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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: DECEMBER 31, 2000
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: 0-20735
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WEBHIRE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2935271
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
91 HARTWELL AVENUE, LEXINGTON, MA 02421
(Address of principal executive offices) (zip code)
(781) 869-5000
(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 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 EACH CLASS
Common stock, $.01 par value, shares outstanding at February 5, 2001: 22,527,034
shares.
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WEBHIRE, INC.
INDEX
PART I--FINANCIAL INFORMATION
PAGE
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2000 and
September 30, 2000.......................................... 3
Consolidated Statements of Operations for the three months
ended December 31, 2000 and December 31, 1999............... 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 2000 and December 31, 1999............... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 18
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities....................................... 19
Item 3. Defaults upon Senior Securities............................. 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
PART III--SIGNATURES.................................................. 20
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
WEBHIRE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
------------ -------------
2000 2000
------------ -------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,058 $12,135
Short-term investments.................................... 1,413 2,410
Accounts and installments receivable, less allowance for
doubtful accounts of $1,645 and $1,587 at December 31,
2000 and September 30, 2000, respectively............... 3,153 4,772
Other current assets...................................... 2,074 1,684
------- -------
Total current assets.................................... 12,698 21,001
------- -------
Long-term installments receivable, net...................... 131 153
Property and equipment, net................................. 4,119 4,248
Acquired technologies, net of accumulated amortization of
$17,623 and $15,909 at December 31, 2000 and September 30,
2000, respectively........................................ 1,875 3,589
Intangible assets and goodwill, net of accumulated
amortization of $2,293 and $1,748 at December 31, 2000 and
September 30, 2000, respectively.......................... 4,258 4,803
Other assets, net........................................... 499 509
------- -------
TOTAL ASSETS............................................ $23,580 $34,303
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations.............. $ 254 $ 254
Convertible notes payable................................. 925 3,425
Accounts payable.......................................... 2,372 1,504
Accrued expenses.......................................... 2,493 4,502
Deferred revenue.......................................... 6,679 8,145
------- -------
Total current liabilities............................... 12,723 17,830
------- -------
Other liabilities........................................... 172 176
------- -------
Commitments................................................. -- --
------- -------
Stockholders' Equity:
Preferred stock, $.01 par value -- Authorized -- 5,000,000
shares, Issued and outstanding -- none at December 31,
2000 and September 30, 2000............................. -- --
Common stock, $.01 par value -- Authorized -- 30,000,000
shares, Issued -- 23,213,934 and 22,109,971 shares at
December 31, 2000 and September 30, 2000, respectively,
Outstanding -- 22,527,034 and 21,423,071 shares at
December 31, 2000 and September 30, 2000,
respectively............................................ 232 221
Additional paid-in capital................................ 69,719 68,763
Subscriptions receivable.................................. (1,000) --
Treasury stock, at cost -- 686,900 shares................. (831) (831)
Accumulated deficit....................................... (57,435) (51,856)
------- -------
Total stockholders' equity.............................. 10,685 16,297
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $23,580 $34,303
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
3
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Revenue:
Services revenue--Internet................................ $ 3,261 $ 1,877
Services revenue--Enterprise.............................. 2,188 3,216
Product revenue........................................... 646 1,401
---------- ----------
Total revenue........................................... 6,095 6,494
---------- ----------
Cost of Revenue:
Services revenue--Internet................................ 2,675 2,105
Services revenue--Enterprise.............................. 432 1,151
Product revenue........................................... 215 178
Amortization of acquired technologies..................... 1,714 2,212
---------- ----------
Total cost of revenue................................... 5,036 5,646
---------- ----------
Gross profit................................................ 1,059 848
---------- ----------
Operating Expenses:
Research and development.................................. 2,456 2,946
Sales and marketing....................................... 2,193 4,614
General and administrative................................ 1,600 1,820
Amortization of intangible assets......................... 545 113
---------- ----------
Total operating expenses................................ 6,794 9,493
---------- ----------
Loss from operations........................................ (5,735) (8,645)
Other income, net........................................... 156 264
---------- ----------
Net loss.................................................... $ (5,579) $ (8,381)
========== ==========
Basic and diluted net loss per common share................. $ (.26) $ (.58)
========== ==========
Basic and diluted weighted average number of common shares
Outstanding............................................... 21,462,817 14,443,974
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
4
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
-------------------
2000 1999
-------- --------
Cash Flows from Operating Activities:
Net loss.................................................. $(5,579) $(8,381)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization............................. 2,906 2,993
Amortization of stock-based consideration................. -- 984
Provision for doubtful accounts........................... 175 131
Changes in assets and liabilities--
Accounts and installments receivable.................... 1,444 (1,099)
