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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the Quarterly period ended September 30, 2003
 
o
  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 000-26521

Ask Jeeves, Inc.
(Exact name of registrant as specified in its charter)
     
Delaware
  94-3334199
(State or other jurisdiction of
Incorporation or organization)
  (IRS Employer
Identification No.)

5858 Horton St., Suite 350, Emeryville, CA 94608

(Address of principal executive offices, including zip code)

(510) 985-7400

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes 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 October 31, 2003 was 46,516,716.

The Exhibit Index begins on page 41.




TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RISK FACTORS
Risks Related to our Company
Risks Related to Operating in our Industry
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Under Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Exhibit 10.2.4.4
Exhibit 10.2.6.3
Exhibit 10.2.7.6
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1


Table of Contents

ASK JEEVES, INC.

TABLE OF CONTENTS

             
Page

PART I. FINANCIAL INFORMATION
Item 1.
  Unaudited Condensed Consolidated Financial Statements:        
    Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002     3  
    Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002     4  
    Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002     5  
    Notes to the Unaudited Condensed Consolidated Financial Statements     6  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     13  
Item 3.
  Quantitative and Qualitative Disclosure About Market Risk     38  
Item 4.
  Controls and Procedures     38  
PART II. OTHER INFORMATION
Item 1.
  Legal Proceedings     39  
Item 2.
  Change in Securities     39  
Item 3.
  Defaults Upon Senior Securities     39  
Item 4.
  Submission of Matters to a Vote of Securities Holders     39  
Item 5.
  Other Information     39  
Item 6.
  Exhibits and Reports on Form 8-K     39  
    Signatures     40  

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.

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PART I. FINANCIAL INFORMATION

 
Item 1. Unaudited Condensed Consolidated Financial Statements

ASK JEEVES, INC.

 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
                     
September 30, December 31,
2003 2002


(Unaudited) (Note 1)
ASSETS
               
Current assets:
               
 
Cash and cash equivalents
  $ 82,766     $ 27,613  
 
Marketable securities
    89,408       5,827  
 
Restricted cash and marketable securities
          11,000  
     
     
 
   
Total cash, cash equivalents and marketable securities
    172,174       44,440  
 
Accounts receivable, net
    11,894       7,600  
 
Prepaid expenses and other current assets
    3,692       2,272  
 
Assets of discontinued operations
          2,699  
     
     
 
   
Total current assets
    187,760       57,011  
Property and equipment, net
    10,546       10,922  
Intangible assets, net
    1,361       2,948  
Other assets
    4,434       1,295  
     
     
 
   
Total assets
  $ 204,101     $ 72,176  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
 
Accounts payable and other accrued liabilities
  $ 14,434     $ 8,209  
 
Accrued compensation and related expenses
    4,658       3,598  
 
Accrued restructuring costs
    1,355       1,892  
 
Deferred revenue
    6,220       8,633  
 
Deferred gain on joint venture
          6,226  
 
Borrowings under line of credit
          11,000  
 
Liabilities of discontinued operations
          3,015  
     
     
 
   
Total current liabilities
    26,667       42,573  
Convertible subordinated notes
    115,000        
Other liabilities
    326       326  
     
     
 
   
Total liabilities
    141,993       42,899  
Commitments and contingencies Stockholders’ equity:
               
 
Convertible preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding
           
 
Common stock, $.001 par value; 150,000,000 shares authorized; 45,911,170 and 41,418,334 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively
    738,757       725,366  
 
Deferred stock compensation
          (7 )
 
Accumulated deficit
    (678,324 )     (696,735 )
 
Accumulated other comprehensive income
    1,675       653  
     
     
 
   
Total stockholders’ equity
    62,108       29,277  
     
     
 
   
Total liabilities and stockholders’ equity
  $ 204,101     $ 72,176  
     
     
 

See accompanying notes to condensed consolidated financial statements.

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ASK JEEVES, INC.

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
                                   
Three Months Ended Nine Months Ended


September 30, September 30, September 30, September 30,
2003 2002 2003 2002




Revenue
  $ 27,176     $ 15,886     $ 75,458     $ 44,880  
Cost of revenue
    5,256       5,108       16,259       14,238  
     
     
     
     
 
Gross profit
    21,920       10,778       59,199       30,642  
Operating expenses:
                               
 
Product development
    4,207       3,370       11,006       10,583  
 
Sales and marketing
    8,235       6,390       22,263       20,688  
 
General and administrative
    4,845       3,429       14,036       11,766  
 
Impairment and write-off of long-lived assets
    702             702       2,592  
 
Restructuring and other
          73             513  
     
     
     
     
 
