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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: March 31, 2002
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-20735
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WEBHIRE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2935271
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
91 Hartwell Avenue
Lexington, MA 02421
(Address of principal (zip code)
executive offices)
(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 May 15, 2002: 4,522,871
shares.
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WEBHIRE, INC.
INDEX
Page
----
Part I--Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2002 (unaudited) and September 30, 2001........... 3
Consolidated Statements of Operations (unaudited) for the three and six months ended
March 31, 2002 and 2001.................................................................. 4
Consolidated Statements of Cash Flows (unaudited) for the six months ended
March 31, 2002 and 2001.................................................................. 5
Notes to Consolidated Financial Statements (unaudited)..................................... 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............................ 19
Part II--Other Information
Item 1. Legal Proceedings.................................................................... 20
Item 2. Changes in Securities................................................................ 20
Item 3. Defaults upon Senior Securities...................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders.................................. 20
Item 5. Other Information.................................................................... 20
Item 6. Exhibits and Reports on Form 8-K..................................................... 21
Part III--Signatures.......................................................................... 22
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
WEBHIRE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, September 30,
2002 2001
----------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 4,410 $ 2,982
Short-term investments.................................................................... -- 695
Restricted cash........................................................................... 1,500 1,500
Accounts and installments receivable, less allowance for doubtful accounts of $650 and
$484 at March 31, 2002 and September 30, 2001, respectively.............................. 901 2,041
Other current assets...................................................................... 1,221 1,822
-------- --------
Total current assets................................................................... 8,032 9,040
-------- --------
Long-term installments receivable, net........................................................ 16 63
Property and equipment, net................................................................... 1,445 2,518
Acquired technologies, net of accumulated amortization of $19,982 and $18,672 at March 31,
2002 and September 30, 2001, respectively.................................................... 1,834 826
Intangible assets, net of accumulated amortization of $4,135 and $3,928 at March 31, 2002 and
September 30, 2001, respectively............................................................. 1,539 3,246
Other assets.................................................................................. 318 398
-------- --------
TOTAL ASSETS........................................................................... $ 13,184 $ 16,091
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 776 $ 1,930
Accrued expenses.......................................................................... 790 1,305
Notes payable............................................................................. 1,500 1,500
Current portion of capital lease obligations.............................................. 128 234
Deferred revenue.......................................................................... 4,904 4,422
-------- --------
Total current liabilities.............................................................. 8,098 9,391
-------- --------
Other liabilities............................................................................. 135 152
-------- --------
Total liabilities...................................................................... 8,233 9,543
-------- --------
Commitments and contingencies................................................................. -- --
Stockholders' equity:
Preferred stock, $.01 par value--Authorized--5,000,000 shares, Issued and outstanding--
none at March 31, 2002 and September 30, 2001............................................ -- --
Common stock, $.01 par value--Authorized--30,000,000 shares, Issued--4,654,459 and
4,648,055 shares at March 31, 2002 and September 30, 2001, respectively, Outstanding--
4,517,079 and 4,510,675 shares at March 31, 2002 and September 30, 2001, respectively.... 46 46
Additional paid-in capital................................................................ 70,208 70,192
Treasury stock, at cost--137,380 shares at March 31, 2002 and September 30, 2001,
respectively............................................................................. (831) (831)
Accumulated deficit....................................................................... (64,472) (62,859)
-------- --------
Total stockholders' equity............................................................. 4,951 6,548
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................. $ 13,184 $ 16,091
======== ========
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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenue:
Services revenue--Internet...................... $ 2,861 $ 3,189 $ 5,580 $ 6,619
Services revenue--Enterprise.................... 1,201 2,119 2,551 4,307
Product revenue................................. 42 149 119 795
---------- ---------- ---------- ----------
Total revenue............................... 4,104 5,457 8,250 11,721
---------- ---------- ---------- ----------
Cost of revenue:
Services revenue--Internet...................... 1,537 2,467 3,095 5,312
Services revenue --Enterprise................... 306 350 641 781