Other current assets.................................... (389) (1,633)
Refundable income taxes................................. -- (9)
Long-term installments receivable....................... 22 37
Accounts payable........................................ 868 239
Accrued expenses........................................ (2,010) 242
Deferred revenue........................................ (1,465) 1,399
Other liabilities....................................... (4) (39)
------- -------
Net cash used in operating activities................... (4,032) (5,136)
------- -------
Cash Flows from Investing Activities:
Purchases of acquired technologies and intangible
assets.................................................. (2,500) (1,557)
Purchases of property and equipment....................... (519) (1,279)
Purchases of short- and long-term investments............. (2,668) (12,902)
Proceeds from sale and maturity of short- and long-term
investments............................................. 3,665 2,827
Change in other assets.................................... 10 111
------- -------
Net cash used in investing activities................... (2,012) (12,800)
------- -------
Cash Flows from Financing Activities:
Payments of capital lease obligations..................... -- (143)
Proceeds from exercise of common stock options............ -- 426
Proceeds from employee stock purchase plan stock
issuance................................................ 49 68
Issuance costs in connection with private placement....... (82) (5)
------- -------
Net cash (used in) provided by financing activities..... (33) 346
------- -------
Net decrease in Cash and Cash Equivalents................... (6,077) (17,590)
Cash and Cash Equivalents, beginning of period.............. 12,135 20,126
------- -------
Cash and Cash Equivalents, end of period.................... $ 6,058 $ 2,536
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for Interest.................. $ 143 $ 17
------- -------
Income taxes.............................................. $ -- $ 9
------- -------
Supplemental Disclosure of Noncash Financing Activities:
Issuance of convertible notes and beneficial conversion
feature in connection with HR Sites acquisition......... $ -- $ 7,066
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
5
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
(1) ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Webhire, Inc. and its wholly-owned subsidiaries (collectively, "the Company").
All significant intercompany transactions and balances have been eliminated.
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current period presentation.
(B) PREPARATION OF FINANCIAL STATEMENTS
The consolidated interim financial statements as of December 31, 2000 and
for the three-month period ended December 31, 2000 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting
only of recurring adjustments, necessary for a fair statement of the results for
the interim period. The results for the interim period are not necessarily
indicative of the results for the entire year. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements of Webhire, Inc. for the year ended September 30, 2000 ("Fiscal
2000") included in its Annual Report on Form 10-K, filed with the Securities and
Exchange Commission.
(C) RECENT ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. This bulletin summarizes some of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Staff is providing this guidance due, in part, to the large
number of revenue recognition issues that registrants encounter. SAB 101 was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000; it must be adopted by the fourth quarter of the fiscal year beginning
after December 15, 1999. The Company will adopt SAB 101 in Fiscal 2001 and does
not expect its adoption to have a material impact on the Company's consolidated
financial statements.
(2) NET LOSS PER SHARE
As a net loss is presented for the three-month periods ended December 31,
2000 and 1999, the loss per share was based only on the weighted average number
of common shares outstanding.
For the three-month periods ended December 31, 2000 and 1999, all 2,311,344
and 1,630,166 potential common shares, respectively, were excluded from the
above calculation, as their effect would have been anti-dilutive due to the
Company's net loss in those periods.
(3) PRIVATE PLACEMENT OF COMMON STOCK
On December 29, 2000, the Company entered into an agreement with @viso
Limited ("@viso"), pursuant to which @viso agreed to purchase 1,087,500 shares
of common stock for issuance to @viso or its designated investors at a price per
share of $0.92, for an aggregate purchase price of approximately $1 million. The
purchase price of $0.92 per share represents the average closing price of the
common stock for the twenty days ending with the closing date of this agreement.
6
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
DECEMBER 31, 2000
(4) YAHOO! INVESTMENT AND SERVICE AGREEMENT
In connection with the service agreement between Yahoo! and the Company, the
Company granted to Yahoo! warrants to purchase 199,218 shares of common stock at
$4.95 per share. The warrants were accounted for under the variable method of
accounting. The warrants fully vested on June 3, 2000. The Company recognized
the expense related to the warrants over the vesting period. For the three-month
period ended December 31, 1999, the Company recorded a charge of $984,000 in
sales and marketing costs in the accompanying consolidated statement of
operations.
(5) ACQUIRED TECHNOLOGIES AND INTANGIBLES
On December 13, 1999, the Company acquired certain assets of Human Resources
Sites International, Inc. ("HR Sites") in exchange for $1.5 million in cash plus
junior subordinated convertible promissory notes (the "Notes") with a face
amount totaling $3.425 million. HR Sites was the developer of an Internet
job-posting platform that provided online job posting connections to more than
2,000 career sites and Internet news groups. The Notes contain a beneficial
conversion feature enabling the holder to convert the principal and any accrued
interest into the Company's common stock one day prior to the scheduled
maturities, or one day prior to redemption by the Company, at a price of $9.68
per share. The Company may redeem the Notes at any time on or after January 1,
2000 at its sole discretion. The Notes are also convertible upon a change in
control of the Company. The Company's common stock price on the dates the Notes
were executed at December 13, 1999 was $17.75. The conversion price is subject
to adjustment upon certain anti-dilution events. The Notes contain the same
terms other than differing maturities. The interest rate on both Notes is 5.6%
per annum. The Notes consist of principal amounts of $2.5 million, which was
repaid on December 14, 2000, and $0.925 million maturing on March 14, 2001.
