UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended June 30, 2004 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to | ||
Commission File Number 000-26521
Ask Jeeves, Inc.
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Delaware
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94-3334199 | |
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(State or other jurisdiction of Incorporation or organization) |
(IRS Employer Identification No.) |
5858 Horton St., Suite 350, Emeryville, CA 94608
(510) 985-7400
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
The number of shares outstanding of the registrant’s Common Stock as of August 4, 2004 was 57,602,175.
The Exhibit Index begins on page 56.
ASK JEEVES, INC.
TABLE OF CONTENTS
Cautionary Note regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements contain these identifying words. All statements in this report regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders. Many important factors that could cause such a difference are described in this Quarterly Report under the caption “Risk Factors” as well as in our most recent Annual Report on Form 10-K under the captions “Competition,” “Proprietary Rights” and “Risk Factors,” all of which you should review carefully. Please consider our forward-looking statements in light of those risks as you read this report.
2
PART I. FINANCIAL INFORMATION
| Item 1. | Unaudited Condensed Consolidated Financial Statements |
ASK JEEVES, INC.
| June 30, | December 31, | |||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | (Note 1) | |||||||||
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 70,782 | $ | 36,673 | ||||||
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Marketable securities
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15,015 | 143,975 | ||||||||
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Total cash, cash equivalents and marketable
securities
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85,797 | 180,648 | ||||||||
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Accounts receivable, net
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30,170 | 12,062 | ||||||||
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Prepaid expenses and other current assets
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5,501 | 3,299 | ||||||||
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Total current assets
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121,468 | 196,009 | ||||||||
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Property and equipment, net
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17,212 | 10,933 | ||||||||
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Goodwill
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272,045 | — | ||||||||
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Intangible assets, net
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101,170 | 831 | ||||||||
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Other assets, net
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5,886 | 4,482 | ||||||||
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Total assets
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$ | 517,781 | $ | 212,255 | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable and other accrued liabilities
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$ | 46,047 | $ | 12,050 | ||||||
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Accrued compensation and related expenses
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8,176 | 5,137 | ||||||||
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Accrued restructuring costs
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792 | 1,167 | ||||||||
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Deferred revenue
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3,238 | 5,367 | ||||||||
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Note payable
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2,144 | — | ||||||||
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Current portion of capital lease obligation
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767 | — | ||||||||
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Total current liabilities
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61,164 | 23,721 | ||||||||
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Convertible subordinated notes
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115,000 | 115,000 | ||||||||
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Capital lease obligations, less current portion
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570 | — | ||||||||
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Other liabilities
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326 | 326 | ||||||||
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Total liabilities
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177,060 | 139,047 | ||||||||
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Commitments and contingencies
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Stockholders’ equity:
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Convertible preferred stock, $.001 par
value; 5,000,000 shares authorized; no shares issued or
outstanding
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— | — | ||||||||
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Common stock, $.001 par value:
150,000,000 shares authorized 57,389,448 and
46,616,445 shares issued and outstanding at June 30,
2004 and December 31, 2003, respectively
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987,968 | 740,845 | ||||||||
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Deferred stock compensation
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(4,568 | ) | — | |||||||
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Accumulated deficit
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(645,746 | ) | (670,686 | ) | ||||||
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Accumulated other comprehensive income
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3,067 | 3,049 | ||||||||
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Total stockholders’ equity
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340,721 | 73,208 | ||||||||
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Total liabilities and stockholders’ equity
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$ | 517,781 | $ | 212,255 | ||||||
See accompanying notes to condensed consolidated financial statements.