Product revenue................................. -- 3 51 218
Amortization of acquired technologies and
capitalized internal-use software (relates to
services revenue-internet).................... 707 438 1,393 2,152
---------- ---------- ---------- ----------
Total cost of revenue....................... 2,550 3,258 5,180 8,463
---------- ---------- ---------- ----------
Gross profit....................................... 1,554 2,199 3,070 3,258
---------- ---------- ---------- ----------
Operating expenses:
Research and development........................ 502 1,628 1,208 4,084
Sales and marketing............................. 676 1,904 1,518 4,097
General and administrative...................... 1,108 1,433 2,021 3,033
Amortization of intangible assets............... 62 545 124 1,090
---------- ---------- ---------- ----------
Total operating expenses.................... 2,348 5,510 4,871 12,304
---------- ---------- ---------- ----------
Loss from operations............................... (794) (3,311) (1,801) (9,046)
---------- ---------- ---------- ----------
Other income (expense), net:
Non-cash interest on warrants issued............ -- (309) -- (309)
Other income (expense), net..................... 19 545 17 700
---------- ---------- ---------- ----------
Total other income.......................... 19 236 17 391
---------- ---------- ---------- ----------
Loss before income taxes........................... (775) (3,075) (1,784) (8,655)
Provision for (benefit from) income taxes.......... 5 -- (171) --
---------- ---------- ---------- ----------
Net loss........................................... $ (780) $ (3,075) $ (1,613) $ (8,655)
========== ========== ========== ==========
Basic and diluted net loss per common share........ $ (.17) $ (.68) $ (.36) $ (1.97)
========== ========== ========== ==========
Basic and diluted weighted average number of common
shares outstanding............................... 4,517,079 4,505,407 4,517,044 4,397,816
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements (unaudited)
4
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
March 31,
-----------------
2002 2001
------- --------
Cash Flows from Operating Activities:
Net loss............................................................................... $(1,613) $ (8,655)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization.......................................................... 2,526 4,498
Amortization of stock-based consideration.............................................. -- 309
Provision for doubtful accounts........................................................ 166 175
Loss on sale of property and equipment................................................. 15 (120)
Changes in operating assets and liabilities:
Accounts and installments receivable............................................... 974 2,930
Other current assets............................................................... 601 (299)
Long-term installments receivable.................................................. 47 44
Accounts payable................................................................... (1,154) 29
Accrued expenses................................................................... (515) (2,394)
Deferred revenue................................................................... 482 (2,191)
Other liabilities.................................................................. (17) (11)
------- --------
Net cash provided by (used in) operating activities............................. 1,512 (5,685)
------- --------
Cash Flows from Investing Activities:
Purchases of acquired technologies and intangible assets............................... -- (2,759)
Additions to capitalized internal-use software......................................... (818) --
Purchases of property and equipment.................................................... -- (580)
Deposit of restricted cash............................................................. -- (1,500)
Proceeds from sale of property and equipment........................................... 49 223
Purchases of short-term investments.................................................... -- (22,102)
Proceeds from sale and maturities of short-term investments............................ 695 23,402
Proceeds from returns of security deposits............................................. 80 108
------- --------
Net cash provided by (used in) investing activities............................. 6 (3,208)
------- --------
Cash Flows from Financing Activities:
Proceeds from line of credit........................................................... -- 1,500
Proceeds from issuance of common stock in connection with private placement............ -- 1,000
Issuance costs in connection with private placement of common stock.................... -- (82)
Proceeds from employee stock purchase plan stock issuance.............................. 16 49
Payments of capital lease obligations.................................................. (106) --
------- --------
Net cash (used in) provided by financing activities............................. (90) 2,467
------- --------
Net increase (decrease) in cash and cash equivalents...................................... 1,428 (6,426)
Cash and cash equivalents, beginning of period............................................ 2,982 12,135
------- --------
Cash and cash equivalents, end of period.................................................. $ 4,410 $ 5,709
======= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest........................................................................... $ 38 $ 208
------- --------
Income taxes....................................................................... $ 7 $ 15
------- --------
Supplemental Disclosure of Non-cash Financing Activities:
Issuance of warrants in connection with financing commitment........................... $ -- $ 309
------- --------
The accompanying notes are an integral part of these consolidated financial
statements (unaudited)
5
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
MARCH 31, 2002
(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 in
consolidation. Certain amounts in the prior period's financial statements have
been reclassified to conform to the current period presentation.
