U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended March 31, 2004
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: 000-26357
LOOKSMART, LTD.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 13-3904355 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
625 Second Street
San Francisco, California 94107
(Address of Principal Executive Offices and Zip Code)
(415) 348-7000
(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 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of May 4, 2004, there were 111,665,207 shares of the registrant’s common stock outstanding.
FORM 10-Q
| Page | ||||
| PART I FINANCIAL INFORMATION | ||||
| ITEM 1: |
||||
| Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 |
6 | |||
| 7 | ||||
| ITEM 2: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||
| 26 | ||||
| ITEM 3: |
34 | |||
| ITEM 4: |
35 | |||
| PART II OTHER INFORMATION | ||||
| ITEM 1: |
35 | |||
| ITEM 2: |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
35 | ||
| ITEM 6: |
36 | |||
| ITEM 7: |
36 | |||
| 37 | ||||
2
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 37,496 | $ | 63,866 | ||||
| Short-term investments |
34,083 | 6,068 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $1,908 in at March 31, 2004 and $2,504 at December 31, 2003 |
11,698 | 22,265 | ||||||
| Prepaid expenses |
1,564 | 2,308 | ||||||
| Other current assets |
412 | 372 | ||||||
| Total current assets |
85,253 | 94,879 | ||||||
| Property and equipment, net |
8,177 | 8,444 | ||||||
| Security deposits and other assets |
5,932 | 6,124 | ||||||
| Intangible assets, net |
5,374 | 5,713 | ||||||
| Goodwill |
10,932 | 10,932 | ||||||
| Total assets |
$ | 115,668 | $ | 126,092 | ||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Long term debt, current portion |
$ | 187 | $ | 101 | ||||
| Trade accounts payable |
5,148 | 3,600 | ||||||
| Other accrued liabilities |
18,284 | 27,125 | ||||||
| Deferred revenue and customer deposits |
4,523 | 5,362 | ||||||
| Total current liabilities |
28,142 | 36,188 | ||||||
| Long term debt |
171 | 283 | ||||||
| Other long term liabilities |
5,750 | 3,324 | ||||||
| Total liabilities |
34,063 | 39,795 | ||||||
| Commitments and contingencies (Note 5) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.001 par value; Authorized: 200,000 at March 31, 2004 and December 31, 2003; Issued and Outstanding: 109,731, and 107,808 at March 31, 2004 and December 31, 2003 |
108 | 106 | ||||||
| Additional paid-in capital |
263,909 | 261,792 | ||||||
| Other equity |
1,086 | 773 | ||||||
| Accumulated deficit |
(183,498 | ) | (176,374 | ) | ||||
| Total stockholders’ equity |
81,605 | 86,297 | ||||||
| Total liabilities and stockholders’ equity |
$ | 115,668 | $ | 126,092 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues: |
||||||||
| Listings |
$ | 27,565 | $ | 29,433 | ||||
| Licensing |
195 | 3,969 | ||||||
| Total revenues |
27,760 | 33,402 | ||||||
| Cost of revenues |
16,233 | 17,832 | ||||||
| Gross profit |
11,527 | 15,570 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
3,248 | 4,172 | ||||||
| Product development |
7,804 | 7,182 | ||||||
| General and administrative |
3,999 | 3,054 | ||||||
| Restructuring costs |
3,779 | — | ||||||
| Total operating expenses |
18,830 | 14,408 | ||||||
| Income (loss) from operations |
(7,303 | ) | 1,162 | |||||
| Non-operating income (expense): |
||||||||
| Interest and other non-operating income, net |
178 | 149 | ||||||
| Share of joint venture loss |
— | (256 | ) | |||||
| Income (loss) operations before income taxes and extraordinary gain |
(7,125 | ) | 1,055 | |||||
| Income tax expense |
— | (116 | ) | |||||
| Income (loss) operations before extraordinary gain |
(7,125 | ) | 939 | |||||
| Extraordinary gain from the purchase of BTLS joint venture entities, net of tax |
— | 202 | ||||||
| Net income (loss) |
(7,125 | ) | 1,141 | |||||
| Other comprehensive income (loss): |
||||||||
| Change in unrealized gain on short-term investments |
(2 | ) | 293 | |||||
| Change in translation adjustment |
294 | 68 | ||||||
| Comprehensive income (loss) |
$ | (6,833 | ) | $ | 1,502 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
LOOKSMART, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS), CONTINUED
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | |||||||
| 2004 |
2003 | ||||||
| Income (loss) per share: |
|||||||
| Basic net income (loss) per share: |
|||||||
| Income (loss) from continuing operations |
$ | (0.07 | ) | $ | 0.01 | ||