3
ASK JEEVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, 2004 | June 30, 2003 | June 30, 2004 | June 30, 2003 | ||||||||||||||
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Revenue
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$ | 60,341 | $ | 25,568 | $ | 99,570 | $ | 48,282 | |||||||||
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Cost of revenue
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18,077 | 5,486 | 24,146 | 11,002 | |||||||||||||
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Gross profit
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42,264 | 20,082 | 75,424 | 37,280 | |||||||||||||
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Operating expenses:
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Product development
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5,228 | 3,254 | 9,981 | 6,798 | |||||||||||||
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Sales and marketing
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16,711 | 7,138 | 25,875 | 14,029 | |||||||||||||
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General and administrative
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6,326 | 4,910 | 11,671 | 9,190 | |||||||||||||
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Amortization of intangible assets
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2,005 | — | 2,005 | — | |||||||||||||
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Total operating expenses
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30,270 | 15,302 | 49,532 | 30,017 | |||||||||||||
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Operating income
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11,994 | 4,780 | 25,892 | 7,263 | |||||||||||||
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Gain on acquisition and dissolution of joint
ventures
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— | 232 | — | 6,355 | |||||||||||||
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Interest income, net
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216 | 275 | 658 | 544 | |||||||||||||
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Interest expense
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(24 | ) | (82 | ) | (27 | ) | (164 | ) | |||||||||
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Other income, net
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75 | (13 | ) | 217 | (20 | ) | |||||||||||
| 267 | 180 | 848 | 360 | ||||||||||||||
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Income before income tax provision
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12,261 | 5,192 | 26,740 | 13,978 | |||||||||||||
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Income tax provision
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700 | 335 | 1,800 | 670 | |||||||||||||
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Income from continuing operations
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11,561 | 4,857 | 24,940 | 13,308 | |||||||||||||
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Loss from discontinued operations
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— | (458 | ) | — | (1,218 | ) | |||||||||||
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Net income
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$ | 11,561 | $ | 4,399 | $ | 24,940 | $ | 12,090 | |||||||||
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Earnings per share — Basic
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Income from continuing operations
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$ | 0.22 | $ | 0.11 | $ | 0.50 | $ | 0.31 | |||||||||
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Loss from discontinued operations
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$ | — | $ | (0.01 | ) | $ | — | $ | (0.03 | ) | |||||||
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Net income per share
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$ | 0.22 | $ | 0.10 | $ | 0.50 | $ | 0.28 | |||||||||
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Weighted average shares outstanding used in
computing basic net income (loss) per share
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53,333,993 | 43,260,912 | 49,456,303 | 42,648,742 | |||||||||||||
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Earnings per share — Diluted
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Income from continuing operations
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$ | 0.18 | $ | 0.09 | $ | 0.40 | $ | 0.26 | |||||||||
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Loss from discontinued operations
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$ | — | $ | (0.01 | ) | $ | — | $ | (0.02 | ) | |||||||
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Net income per share
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$ | 0.18 | $ | 0.08 | $ | 0.40 | $ | 0.24 | |||||||||
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Weighted average shares outstanding used in
computing diluted net income (loss) per share
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65,542,792 | 53,541,479 | 61,803,135 | 51,004,790 | |||||||||||||
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Revenues from related parties
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$ | 1,131 | $ | 1,131 | $ | 2,262 | $ | 2,262 | |||||||||
See accompanying notes to condensed consolidated financial statements.