(b) Preparation of Financial Statements
As permitted by the rules of the Securities Exchange Commission applicable
to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain
all disclosures required by generally accepted accounting principles.
The consolidated interim financial statements as of March 31, 2002 and for
the three and six-month periods ended March 31, 2002 and 2001 are unaudited;
however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal, 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, 2001 ("fiscal 2001") included in its Annual Report on Form 10-K,
filed with the Securities and Exchange Commission.
(c) Short-Term Investments
The Company classifies its short-term investments as available-for-sale. At
March 31, 2002 and September 30, 2001, the Company had $0 and $695
available-for-sale investments, respectively. Realized and unrealized gains and
losses for the periods presented were not material.
(d) Recent Accounting Standards
In October 2001, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets.
SFAS No. 144 requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and, generally, is to be applied prospectively. The Company will adopt the
provisions of SFAS No. 144 on October 1, 2002, the beginning of fiscal 2003.
Had the Company applied this guidance during the reported periods, it would
have had no impact on its financial statements.
(2) Net Loss Per Share
For the three and six-month periods ended March 31, 2002 and 2001, 778,827
and 536,424 potential common shares from assumed exercise of stock options and
warrants, respectively, were excluded from the net loss per share calculation,
as their effect would have been anti-dilutive due to the Company's net loss in
those periods.
(3) Acquired Technologies and Intangibles
On December 13, 1999, the Company acquired certain assets from Human
Resources Sites International, Inc. ("HR Sites"). 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. This purchase was
treated as a purchase of a collection of assets. The Company paid $1,500 in
cash plus issued two junior subordinated convertible promissory notes (the
"Notes") with face amounts totaling $3,425. The interest rate on the Notes was
6
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5.6% per annum. The first note had a principal amount of $2,500 and matured on
December 14, 2000. The second note, totaling $925, had an original maturity
date of March 14, 2001, which was subsequently restructured so that $259 was
repaid in cash on March 14, 2001, $366 was repaid with cash on April 5, 2001,
and $300 was repaid with cash on July 5, 2001. The Notes were issued with below
market value interest rates, and were issued with embedded beneficial
conversion features. The Company determined the fair value of the Notes to be
$7,140, and as a result, the total acquisition consideration amounted to
$8,640. The purchase price was allocated to identifiable and unidentifiable
assets as follows:
Amount Estimated Life
------ --------------
Acquired technology........................... $2,069 3 years
Non-compete agreements........................ 157 3 years
Customer base................................. 24 5 years
Property and equipment........................ 20 1 year
Excess purchase price over identifiable assets 6,370 3 years
------
$8,640
======
Beginning in fiscal 2002, the Company adopted SFAS No. 142 under which the
Company was required to reallocate the excess purchase price over identifiable
assets to the identifiable intangible assets based on their relative fair
values as of the date of reallocation. In accordance with the new
pronouncement, the Company also reassessed the useful life of each intangible
asset and evaluated the intangible assets for impairment. Based upon the
forecasted use of the Company's intangible assets and their short useful lives
no impairment of the carrying values was recorded upon adoption of SFAS No.
142. The following represents the gross carrying amount and accumulated
amortization of acquired technologies and intangible assets acquired from HR
Sites as of March 31, 2002, and the estimated amortization expense for the
remaining estimated useful lives:
As of March 31, 2002
--------------------------------------
Gross Accumulated Remaining
Carrying Amount Amortization Balance
--------------- ------------ ---------
Amortized intangible assets
Acquired Technologies...... $7,866 $6,035 $1,834
Customer list.............. 151 109 42
Non-compete agreements..... 603 462 138
------ ------ ------
Total...................... $8,620 $6,606 $2,014
====== ====== ======
Intangible assets totalled $1,539 on the Company's balance sheet, which
consisted of $42 for the customer list, $138 for the non-compete agreements, as
well as $1,359 in capitalized internal-use software.
Estimated Amortization Expense For year ended September 30,
-----------------------------------------------------------
2002 (remaining)................................ $1,304
2003............................................ 687
2004............................................ 18
2005............................................ 5
------
Total estimated amortization expense............ $2,014
======
Amortization expense was $1,435 for the six months ended March 31, 2002. Had
the provisions of SFAS No. 142 been applied to earlier periods, there would not
have been a material change in amortization expense or the net loss reported
for those periods or for the three and six-month periods ended March 31, 2002.