(6) BUSINESS SEGMENT INFORMATION
The Company has two reportable segments: 1)enterprise software solutions and
2)Internet and transaction-based solutions, the latter of which started to
emerge in Fiscal 1997 with the offering of outsourced services (e.g., resume
scanning, acknowledgement letters). The Internet and transaction-based solutions
segment provides outsourced management of private candidate pools via WEBHIRE
RECRUITER, subscription services to public resume pools and job-posting sites,
resume scanning, reference checking and other fee-based staffing functions. The
enterprise software solutions segment provides perpetual licenses to the
Company's software products and the related maintenance, training,
implementation and consulting services in support of such licenses.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Expenses such as depreciation,
rent and utilities are allocated to the reportable segments based on relative
headcount as a basis of relative usage. The Company has no intersegment sales
and transfers, and does not allocate assets to the operating segments.
7
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
DECEMBER 31, 2000
(6) BUSINESS SEGMENT INFORMATION (CONTINUED)
The Company's reportable segments are strategic business units that offer
different solutions tailored to a customer's needs.
THREE MONTHS ENDED DECEMBER 31, 2000:
---------------------------------------
INTERNET AND ENTERPRISE TOTAL
TRANSACTIONS SOFTWARE COMPANY
------------ ---------- -----------
Revenue.................................... 3,261,000 2,834,000 6,095,000
Gross (loss) profit........................ (1,128,000) 2,187,000 1,059,000
Loss from operations....................... (5,735,000)
Other income, net.......................... 156,000
----------
Loss before income taxes................... (5,579,000)
==========
THREE MONTHS ENDED DECEMBER 31, 1999:
---------------------------------------
INTERNET AND ENTERPRISE TOTAL
TRANSACTIONS SOFTWARE COMPANY
------------ ---------- -----------
Revenue.................................... 1,877,000 4,617,000 6,494,000
Gross (loss) profit........................ (2,440,000) 3,288,000 848,000
Loss from operations....................... (8,645,000)
Other income, net.......................... 264,000
----------
Loss before income taxes................... (8,381,000)
==========
(7) SUBSEQUENT EVENT
On January 11, 2001, a major investor in the Company, which is a related
party, provided the Company with a written commitment to support the Company's
cash liquidity requirements through September 2001, up to a maximum of
$5 million, if necessary. In consideration of such commitment, the Company
intends to issue warrants to the investor to purchase 500,000 shares of the
Company's common stock at a price of $1.25 per share.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WEBHIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2000
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES AND
EXCHANGE ACT OF 1934, AS AMENDED. FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "ANTICIPATES", "BELIEVES",
"EXPECTS", "INTENDS", "FUTURE", AND WORDS OF SIMILAR IMPORT WHICH EXPRESS
MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING THE COMPANY'S FUTURE
PERFORMANCE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY HAS NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM ITS HISTORICAL OPERATING RESULTS AND FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH BELOW UNDER "FACTORS
AFFECTING FUTURE OPERATING RESULTS".
CONSOLIDATED RESULTS OF OPERATIONS
(IN THOUSANDS)
REVENUE
Total revenue for the three-month period ended December 31, 2000 was $6,095
compared to $6,494 for the three-month period ended December 31, 1999.
SERVICES REVENUE.
Services revenue--Internet increased 74% to $3,261 for the three months
ended December 31, 2000 from $1,877 for the three months ended December 31,
1999. The increase was attributable to the continued growth of the WEBHIRE
RECRUITER customer base, an increase in average selling price and the addition
of OUTSOURCED WEBHIRE ENTERPRISE, introduced in January 2000, and JOB SITE
HOSTING, introduced in April 2000. The Company expects that Internet revenues
will continue to grow as a percentage of total revenue.
Services revenue--Enterprise was $2,188 for the three months ended
December 31, 2000 compared to $3,216 for the three months ended December 31,
1999. The decrease is primarily attributable to a reduction in maintenance
revenues as contracts expired and customers shifted toward our ASP model.
PRODUCT REVENUE. Product revenue, which relates to the enterprise software
solutions segment, was $646 for the three months ended December 31, 2000
compared to $1,401 for the three months ended December 31, 1999. The decrease is
primarily attributable to the Company's transition to an Internet/ intranet
product line.
COST OF REVENUE
COST OF SERVICES REVENUE.
Cost of services revenue--Internet increased 27% to $2,675 for the three
months ended December 31, 2000 from $2,105 for the comparable Fiscal 2000
period. The increase in absolute dollars is principally attributable to costs
associated with supporting the expanding WEBHIRE RECRUITER customer base and
additional service offerings added during the prior fiscal year. Internet gross
margins, excluding amortization of acquired technologies, improved to 18% for
the first quarter of Fiscal 2001
9
from negative 12% for the comparable Fiscal 2000 period. The Company expects
gross margins to continue to improve due to the combination of increased
operational efficiencies and higher average selling prices.