Total operating expenses
    17,989       13,262       48,007       46,142  
     
     
     
     
 
Operating income (loss)
    3,931       (2,484 )     11,192       (15,500 )
Gains on acquisition and dissolution of joint ventures
                6,356       974  
Interest and other income, net
    646       249       1,007       809  
     
     
     
     
 
Income (loss) before income tax provision
    4,577       (2,235 )     18,555       (13,717 )
Income tax provision
    738             1,408        
     
     
     
     
 
Income (loss) from continuing operations
    3,839       (2,235 )     17,147       (13,717 )
Discontinued operations:
                               
 
Loss from discontinued operations
          (2,135 )     (1,218 )     (9,591 )
 
Gain on sale of discontinued operations, net of taxes
    2,482             2,482        
     
     
     
     
 
Income (loss) from discontinued operations
    2,482       (2,135 )     1,264       (9,591 )
     
     
     
     
 
Net income (loss)
  $ 6,321     $ (4,370 )   $ 18,411     $ (23,308 )
     
     
     
     
 
Earnings per share — Basic
                               
 
Income (loss) from continuing operations
  $ 0.09     $ (0.06 )   $ 0.39     $ (0.34 )
 
Income (loss) from discontinued operations
  $ 0.05     $ (0.05 )   $ 0.03     $ (0.24 )
     
     
     
     
 
 
Net income (loss) per share
  $ 0.14     $ (0.11 )   $ 0.42     $ (0.58 )
     
     
     
     
 
Weighted average shares outstanding used in computing basic net income (loss) per share
    44,692,016       41,087,722       44,422,327       40,522,128  
     
     
     
     
 
Earnings per share — Diluted
                               
 
Income (loss) from continuing operations
  $ 0.07     $ (0.06 )   $ 0.32     $ (0.34 )
 
Income (loss) from discontinued operations
  $ 0.04     $ (0.05 )   $ 0.02     $ (0.24 )
     
     
     
     
 
 
Net income (loss) per share
  $ 0.11     $ (0.11 )   $ 0.34     $ (0.58 )
     
     
     
     
 
Weighted average shares outstanding used in computing diluted net income (loss) per share
    57,921,361       41,087,722       53,424,494       40,522,128  
     
     
     
     
 
Revenues from related parties
  $ 1,131     $ 1,131     $ 3,394     $ 5,035  
     
     
     
     
 

See accompanying notes to condensed consolidated financial statements.

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ASK JEEVES, INC.

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
                     
Nine Months Ended

September 30, September 30,
2003 2002


Operating activities
               
Income (loss) from continuing operations
  $ 17,147     $ (13,717 )
Adjustment to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
               
 
Loss from discontinued operations
    (1,218 )     (9,591 )
 
Gain on sale of discontinued operations
    2,482        
 
Depreciation and amortization
    5,856       6,608  
 
Stock-based compensation
    39       335  
 
Amortization of intangible assets
    1,641       1,654  
 
Impairment and write-off of long-lived assets
    702       2,592  
 
Non-cash charge for adjustment to shareholders’ notes receivable
          (64 )
 
Gain on acquisition of joint venture
    (6,124 )     (974 )
 
Changes in operating assets and liabilities:
               
   
Accounts receivable
    (2,341 )     478  
   
Prepaid expenses and other assets
    (751 )     (804 )
   
Accounts payable and other accrued liabilities
    6,520       (6,632 )
   
Accrued compensation and related expenses
    1,337       (947 )
   
Accrued restructuring costs
    (553 )     (17,401 )
   
Deferred revenue
    (4,570 )     (4,037 )
     
     
 
Net cash provided by (used in) operating activities
    20,167       (42,500 )
Investing activities
               
Purchases of property and equipment
    (5,901 )     (4,744 )
Purchases of marketable securities
    (83,565 )      
Proceeds from redemption of restricted marketable securities
    11,000       13,741  
Proceeds from redemption of marketable securities
          15,610  
Net cash from acquisition and dissolution of joint ventures
          9,563  
     
     
 
Net cash provided by (used in) investing activities
    (78,466 )     34,170  
Financing activities
               
Issuance of common stock
    12,378       1,231  
Issuance of convertible subordinated notes, net
    111,744        
Repayment of notes receivable to stockholders
          52  
Repayment of borrowings under line of credit
    (11,000 )      
Repayment of capital lease obligations
    (572 )     (664 )
     
     
 
Net cash provided by financing activities
    112,550       619  
Effect of exchange rate changes on cash and cash equivalents
    902       827  
     
     
 
Increase (decrease) in cash and cash equivalents
    55,153       (6,884 )
Cash and cash equivalents at beginning of period
    27,613       33,125