7
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Business Segment Information
The Company has two reportable segments: 1) Internet and transaction-based
solutions and 2) Enterprise software solutions, the former of which began 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 in the Company's Annual Report
on Form 10-K. 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.
The Company's reportable segments are strategic business units that offer
different solutions tailored to a customer's needs.
Three months ended March 31, 2002:
----------------------------------
Internet and Enterprise Total
Transactions Software Company
------------ ---------- ----------
Revenue.................... $2,861,000 $1,243,000 $4,104,000
Gross profit............... 617,000 937,000 1,554,000
Loss from operations....... (794,000)
Other income (expense), net 19,000
----------
Loss before income taxes... $ (775,000)
==========
Three months ended March 31, 2001:
-----------------------------------
Internet and Enterprise Total
Transactions Software Company
------------ ---------- -----------
Revenue.................... $3,189,000 $2,268,000 $ 5,457,000
Gross profit............... 284,000 1,915,000 2,199,000
Loss from operations....... (3,311,000)
Other income (expense), net 236,000
-----------
Loss before income taxes... $(3,075,000)
===========
Six months ended March 31, 2002:
-----------------------------------
Internet and Enterprise Total
Transactions Software Company
------------ ---------- -----------
Revenue.................... $5,580,000 $2,670,000 $ 8,250,000
Gross profit............... 1,092,000 1,978,000 3,070,000
Loss from operations....... (1,801,000)
Other income (expense), net 17,000
-----------
Loss before income taxes... $(1,784,000)
===========
Six months ended March 31, 2001:
-----------------------------------
Internet and Enterprise Total
Transactions Software Company
------------ ---------- -----------
Revenue.................... $6,619,000 $5,102,000 $11,721,000
Gross (loss) profit........ (845,000) 4,103,000 3,258,000
Loss from operations....... (9,046,000)
Other income (expense), net 391,000
-----------
Loss before income taxes... $(8,655,000)
===========
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 AND SIX-MONTH PERIODS ENDED MARCH 31, 2002
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" and elsewhere in this report.
Consolidated Results of Operations
(in thousands)
Revenue
Total revenue for the three and six-month periods ended March 31, 2002 was
$4,104 and $8,250 compared with $5,457 and $11,721 for the three and six-month
periods ended March 31, 2001.
Services Revenue.
Services revenue--Internet decreased 10% to $2,861 for the three months
ended March 31, 2002 from $3,189 for the three months ended March 31, 2001. For
the six months ended March 31, 2002, services revenue--Internet decreased 16%
to $5,580 from $6,619 for the comparable 2001 period. The decrease for both
periods reflects the loss of customers due to the impact of adverse economic
conditions on technology and other growth companies that were early users of
the Company's products.
Services revenue--Enterprise decreased 43% to $1,201 for the three months
ended March 31, 2002 from $2,119 for the three months ended March 31, 2001. For
the six months ended March 31, 2002, services revenue--Enterprise decreased 41%
to $2,551 from $4,307 for the six months ended March 31, 2001. The decreases
from both the three and six-month periods is primarily attributable to a
reduction in maintenance revenues as contracts expired relating to product
licenses.
Product Revenue. Product revenue, which relates to the enterprise software
solutions segment, was $42 and $119 for the three and six-month periods ended
March 31, 2002 as compared with $149 and $795 for the three and six-month
periods ended March 31, 2001. The 65% decrease for the comparable three month
periods and the 81% decrease for the comparable six month periods are
attributable to the Company's move from selling software licenses to selling
Internet service products.
9
Cost of Revenue
Cost of Services Revenue.
Cost of services revenue--Internet was $1,537 and $2,467 for the three
months ended March 31, 2002 and March 31, 2001, respectively. For the six
months ended March 31, 2002 and March 31, 2001, cost of services
revenue--Internet was $3,095 and $5,312, respectively. The decrease in absolute
dollars is principally attributable to a reduction in headcount, process
improvements and cost efficiencies in resume processing and hardware hosting.