Cost of services revenue--Enterprise decreased 62% to $432 for the period
ended December 31, 2000 from $1,151 for the comparable Fiscal 2000 period. The
decrease is due to headcount reductions and the redirection of resources to the
Internet and transaction-based solutions segment.
COST OF PRODUCT REVENUE. Cost of product revenue represented 33% of total
product revenue for the three months ended December 31, 2000 compared to 13% for
the three months ended December 31, 1999. The percentage increase is due
primarily to increased royalties due under a third-party licensing arrangement.
AMORTIZATION OF ACQUIRED TECHNOLOGIES. Amortization of acquired
technologies was $1,714 and $2,212 for the three months ended December 31, 2000
and 1999, respectively. In connection with the acquisition of HR Sites during
Fiscal 2000 the Company recorded acquired technology which is being amortized
over a three-year estimated life. In connection with an asset purchase from
Amazon and the acquisition of HireWorks, Inc., during Fiscal 1999 the Company
recorded acquired technologies which are being amortized over a two-year
estimated life from the respective transaction dates.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were $2,456 or
40% of total revenue for the three months ended December 31, 2000 as compared to
$2,946 or 45% of total revenue for the comparable Fiscal 2000 period. The
decrease is primarily due to a reduction in headcount and consulting expenses.
SALES AND MARKETING. Sales and marketing expenses were $2,193 or 36% of
total revenue for the three months ended December 31, 2000 as compared to $4,614
or 71% of total revenue for the comparable Fiscal 2000 period. The decrease in
absolute dollars is primarily due to a $984 charge for warrants recorded in the
first quarter of Fiscal 2000, and a reduction in advertising costs as the
Company opted not to renew a joint marketing program with a third party. The
Company expects that sales and marketing expenses may vary from quarter to
quarter as a percentage of total revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,600
or 26% of total revenue for the three months ended December 31, 2000 as compared
to $1,820 or 28% of total revenue for the comparable three-month period of
Fiscal 2000. The absolute dollar decrease for the three-month period of Fiscal
2001 as compared to Fiscal 2000 is primarily the result of a $150 penalty for an
early cancellation of a sales office lease recorded in the first quarter of
Fiscal 2000.
OTHER INCOME, NET
Other income, net decreased to $156 for the three-month period ended
December 31, 2000 from $264 for the comparable Fiscal 2000 period. Other income
consists primarily of interest earned on investments offset by accrued interest
on convertible notes payable.
10
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. This bulletin summarizes some of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Staff is providing this guidance due, in part, to the large
number of revenue recognition issues that registrants encounter. SAB 101 was
delayed by the issuance of SAB 101A on March 27, 2000 and SAB 101B on June 26,
2000; it must be adopted by the fourth quarter of the fiscal year beginning
after December 15, 1999. The Company will adopt SAB 101 in Fiscal 2001 and does
not expect its adoption to have a material impact on the Company's consolidated
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
(IN THOUSANDS)
At December 31, 2000, the Company had cash and cash equivalents and
short-term investments of $7,471, a decrease of $7,074 from $14,545 at
September 30, 2000.
Cash used in operating activities was $4,032 during the three-month period
ended December 31, 2000. Use of cash in operating activities consisted mainly of
the net loss for the three-month period of $5,579, the offsetting effects of
depreciation and amortization of $2,906 and fluctuations in certain assets and
liabilities.
The Company used $2,012 in investing activities during the first quarter of
Fiscal 2001, principally for the payment of a note payable of $2,500 issued in
connection with previously acquired technologies and intangible assets and the
purchase of property and equipment of $519 (primarily computer equipment)
partially offset by the net maturities of short-term investments of $997.
Net cash used in financing activities for the three-month period ended
December 31, 2000 was $33.
The Company has adopted Statement of Financial Accounting Standards No.133
("SFAS 133"), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The
adoption of this standard did not have a material impact on the Company's
consolidated financial statements. To date, the Company has not invested in
derivative securities or any other financial instruments that involve a high
level of complexity or risk. Cash has been, and the Company contemplates that it
will continue to be, invested in interest-bearing, investment grade securities.
From time to time, the Company may evaluate potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. Any such transactions consummated may use a portion of the
Company's working capital and/or require the issuance of equity or debt.
The Company believes that its current cash and cash equivalent balance will
be sufficient to meet its working capital expenditure requirements through
Fiscal 2001.
11
FACTORS AFFECTING FUTURE OPERATING RESULTS
An investment in our common stock involves various risks. Before investing
in our common stock, you should carefully consider the following risk factors.
These risk factors are not exhaustive and should be read together with the other
reports and documents that we file with the Securities and Exchange Commission,
which may include additional or more current information that should be
considered in making an investment in us.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR
BUSINESS MAY BE ADVERSELY AFFECTED.