4
ASK JEEVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended | ||||||||||
| June 30, | ||||||||||
| 2004 | 2003 | |||||||||
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Operating activities
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Income from continuing operations
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$ | 24,940 | $ | 13,308 | ||||||
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Adjustment to reconcile income from continuing
operations to net cash provided by operating activities:
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Loss from discontinued operations
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— | (1,218 | ) | |||||||
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Depreciation and amortization
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4,169 | 3,920 | ||||||||
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Stock compensation
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338 | 39 | ||||||||
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Amortization of intangible assets
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4,747 | 1,112 | ||||||||
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Gain on acquisition of joint venture
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— | (6,123 | ) | |||||||
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Changes in operating assets and liabilities:
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Accounts receivable
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(945 | ) | 3 | |||||||
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Prepaid expenses and other assets
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(384 | ) | 246 | |||||||
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Accounts payable and other accrued liabilities
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7,435 | 3,750 | ||||||||
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Accrued compensation and related expenses
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(1,084 | ) | 2,027 | |||||||
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Accrued restructuring costs
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(376 | ) | (365 | ) | ||||||
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Deferred revenue
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(2,547 | ) | (883 | ) | ||||||
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Net cash provided by operating activities
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36,293 | 15,816 | ||||||||
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Investing activities
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Purchases of property and equipment
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(7,100 | ) | (3,684 | ) | ||||||
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Purchases of marketable securities
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(319 | ) | (11,759 | ) | ||||||
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Redemption of restricted marketable securities
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43 | 11,000 | ||||||||
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Redemption of marketable securities
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129,032 | — | ||||||||
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Business acquisitions, net of cash acquired
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(131,681 | ) | ||||||||
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Net cash used in investing activities
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(10,025 | ) | (4,443 | ) | ||||||
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Financing activities
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Issuance of common stock
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8,105 | 3,130 | ||||||||
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Repurchase of common stock
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(229 | ) | ||||||||
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Issuance of convertible subordinated notes, net
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— | 111,744 | ||||||||
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Repayment of borrowings under line of credit
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— | (11,000 | ) | |||||||
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Repayment of capital lease obligations
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(301 | ) | (471 | ) | ||||||
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Net cash provided by financing activities
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7,575 | 103,403 | ||||||||
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Effect of exchange rate changes on cash and cash
equivalents
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266 | 629 | ||||||||
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Increase in cash and cash equivalents
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34,109 | 115,405 | ||||||||
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Cash and cash equivalents at beginning of period
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36,673 | 27,613 | ||||||||
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Cash and cash equivalents at end of period
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$ | 70,782 | $ | 143,018 | ||||||
See accompanying notes to condensed consolidated financial statements.
5
ASK JEEVES, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| The Company |
Ask Jeeves, Inc. (“Ask Jeeves” or the “Company”) is a provider of Web-based information retrieval products across a diverse portfolio of Web sites and desktop applications. Ask Jeeves generates revenue primarily by displaying advertisements on its Web sites and seeks to attract Web traffic by creating distinctive search experiences that users will find intuitive and satisfying. Ask Jeeves pursues this goal using a multi-brand strategy. Ask Jeeves’ brands include six Web sites dedicated to search (Ask.com, Ask.co.uk, Teoma.com, MySearch.com, MyWebSearch.com and AJKids.com) and three broader-purpose, content-rich Web sites, known as “portals” (iWon.com, Excite.com and MyWay.com), as well as additional co-branded portals. Ask Jeeves’ search services can also be accessed through several branded search toolbars that users can install in their Internet browsers. The toolbars can be downloaded from Ask Jeeves’ Web sites and are also distributed together with other downloadable applications, including Ask Jeeves’ Fun Web Products, which are applications designed to make online activities more personal, interesting and fun for computer users. Ask Jeeves’ proprietary technologies include its algorithmic search engine, Teoma, natural language processing software, and portal- and ad-serving technologies. Ask Jeeves also provides advertisers with several types of targeted ad products on its own Web sites and syndicates their ads to a broad base of users across the Ask Jeeves Syndication Network and the MaxOnline Advertising Network of third-party Web sites.
Until July 1, 2003, the Company operated through two divisions, Web Properties and Jeeves Solutions. On July 1, 2003, the Company sold certain assets used in the Jeeves Solutions business to Kanisa Inc. (“Kanisa”), at which time the Company ceased offering Jeeves Solutions software and services.
On May 6, 2004, Ask Jeeves acquired Interactive Search Holdings, Inc. (“ISH”), which became a wholly-owned subsidiary of the Company. ISH operates several portals and search sites and develops and distributes desktop applications. See Note 3 (Acquisitions).
Basis of Presentation
The accompanying condensed consolidated financial statements as of and for the periods ended June 30, 2004 and 2003 are unaudited, but include all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position, operating results and cash flows as of the interim date and for the periods presented. Results for the three and six months ended June 30, 2004 are not necessarily indicative of results for the entire fiscal year or future periods. The condensed consolidated balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The investment in the Ask Jeeves Japan joint venture in which the Company has significant