Internet gross margins, excluding amortization of acquired technologies of
$707, improved to 46% for the second quarter of fiscal 2002 from 23% for the
comparable fiscal 2001 period. For the six months ended March 31, 2002,
Internet gross margins, excluding amortization of acquired technologies of
$1,393, were 45% as compared to 20% for the six months ended March 31, 2001.
These increases in Internet gross margins are the result of the Company
providing services at a lower incremental cost per customer.
Cost of services revenue--Enterprise was $306 and $350 for the three months
ended March 31, 2002 and March 31, 2001, respectively. For the six months ended
March 31, 2002 and March 31, 2001, cost of services revenue--Enterprise was
$641 and $781, respectively. The decreases for both the three and six month
periods is primarily due to a reduction in headcount assigned to this product
line and a shift of the Company's resources towards an Internet and
transaction-based solutions segment.
Cost of Product Revenue. Cost of product revenue was $0 and $3 for the
three months ended March 31, 2002 and March 31, 2001, respectively. For the six
months ended March 31, 2002 and March 31, 2001, cost of product revenue was $51
and $218, respectively. The decrease in cost of product revenue is due
primarily to the Company's transition towards an Internet and transaction-based
solutions segment as well as the decrease in the Company's royalty payments.
Amortization of Acquired Technologies and Capitalized Internal-Use
Software. Amortization of acquired technologies and capitalized internal-use
software was $707 and $438 for the three months ended March 31, 2002 and 2001,
respectively. For the six-month periods ended March 31, 2002 and 2001,
amortization of acquired technologies and capitalized internal-use software was
$1,393 and $2,152, respectively. The increase for the comparable three-month
periods is attributed to the amortization of internally developed internal-use
software costs that occurred in the second quarter of fiscal 2002. The increase
is also attributed to an increase in amortization based on the adoption of SFAS
No. 142, Goodwill and Other Intangible Assets, which required the Company to
reallocate the purchase price in excess of the identifiable intangible assets
purchased from HR Sites to the acquired technologies and other identifiable
intangible assets purchased, based on their relative fair values. The decrease
for the comparable six-month periods is primarily attributed to the Company
fully amortizing the assets purchased from Amazon.com and HireWorks, Inc.
during fiscal 2001, offset by the adoption of SFAS No. 142 and the amortization
of internally-developed internal-use software costs which are being amortized
over a five-year estimated life.
Operating Expenses
Research and Development. Research and development expenses were $502 or
12% of total revenue for the three months ended March 31, 2002 as compared with
$1,628 or 30% of total revenue for the comparable fiscal 2001 period. For the
six months ended March 31, 2002, research and development expenses were $1,208
or 15% of total revenue as compared to $4,084 or 35% for the comparable fiscal
2001 period. These decreases are primarily due to reductions in software
development consulting expenses as well as other program reductions that began
in the first quarter of fiscal 2002.
Sales and Marketing. Sales and marketing expenses were $676 or 16% of total
revenue for the three months ended March 31, 2002 as compared with $1,904 or
35% of total revenue for the comparable fiscal 2001 period. For the six months
ended March 31, 2002, sales and marketing expenses were $1,518 or 18% of total
revenue as compared to $4,097 or 35% for the comparable fiscal 2001 period. The
decreases in absolute dollars and as a percentage of revenue are the result of
a reduction in headcount, lower developmental consulting fees, and certain
costs in fiscal 2002 that qualified as capitalized internal-use software.
10
General and Administrative. General and administrative expenses were $1,108
or 27% of total revenue for the three months ended March 31, 2002 as compared
with $1,433 or 26% of total revenue for the comparable three-month period of
fiscal 2001. For the six months ended March 31, 2002, general and
administrative expenses were $2,021 or 24% of total revenue as compared to
$3,033 or 26% for the comparable fiscal 2001 period. The decreases in absolute
dollars for the three and six-month periods of fiscal 2002 as compared with
fiscal 2001 and the decrease as a percentage of revenue for the six-month
period is primarily the result of reduced headcount in the Human Resources,
Finance and Accounting and Corporate IT organizations. The increase in
percentage of revenue for the three-month period ended March 31, 2002 is the
result of a $166 increase to the Company's bad debt allowance.