Because we completed a $16,000,000 round of financing on August 10, 2000 and
had $1,000,000 invested in us on December 29, 2000, we currently anticipate that
our available cash will be sufficient to meet our anticipated working capital
and capital expenditure requirements through the near term. However, we may need
to raise additional capital to meet our current needs and also, in the longer
term, to fund more rapid expansion to develop new services, to enhance existing
services in response to competitive pressures, and to acquire complementary
services, businesses or technologies. In the event our operations are not
profitable or do not generate sufficient cash to fund the business, or if we
fail to receive money to meet our obligations, we may have to substantially cut
back our level of operations. These reductions could, in turn, affect our
relationships with our strategic partners and customers and threaten our ability
to continue as an ongoing concern. If we raise additional funds through further
issuances of equity or convertible debt securities, the percentage of ownership
of our current stockholders will be reduced and such securities may have rights,
preferences and privileges senior to those of our current stockholders. In
addition, we may not be able to obtain such financing on terms favorable to us,
if at all. If adequate funds are not available or are not available on terms
favorable to us, our business, financial condition and results of operations
could be materially and adversely affected.
TO COMPETE EFFECTIVELY, WE MUST ADAPT QUICKLY TO ADVANCES IN TECHNOLOGY AND
CHANGES IN CUSTOMER REQUIREMENTS.
The market for automated recruiting products and services is undergoing
rapid changes, including continuing advances in technology and changes in
customer requirements and preferences. These market dynamics have been amplified
by the emergence of the Internet as a tool for recruiting solutions. Our future
success will depend in significant part on our ability to continually improve
the performance, features and reliability of our software and services in
response to the evolving demands of the marketplace and competitive product
offerings. Any failure on our part to quickly develop products and services that
address changes in technology or customer demands will likely result in loss of
market share to a competitor.
OUR BUSINESS MODEL IS NOT YET FULLY PROVEN.
In Fiscal 1998 we expanded our technology into products and services that
could be offered over the Internet to foster long-term growth. Since that time,
revenue from Internet-based transactions has grown in relation to revenue from
Webhire's software licensing and maintenance business, becoming a majority of
our total revenue for the first time in the first quarter of Fiscal 2001. We
expect our reliance on Internet-based transactions for revenues to continue to
increase in the future, and we expect product revenue from software license
sales and maintenance to continue to become a smaller component of our revenue
over time. Our long-term business model and profit potential are not yet fully
proven. To be successful, we must develop and market online recruitment
offerings that achieve broad market acceptance by employers, job seekers and
interactive media companies. It is possible that we will be required to further
adapt our business model in response to additional changes in the online
recruitment market or if our current business model is not successful. If we are
not able to anticipate
12
changes in the online recruitment market or if our business model is not
successful, our business, financial condition and results of operations will be
materially and adversely affected.
WE MAY BE UNABLE TO CONTINUE TO BUILD CUSTOMER AWARENESS.
We believe that continuing to build brand recognition is critical to
achieving widespread acceptance of our online recruitment offerings. Brand
recognition is a key differentiating factor among providers of online
recruitment offerings and we believe it could become more important as
competition in the online recruitment market increases. We may find it necessary
to accelerate expenditures on our sales and marketing efforts or otherwise
increase our financial commitment to creating and maintaining brand awareness
among potential customers. If we fail to successfully promote and maintain our
brand or incur significant expenses in promoting our brand, our business,
financial condition and results of operations could be materially and adversely
affected.
THE DEMAND FOR AUTOMATED RECRUITING SOFTWARE AND SERVICES MAY FAIL TO GROW AND
GENERATE BUSINESS.
Our future success substantially depends on broader recognition of the
potential benefits of automated recruiting software and services and the growth
in demand for these products and services. It is difficult to assess the size of
the market that will develop and the rate at which it will develop. If the
market does not develop as we anticipate, or if it develops more slowly than we
expect, our business, financial condition and results of operations will be
materially and adversely affected.
OUR BUSINESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT AND MAINTENANCE OF THE
INTERNET INFRASTRUCTURE.
Our success will depend, in large part, upon the continued development and
maintenance of the Internet infrastructure as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
enabling products, such as high-speed modems, for providing reliable Internet
access and services. We cannot assure you that the Internet infrastructure will
continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, greater frequency of use or
increased bandwidth requirements of users. Even if the necessary infrastructure
or technologies are developed, we may have to spend considerable resources to
adapt our offerings accordingly. Furthermore, in the past, the Internet has
experienced a variety of outages and other delays. Any future outages or delays
could affect the Internet sites on which our customers' job advertisements are
posted and the willingness of employers and job seekers to use our online
recruitment offerings. If any of these events occur, our business, financial
condition and results of operations could be materially and adversely affected.
OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH OF THE INTERNET AS A
RECRUITING MEDIUM.
Our future is highly dependent on the continuing increase in the use of the
Internet as a recruiting medium. The online recruitment market is rapidly
evolving, and we cannot yet gauge its effectiveness as compared to traditional
recruiting methods. As a result, demand and market acceptance of online
recruitment offerings are uncertain. The adoption of online recruiting,
particularly by those entities that have historically relied upon traditional
methods of recruiting, requires the acceptance of a new way of conducting
business, exchanging information and advertising for jobs. We cannot assure you
that the online recruitment market will continue to emerge or become
sustainable. If the online recruitment market develops more slowly than we
expect, our business, financial condition and results of operations will be
materially and adversely affected.
