate our transmissions or levy sales or other taxes relating to our
activities. The laws governing the Internet remain largely unsettled, even in
areas where legislation has been enacted. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel and taxation apply to the Internet and Internet advertising and directory
services. In addition, the growth and development of the market for electronic
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business over the Internet.

IF WE CANNOT PROTECT OUR DOMAIN NAMES, OUR ABILITY TO SUCCESSFULLY BRAND
SWITCHBOARD WILL BE IMPAIRED

We currently hold various Web domain names, including Switchboard.com and
MapsOnUs.com. The acquisition and maintenance of domain names generally is
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business. This problem may be exacerbated by the length of time
required to expand into any other country and the corresponding opportunity for
others to acquire rights in relevant domain names. Furthermore, it is unclear
whether laws protecting trademarks and similar proprietary rights will be
extended to protect domain names. Therefore, 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. We
may not be able to successfully carry out our business strategy of establishing
a strong brand for Switchboard if we cannot prevent others from using similar
domain names or trademarks.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in interest
rates. We typically do not attempt to reduce or eliminate our market exposures
on our investment securities because the majority of our investments have
maturities within two years. We do not have any derivative instruments.

The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of our investment portfolio.

All the potential changes noted above are based on sensitivity analysis
performed on our balances as of September 30, 2002.


29


ITEM 4. CONTROLS AND PROCEDURES


The Company's principal executive officer and principal financial officer
have concluded that the Company's disclosure controls and procedures, as defined
in Exchange Act Rule 13a-14(c), based on their evaluation of such controls and
procedures conducted within 90 days prior to the date hereof, are effective to
ensure that information required to be disclosed by the Company in the reports
it files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission and that such
information is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.

There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of the evaluation referred to above.


PART II -- OTHER INFORMATION

ITEM 1. - LEGAL PROCEEDINGS

As previously reported in our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002, on May 31, 2002 we were sued in the Superior Court of
Suffolk County, Massachusetts by the former stockholders of Envenue, Inc., from
whom we purchased all of the stock of Envenue in November 2000. The suit, styled
Douglass J. Wilson et al v. Switchboard Incorporated et al, Civil Action No.
02-2370 BLS, alleges that we breached our agreement with the plaintiffs by
failing to pay the purchase price of the Envenue stock when it became due on May
24, 2002. We have subsequently paid $400,000, plus interest, representing a
portion of the purchase price, to the plaintiffs. There have been no further
material developments in the litigation since we filed our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002. Please refer to that Form 10-Q
for a more detailed description of the matter.

As previously reported in our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002, on November 21, 2001, a class action lawsuit was filed in
the United States District Court for the Southern District of New York naming as
defendants Switchboard, the managing underwriters of Switchboard's initial
public offering, Douglas J. Greenlaw, Dean Polnerow, and John P. Jewett. Mr.
Greenlaw and Mr. Polnerow are officers of Switchboard, and Mr. Jewett is a
former officer of Switchboard. The complaint is captioned Kristina Ly v.
Switchboard Incorporated, et al., 01-CV-10595. In July 2002, we, Douglas J.
Greenlaw, Dean Polnerow and John P. Jewett joined in an omnibus motion to
dismiss which challenges the legal sufficiency of plaintiffs' claims. The motion
was filed on behalf of hundreds of issuer and individual defendants named in
similar lawsuits. Plaintiffs opposed to the motion, and the Court heard oral
argument on the motion earlier this month. On September 30, 2002, the lawsuit
against Messrs. Greenlaw, Polnerow and Jewett was dismissed without prejudice.
There have been no further material developments in the litigation since we
filed our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
Please refer to that Form 10-Q for a more detailed description of the matter.


30


ITEM 2. -- CHANGES IN SECURITIES AND USE OF PROCEEDS

(a.) Not applicable.

(b.) Not applicable.

(c.) Not applicable.

(d.) On March 2, 2000, we made an initial public offering of up to 6,325,000
shares of common stock registered under a Registration Statement on Form S-1
(Registration No. 333-90013), which was declared effective by the Securities and
Exchange Commission on March 1, 2000.

Our total net proceeds from the offering were approximately $86.3 million,
of which $74.8 million was received in March 2000 and $11.5 million was received
in April 2000. All payments of the offering proceeds were to persons other than
directors, officers, general partners of Switchboard or their associates,
persons owning 10% or more of any class of equity securities of Switchboard or
affiliates of Switchboard. Through September 30, 2002, we used approximately
$21.2 million of the proceeds from the offering for working capital purposes, of
which approximately $4.7 million was for the purchase of fixed assets. In
December 2000 we paid $13.0 million of the proceeds to America Online, Inc.
pursuant to the terms of our Directory and Local Advertising Platform Services
Agreement entered into with America Online on that date. In April 2002, we paid
America Online $2.0 million upon the execution of the Second Amendment to the
Directory and Local Advertising Platform Services Agreement. In addition, in
March 2002, we used $1.3 million of the proceeds for the purchase of 386,302
shares of our common stock from Viacom Inc. as treasury stock. As of September
30, 2002, we have invested the remaining net proceeds in interest-bearing,
investment-grade securities and money market funds.


ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

The Exhibits filed as part of this Quarterly Report on Form 10-Q are listed
on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed as exhibits herewith.
Documents identified by footnotes are not being filed herewith and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed as exhibits with the Securities and Exchange
Commission. Switchboard's file number under the Securities Exchange Act of 1934
is 000-28871.

b. Reports on Form 8-K.

On October 3, 2002, Switchboard filed a Current Report on Form 8-K dated
October 2, 2002, reporting under Item 5 (Other Events) that it had issued a
press release announcing that it had been advised by NASDAQ that effective with
the opening of business on Thursday, October 3, 2002, its common stock would
resume trading under the original trading symbol, "SWBD."


31


SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


SWITCHBOARD INCORPORATED


Date: November 14, 2002 By: /s/ Robert P. Orlando
---------------------
Robert P. Orlando
Vice President and Chief
Financial Officer
(principal financial officer and
principal accounting officer)


32


CERTIFICATIONS

I, Douglas J. Greenlaw, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Switchboard
Incorporated (the "registrant");

2. Based on my knowledge, this quarterly report on 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 officers 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 officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the board of directors (or persons fulfilling 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 officers 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: November 14, 2002 /s/Douglas J. Greenlaw
----------------------
Douglas J. Greenlaw
Chief Executive Officer
(principal executive officer)


33


I, Robert P. Orlando, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Switchboard
Incorporated (the "registrant");

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 officers 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 officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the board of directors (or persons fulfilling 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 officers 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: November 14, 2002 /s/Robert P. Orlando
--------------------
Robert P. Orlando
Vice President and Chief Financial Officer
(principal financial officer)

34


EXHIBIT INDEX

Exhibit No. Description
- ----------- -----------
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

35