Amortization of Intangible Assets. Amortization of intangible assets
decreased 89% to $62 and $124 for the three and six months ended March 31, 2002
as compared with $545 and $1,090 for the three and six months ended March 31,
2001. The decrease is a result of the Company adopting SFAS No. 142, Goodwill
and Other Intangible Assets. The $62 for the three months ended March 31, 2002
is expected to remain consistent in future quarters until all remaining
intangible assets are fully amortized, which is expected to occur during fiscal
2003.
Other Income (Expense), net
Other income (expense), net decreased to $19 and $17 for the three and
six-month periods ended March 31, 2002 from $236 and $391 for the comparable
fiscal 2001 periods. Other income consists primarily of interest earned on
investments offset by interest paid on the outstanding note under the bank line
of credit. For the three and six-month periods ended March 31, 2001, other
income, net consisted of $309 in non-cash expense for warrants issued during
the second quarter of Fiscal 2001 in consideration of a written commitment by a
related party to support the Company's cash liquidity requirements. For the
three and six-month periods ended March 31, 2001, other income, net also
consisted of a gain of $120 on a sale of assets and technology as well as a
gain of $300 from the settlement of a joint venture agreement.
Provision for (Benefit from) Income Taxes
For the three-month period ended March 31, 2002, a provision for income
taxes of $5 was recorded compared with $0 for the comparable fiscal 2001
period. This increase was the result of minimum state income tax payments made
to various states in which the Company does business. For the six-month period
ended March 31, 2002, a benefit from income taxes of $171 was recorded compared
with $0 for the comparable fiscal 2001 period. This increase is principally the
result of a refund received of federal income taxes paid from a prior period.
Liquidity and Capital Resources
(in thousands)
At March 31, 2002, the Company had cash, cash equivalents and short-term
investments of $4,410, an increase of $733 from $3,677 at September 30, 2001.
Cash provided by operating activities was $1,512 during the six-month period
ended March 31, 2002. Operating activities generated cash primarily through a
reduction of net loss. The cash effects and changes in working capital sheet
accounts primarily offset each other.
Cash provided by investing activities was $6 during the six-month period
ended March 31, 2002, which consisted primarily of proceeds received from the
sale and maturities of short-term investments of $695 and proceeds from the
return of security deposits of $80 offset by the payments for capitalized
internal-use software of $818.
Net cash used in financing activities for the six-month period ended March
31, 2002 was $90, which consisted of payments on the Company's capital lease
obligations offset by proceeds from its employee stock purchase plan.
11
The Company has a $3,000 line of credit from Citizens Bank of Massachusetts
("the bank"). The Company is required to maintain deposits with the bank in an
amount at least sufficient to satisfy its obligations under this line of
credit. As of March 31, 2002, $1,500 was pledged under this arrangement and has
been reflected as restricted cash.
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 balances in
conjunction with its forecast of operating cash flows will be sufficient to
meet its liquidity expenditure requirements through fiscal 2002.
Critical Accounting Policies and Judgments
We have identified the policies and judgments below as critical to our
business operations and the understanding of our results of operations. The
impact and any associated risks related to these policies and judgments on our
business operations is discussed throughout this section where such policies
affect our reported and expected financial results. For a detailed discussion
on the application of all accounting policies, see Note 2 in the Notes to the
Consolidated Financial Statements included in our Annual Report filed on Form
10-K. Note that our preparation of our Consolidated Financial Statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ significantly from those estimates.
The accounting policies and judgments most important to the portrayal of our
financial condition and results, and those that require the highest degree of
management judgment, relate to revenue recognition, accounts receivable, the
allowance for doubtful accounts, software development costs, internal-use
software and intangible assets, and deferred income taxes.
(a) Revenue recognition, accounts receivable and allowance for doubtful
accounts
The Company recognizes revenue under arrangements when the arrangement fee
is fixed or determinable and collection of the amounts is reasonable assured.