OUR COMPUTER SYSTEMS COULD FAIL OR OVERLOAD.
The success of our online recruitment offerings depends highly on the
efficient and uninterrupted operation of our computer and communications
systems. Power loss, telecommunications failures, computer viruses, electronic
break-ins or other similar disruptive problems could damage or cause
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interruptions in these systems. If our systems are affected by any of these
occurrences, our business, financial condition and results of operations could
be materially and adversely affected. Our insurance policies may not cover, or
if covered, may not adequately compensate us for, any losses that may occur due
to any failures or interruptions in our systems. We do not presently have any
secondary "off-site" systems or a formal disaster recovery plan.
In addition, we must accommodate a high volume of traffic and deliver
frequently updated information. Our web sites have in the past and may in the
future experience slower response times or decreased traffic for a variety of
reasons. In addition, our users depend on Internet service providers and other
Internet site operators for access to our web sites. Many of the Internet
service providers have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems.
If we experience any of these problems, our business, financial condition
and results of operations could be materially and adversely affected.
OUR NEW PRODUCT INTRODUCTIONS MAY HAVE DEFECTS WHICH COULD RESULT IN ADVERSE
PUBLICITY OR HAVE OTHER NEGATIVE EFFECTS.
As the marketplace for recruiting solutions continues to evolve, we plan to
develop and introduce new products and services to enable us to effectively meet
the changing needs of the market. Products as complex as the ones that we offer
may contain undetected errors when first introduced or when new versions are
released. In the past, despite prior testing, we have discovered software errors
in some of our products after their introduction. Product defects may result in
adverse publicity, loss of or delay in market acceptance, injury to our
reputation and brand awareness, or claims against us, any one of which could
have a material adverse effect on our business, financial condition and results
of operations.
WE HAVE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES.
The market for recruitment solutions is intensely competitive and highly
fragmented. Although few companies directly compete with us, there are a large
number of job boards, search firms, and Internet portal sites that are vying for
their share of the overall corporate recruiting budget. We expect to face
additional competition as other established and emerging companies, including
print media companies and employee recruiting agencies with established brands,
enter the online recruitment market.
Many of our current and potential competitors have significantly greater
financial, technical, marketing and other resources than we do. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships to expand their offerings and to offer more
comprehensive solutions.
We believe that there will be rapid business consolidation in the online
recruitment industry. Accordingly, new competitors may emerge and rapidly
acquire significant market share. In addition, new technologies will likely
increase the competitive pressures that we face. The development of competing
technologies by market participants or the emergence of new industry standards
may adversely affect our competitive position. An increase in competition could
result in price reductions, limitations of access to key content on the
Internet, render our existing software and services obsolete or unmarketable
and/or result in loss of market share.
WE MUST MANAGE OUR GROWTH IN ORDER TO ACHIEVE DESIRED RESULTS.
The evolution of our business and the expansion of our customer base has
resulted in substantial growth in the scope of our operations over the last few
years. Our future results of operations will depend in part on the ability of
our officers and other key employees to continue to implement our
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operational, customer support, and financial control systems and to expand,
train, and manage our employee base.
THE SUCCESSFUL OPERATION OF OUR BUSINESS DEPENDS IN LARGE PART ON OUR
RELATIONSHIPS WITH THIRD PARTIES.
A key element of our business strategy is to develop relationships with
leading industry organizations in order to increase our market presence, expand
distribution channels and broaden our product line. We believe that our
continued success depends in large part on our ability to maintain such
relationships and cultivate additional relationships. There can be no assurance
that our existing strategic partners will not discontinue their relationships
with us, or that we will be able to successfully develop additional strategic
relationships.
In addition, certain technology incorporated in our software is licensed
from third parties on a nonexclusive basis. The termination of any of these
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in our ability to ship certain of
our products while we seek to implement technology offered by alternative
sources. In addition, any required replacement licenses could prove more costly
than our current license relationships and might not provide technology as
powerful and functional as the third-party technology we currently license.
Also, any such delay, to the extent it becomes extended or occurs at or near the
end of a fiscal quarter, could have a material adverse effect on our results of
operations for that quarter. While it may be necessary or desirable in the
future to obtain other licenses relating to one or more of our products or
relating to current or future technologies, we may not be able to do so on
commercially reasonable terms or at all.
OUR OPERATING RESULTS MAY BE SUBJECT TO SIGNIFICANT QUARTERLY FLUCTUATIONS.
Our results of operations have been, and may in the future be, subject to
significant quarterly fluctuations. Such fluctuations could be due to a variety
of factors, including the following:
- the fact that our software license revenue (as opposed to our
Internet-based service revenue) consists of a relatively small number of
large dollar transactions and, as a result, may fluctuate significantly
from one quarter to another if the number of transactions completed varies
slightly;
- the introduction of new products by us or our competitors;
- the capital spending patterns of our customers;
- our sales incentive strategy which is based in part on annual sales
targets;
- the fact that a substantial portion of our product revenue often occurs
during the last few weeks of each quarter and, as a result, any delays in
orders or shipments are more likely to result in revenue not being
recognized until the following quarter; and
- our current expense levels are based in part on our expectations of future
revenue and, as a result, net income for a given period could be
disproportionately affected by any reduction in revenue.