| Extraordinary gain from the purchase of BTLS joint venture entities, net of tax |
0.00 | 0.00 | |||||
| Net income (loss) |
$ | (0.07 | ) | $ | 0.01 | ||
| Diluted net income (loss) per share: |
|||||||
| Income (loss) from continuing operations |
$ | (0.07 | ) | $ | 0.01 | ||
| Extraordinary gain from the purchase of BTLS Joint Venture entities, net of tax |
0.00 | 0.00 | |||||
| Net income (loss) |
$ | (0.07 | ) | $ | 0.01 | ||
| Weighted average shares outstanding used in per share calculation—basic |
108,203 | 100,374 | |||||
| Weighted average shares outstanding used in per share calculation—diluted |
108,203 | 109,314 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (7,125 | ) | $ | 1,141 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Share of joint venture loss |
— | 256 | ||||||
| Depreciation and amortization |
1,909 | 1,872 | ||||||
| Stock based compensation |
50 | 969 | ||||||
| (Gain) loss from sale of assets and other non-cash charges |
378 | (1 | ) | |||||
| Extraordinary gain from the purchase of BTLS joint venture entities |
— | (202 | ) | |||||
| Changes in operating assets and liabilities, net of effects of acquisitions and disposals: |
||||||||
| Trade accounts receivable |
10,567 | 18 | ||||||
| Prepaid expenses |
744 | 211 | ||||||
| Other assets |
107 | 643 | ||||||
| Trade accounts payable |
1,548 | 176 | ||||||
| Other accrued liabilities |
(6,414 | ) | 1,657 | |||||
| Deferred revenue and customer deposits |
(839 | ) | (963 | ) | ||||
| Net cash provided by operating activities |
925 | 5,777 | ||||||
| Cash flows from investing activities: |
||||||||
| Acquisition of assets of Grub, Inc. |
— | (612 | ) | |||||
| Proceeds from sale of short-term investments |
— | 3,406 | ||||||
| Purchases of short-term investments |
(28,015 | ) | — | |||||
| Funding to joint venture |
— | (500 | ) | |||||
| Payments for property, equipment and capitalized software development |
(1,656 | ) | (2,299 | ) | ||||
| Proceeds from the sale of property and equipment |
83 | 1 | ||||||
| Net cash used in investing activities |
(29,588 | ) | (4 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Repayment of notes |
(26 | ) | (428 | ) | ||||
| Proceeds from issuance of common stock |
2,025 | 1,415 | ||||||
| Net cash provided by financing activities |
1,999 | 987 | ||||||
| Effect of exchange rate changes on cash |
294 | 68 | ||||||
| Increase (decrease) in cash and cash equivalents |
(26,370 | ) | 6,828 | |||||
| Cash and cash equivalents, beginning of period |
63,866 | 47,696 | ||||||
| Cash and cash equivalents, end of period |
$ | 37,496 | $ | 54,524 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
Nature of Business and Principles of Consolidation
LookSmart (the Company) is a provider of commercial search services and a developer of innovative web search solutions. The Company provides consumers with highly relevant search results through a distribution network that includes LookSmart.com and other portals and ISPs, while delivering targeted sales leads to online businesses.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in 20% to 50% owned partnerships and affiliates are accounted for by the equity method and investments in less than 20% owned affiliates, over which the Company does not exert any significant influence, are accounted for by the cost method.
Reclassifications
Certain prior years’ balances have been reclassified to conform to the current year’s presentation. In the first quarter of 2003, payments to distribution partners for referral of customers to our LookListings program were reflected as sales and marketing expense because LookSmart branding was associated with the promotion of these products. These costs have been reclassified and are reflected in cost of revenue. The amount reclassified in the first quarter of 2003 was $1.2 million.
Concentration of Credit Risk and Business Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. The Company’s short-term investments are managed by one institution. The Company maintains an allowance for doubtful accounts receivable based upon expected collectibility.
The Company derived approximately 32% and 64% of its listings revenues in the three months ended March 31, 2004 and 2003, respectively, from the Company’s relationship with Microsoft.
The Company derived approximately 16% and 3% of its listings revenues in the three months ended March 31, 2004 and 2003, respectively, from its relationship with Mamma.com.
The Company derived 100% of the lice