At the time of the transaction, we assess whether the fee associated with our
revenue transaction is fixed or determinable based principally on the terms of
the transaction. If a significant portion of a fee is due after our normal
payment terms, which are 30 to 60 days from invoice date, we account for the
fee as not being fixed or determinable. In these cases, we recognize revenue as
the fee becomes due. Revenue from resellers of the Company's services is
recognized in the same manner as revenue generated from direct customers, since
the Company does not give resellers a right of return or refund for services or
products purchased. The Company makes judgments concerning collectability of
accounts that impact the recognition of revenue and the net realizable value of
accounts receivable. The Company calculates the allowance for doubtful accounts
based on historical collection experience, credit policy and the evaluation of
aging categories. Collection history is evaluated based on write-off experience
and based on current accounts that have been specifically identified as being
in dispute, referred to a collection agency or in bankruptcy. The Company uses
the same information to determine whether payments on revenue derived from a
particular customer or class of customer is reasonably assured. If the Company
notes a high level of write-offs for a particular customer or class of
customer, or where there is no collection history for a particular customer,
the Company defers recognition of revenue until payment is reasonably assured.
Had the Company estimated collectability of its accounts receivable using
different judgments, the revenue and accounts receivable recorded would have
been different at each year-end. If the Company used a more conservative
interpretation of when payment is reasonably assured, less revenue would have
been recognized upon shipment, or upon performance of services. If the Company
used a less conservative definition of reasonable assurance of payment, more
revenue would have been recognized on the date of shipment or execution of a
service contract.
12
(b) Software development costs
Research and software development costs are generally charged to operations
as incurred. Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Judgment is used
in determining when technological feasibility is reached for software licenses
to be sold. Based on our product development process, technological feasibility
is established upon completion of a working model. We have determined costs
incurred by the Company between the completion of the working model and the
point at which the product is ready for general release to be immaterial. A
different judgment about when technological feasibility is reached could result
in more software development costs being capitalized.
(c) Internal-use software and intangible assets
The Company also capitalizes certain software development costs in
accordance with the American Institute of Certified Public Accountants (AICPA)
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. Judgment is used to determine
the useful lives and impairment of capitalized software and intangible assets.
Capitalized internal-use software costs are being amortized over a period of
five years commencing in the period in which the software is placed into use.
The Company assigned a useful life of five years to capitalized software based
on the Company's planned use of that software and historical experience of
technological obsolescence. Use of a shorter life for capitalized software
would result in more amortization expense being recognized each year, resulting
in higher costs of revenues. Use of a longer life for capitalized software
would result in less amortization expense being recorded during each year,
resulting in lower costs of revenues.
Intangible assets include principally acquired technologies purchased from
HR Sites. Acquired technologies are being amortized over three years from the
date of purchase, which management determined to be the remaining useful life
of the technology on the date of purchase. The Company intends to use the
acquired technology through at least its remaining useful life.
The Company is required to evaluate each long-lived asset for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In the Company's judgment, there have been
no such events or changes in circumstances that would require an evaluation of
impairment, since the acquired technologies and capitalized software continue
to be used for the provision of Internet service offerings, the Company
continues to derive revenue from the customers included in the customer list
and the non-compete agreement continues to be enforceable. If the Company had
determined that there was a significant event or change in circumstances
indicating that there may be impairment to the long-lived assets, the Company
would have performed an analysis of impairment and as a result may have reduced
the carrying value of those assets or reduced their estimated useful lives.
(d) Deferred income taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting For Income Taxes. Under SFAS No. 109, a deferred tax asset or
liability is measured by the currently enacted tax rates applied to the
differences between the financial statement and tax bases of assets and
liabilities. Under SFAS 109, we are required to evaluate the likelihood that
benefits will be realized from deferred tax assets and record a valuation
allowance against the deferred tax asset if it is more likely than not that the
Company will not recognize the benefits of those deferred tax assets. As a
result of our evaluation of deferred tax assets, we concluded that it is more
likely than not that the Company will not realize the benefit of the deferred
tax assets, and as a result, we have provided a valuation allowance for the
full amount of those deferred tax assets. Our evaluation took into
consideration the Company's recurring losses from operations and current
temporary differences that are expected to reverse.
13
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.
We currently anticipate that our available cash and cash equivalents will be
sufficient to meet our anticipated working capital and capital expenditure
requirements through the near term. We may need to raise additional capital in
the long 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 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
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. 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
our 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 revenue 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 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
14
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 development 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
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 currently have a redundant
system capability to deal with a service emergency, but we do not presently
have a formal rollover 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.
15
If we experience any of these problems, our business, financial condition
and results of operations could be materially and adversely affected.