To the extent our level of revenue in the future decreases from past levels
or in some future quarter our revenue or operating results are below the
expectations of stock market securities analysts and investors, our
profitability and the price of our common stock is likely to be materially and
adversely affected.
OUR BUSINESS MAY EXPERIENCE NEGATIVE EFFECTS FROM A SLOWDOWN IN THE U.S. AND/OR
GLOBAL ECONOMIES.
In recent months, a downward trend in leading economic indicators points to
a slowing of the U.S. economy. Customer demand in the markets in which our
Company does business could experience the negative effects of a slowdown in the
U.S. and/or global economies. As a result, downturns in the U.S.
15
and/or global economies could have a material adverse effect on our Company's
business, financial condition, results of operations or prospects.
AFFILIATES OF SOFTBANK CORP. BENEFICIALLY OWN APPROXIMATELY 35% OF OUR
OUTSTANDING STOCK, ARE REPRESENTED ON OUR BOARD OF DIRECTORS AND HAVE RIGHTS TO
PARTICIPATE IN CERTAIN OF OUR TRANSACTIONS. SOFTBANK'S INTERESTS COULD CONFLICT
WITH YOUR INTERESTS AND SIGNIFICANT SALES OF STOCK HELD BY IT COULD HAVE A
NEGATIVE EFFECT ON OUR STOCK PRICE.
Affiliates of SOFTBANK Corp. currently beneficially own approximately 35% of
our outstanding common stock, which includes approximately 1% owned by
Yahoo! Inc., a SOFTBANK affiliate in which SOFTBANK is a major investor. As a
result of their stock ownership, SOFTBANK and its affiliates have significant
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions, and their
interests could conflict with those of other stockholders. Such concentration of
ownership may also have the effect of delaying or preventing a change in control
of Webhire. In addition, sales of significant amounts of shares held by these
entities, or the prospect of these sales, could adversely affect the market
price of our common stock.
SOFTBANK has the right to nominate two members of our Board of Directors,
which currently consists of six members (one of whom is a SOFTBANK
representative), and for so long as SOFTBANK or its affiliates continues to hold
at least 10% of our outstanding common stock, it is entitled to nominate one
director each time a class of directors in which one of its representatives
serves is subject to election. Further, one of SOFTBANK's directors is entitled
to serve as a member of the audit committee and compensation committee of
Webhire's Board of Directors. As a result, SOFTBANK has significant influence on
all matters requiring the approval of the Board of Directors.
In addition, in the event we propose to enter into a joint venture for
operations in the United Kingdom, continental Europe or Japan or a business
transaction with any competitor of SOFTBANK's affiliate ZDNet, we are required
by the terms of the stock purchase agreement pursuant to which SOFTBANK acquired
our common stock to offer SOFTBANK or one of its affiliates the opportunity to
participate in the transaction on terms and conditions mutually acceptable to us
and them. As a result of these contractual obligations, potential third parties
may be reluctant to negotiate joint ventures or business transactions with us
because they know SOFTBANK and its affiliates will be given the opportunity to
participate in such transactions.
KORN/FERRY BENEFICIALLY OWNS APPROXIMATELY 15% OF OUR OUTSTANDING STOCK, IS
REPRESENTED ON OUR BOARD OF DIRECTORS AND HAS RIGHTS WITH RESPECT TO CERTAIN
WEBHIRE TRANSACTIONS. KORN/FERRY'S INTERESTS COULD CONFLICT WITH YOUR INTERESTS
AND SIGNIFICANT SALES OF STOCK HELD BY IT COULD HAVE A NEGATIVE EFFECT ON OUR
STOCK PRICE.
Korn/Ferry International currently beneficially owns approximately 15% of
our outstanding common stock. As a result of its stock ownership, Korn/Ferry has
significant control over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions,
and its interests could conflict with those of other stockholders. In addition,
under the terms of the stock purchase agreement pursuant to which Korn/Ferry
acquired our common stock, for so long as Korn Ferry continues to hold at least
5% of our common stock, we are required to first negotiate with Korn/Ferry in
the event of a potential sale or acquisition of Webhire or a substantial stock
issuance by us. Such concentration of ownership and such contractual obligation
may also have the effect of delaying or preventing a change in control of
Webhire. In addition, sales of significant amounts of shares held by Korn/Ferry,
or the prospect of these sales, could adversely affect the market price of our
common stock.
Korn/Ferry has the right to nominate one member of our Board of Directors,
which currently consists of six members (one of whom is a Korn/Ferry
representative), and for so long as Korn/Ferry continues to hold at least 5% of
our outstanding common stock, it is entitled to nominate one director each time
the class of directors in which its representative serves is subject to
election. As a result, Korn/Ferry has significant influence on all matters
requiring the approval of Webhire's Board of Directors.
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WE DEPEND ON KEY PERSONNEL WHO MAY NOT CONTINUE TO WORK FOR US.
Our future success depends to a significant extent on our senior management
and other key employees, many of whom have acquired specialized knowledge and
skills with respect to our operations. As a result, if any of these individuals
were to leave Webhire, we could face substantial difficulty in hiring qualified
successors and could experience a loss of productivity while any such successor
obtains the necessary training and experience. We also believe that our future
success will depend in large part on our ability to attract and retain
additional key employees. Competition for qualified personnel in the high tech
industry is intense. If we do not succeed in attracting new personnel, or
retaining and motivating existing personnel, our business will be adversely
affected.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND OUR
STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THEIR PURCHASE
PRICE.
We cannot predict the extent to which investors' interest in us will lead to
a stable trading market or how liquid the market might become. The stock market
in general and the market prices of shares in technology companies, particularly
those such as ours that offer Internet-based products and services, have been
extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of our common stock could be highly volatile and subject to
wide fluctuations in response to many factors, including the following:
- quarterly variations in our results of operations;
- adverse business developments that have an impact on Webhire;
- changes in financial estimates by securities analysts;
- investor perception of Webhire and online recruitment services in general;
- announcements by our competitors of new products and services; and
- fluctuations in our common stock price, which may affect our visibility
and credibility in the online recruitment market.
In the event of broad fluctuations in the market price of our common stock,
purchasers of our common stock may be unable to resell their shares at or above
their purchase price.
IT IS DIFFICULT TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We regard our intellectual property rights as critical to our success and
rely on a combination of copyright and trade secret laws, employee and
third-party non-disclosure agreements and other methods to protect these rights.
We cannot be assured that the measures we have taken to protect our proprietary
rights will be adequate to prevent misappropriation of our technology or
independent development by others of similar technology. Our inability to
protect our proprietary rights would have a material adverse effect on our
business, results of operations and financial condition.
WE MAY BE SUBJECT TO COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.
As the number of products and services in our industry increases and as
recruiting solutions further overlap, the likelihood that our current or future
products may become subject to intellectual property infringement claims
increases. Although we are not currently the subject of any intellectual
property litigation, there has been substantial litigation regarding copyright,
patent and other intellectual property rights involving computer software
companies. Any claims or litigation, with or without merit, could be costly and
could divert management's attention, which could have a material adverse effect
on our business, financial condition and results of operations. Adverse
determinations in
17
such claims or litigation may require us to obtain a license and/or pay damages,
which could also have a material adverse effect on our business, financial
condition and results of operations.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
Although we have not experienced any product liability claims to date, the
sale and support of our products and the incorporation of products from other
companies may entail the risk of product liability claims. Our license
agreements with our customers typically contain provisions intended to limit our
exposure to such claims. There can be no guarantee, however, that such
provisions will be effective in limiting our exposure. A successful product
liability action brought against us could adversely affect our business,
financial condition and results of operations.
ANTI-TAKEOVER PROVISIONS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO
ACQUIRE US.
Our Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock may be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change of
control of Webhire without further action by the stockholders and may adversely
affect the voting and other rights of the holders of common stock. We have no
present plans to issue shares of preferred stock. Further, certain provisions of
our charter documents, including provisions providing for a staggered board of
directors and limiting the ability of stockholders to raise matters at a meeting
of stockholders without giving advance notice, may have the effect of delaying
or preventing changes in control or management of Webhire, which could have an
adverse effect on the market price of our common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no significant changes in the Company's market risks since
the year ended September 30, 2000. For more information please read the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended September 30, 2000.
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WEBHIRE, INC.
PART II--OTHER INFORMATION:
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
those arising in the ordinary course of the Company's business. Management
believes that the resolution of these matters will not materially affect the
Company's business or the financial condition of the Company.
Item 2. Changes in Securities and Use or Proceeds
On December 29, 2000, the Company entered into an agreement with @viso
Limited ("@viso"), pursuant to which @viso agreed to purchase 1,087,500 shares
of common stock for issuance to @viso or its designated investors at a price per
share of $0.92, for an aggregate purchase price of approximately $1 million. The
purchase price of $0.92 per share represents the average closing price of the
common stock for the twenty days ending with the closing date of this agreement.
The Company sold the shares of common stock to this accredited investor under
the exemption from registration provided by Rule 506 promulgated under the
Securities Act of 1933. The proceeds from the sale of these shares of common
stock are being used for general working capital purposes.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished as Exhibits hereto:
EXHIBIT NO. DESCRIPTION
----------- -----------
(b) No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 2000.
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WEBHIRE, INC.
PART III--SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WEBHIRE, INC.
/s/ MARTIN J. FAHEY
-----------------------------------------
Martin J. Fahey
CHIEF EXECUTIVE OFFICER
/s/ STEPHEN D. ALLISON
-----------------------------------------
Stephen D. Allison
CHIEF FINANCIAL OFFICER
Date: February 13, 2001
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