Our new product and service 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. Defects in product and
services 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. There are a large number of job boards, search firms, and Internet
portal sites that are vying for a share of companies' corporate recruiting
budgets. 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.
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 a 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.
16
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 introduction of new products by us or our competitors;
. the 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 revenue often occurs during
the last few weeks of each quarter and, as a result, any delays in orders
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 continue to experience negative effects from a slowdown in
the U.S. and/or global economies.
Over the past year the U.S. economy has experienced a significant slowdown.
As a result of this decline, our business was adversely affected. A
continuation of this economic trend could have a material adverse effect on our
business, financial condition, results of operations or prospects.
Affiliates of SOFTBANK Corp. beneficially own approximately 34% 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 other stockholders' 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 34% of
our outstanding common stock. As a result of their stock ownership, SOFTBANK
and its affiliates have significant influence 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 our Company. 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 the
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, 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.
17
Korn/Ferry beneficially owns approximately 15% of our outstanding stock, is
represented on our Board of Directors and has rights with respect to certain
of our transactions. Korn/Ferry's interests could conflict with other
stockholders' 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 influence 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 our 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 our Company 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 our Company. 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 the Board of Directors.
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 our Company, 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 our business;
. changes in financial estimates by securities analysts;
. investor perception of our Company and online recruitment services in
general;
. announcements by our competitors of new products and services;
. fluctuations in our common stock price, which may affect our visibility
and credibility in the online recruitment market; and
. the transfer of the listing of the Company's securities from The Nasdaq
National Market to The Nasdaq SmallCap Market, which is anticipated to
occur at the end of May 2002.
18
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 in our industry
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 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 and service 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 the Company 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 the
Company, 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, 2001. 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, 2001.
19
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 of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Annual Stockholders' Meeting on March 20, 2002: At the annual meeting of the
Company's stockholders, 3,505,982 shares, representing 77% of the Company's
outstanding common stock as of the record date of January 23, 2002, voted on
the following matters:
1. The election of Lars D. Perkins and J. Paul Costello as Class III
Directors to serve until the Annual Meeting of Stockholders following the
close of the Company's fiscal year ended September 30, 2004 and until their
successors are duly elected and qualified. Shares were voted as follows:
Nominee For Withheld
------- --- --------
Lars D. Perkins 3,366,096 139,886
J. Paul Costello 3,366,096 139,886
The following directors' respective terms of office continued after the
annual meeting: Russell J. Campanello, Charles R. Lax, Martin J. Fahey and
Peter L. Dunn.
2. The approval of an amendment and restatement of the Company's 1996
Stock Option and Grant Plan to increase the number of shares of the
Company's common stock, par value $.01 per share, issuable thereunder from
700,000 to 950,000 shares. Shares were voted as follows: for 2,553,348;
against 163,935; abstain 4,178; broker non-vote 784,521.
Item 5. Other Information
NASDAQ Marketplace Rule 4350(d)(2)(A) generally requires that an audit
committee be composed of at least three directors, all of whom are
"independent" as defined in Marketplace Rule 4200(a)(14). NASDAQ Marketplace
Rule 4350(d)(2)(B) allows an audit committee to have one director who is not
independent if the Board of Directors determines, in exceptional and limited
circumstances, that such director's membership on the audit committee is
required by the best interests of the Company and its shareholders.
On April 18, 2002, the Company's Board of Directors adopted a resolution
determining that the continued membership of director Charles R. Lax on the
Audit Committee of the Board of Directors is required by the best interests of
the Company and its shareholders. This determination was made notwithstanding
the fact that Mr. Lax is not "independent," as defined by NASDAQ Marketplace
Rule 4200, by virtue of his being a general partner of SOFTBANK Capital
Partners LLP ("SOFTBANK") which, together with its affiliates, owns
approximately 34% of the Company's outstanding capital stock. The reasons for
such determination were that Mr. Lax, who has been appointed under a
contractual arrangement with SOFTBANK as SOFTBANK's representative on the Board
of Directors and Audit Committee, is experienced and very knowledgeable with
respect to financial matters, and his input is greatly valued. It is believed,
moreover, that SOFTBANK's significant ownership position in the Company does
not create a conflict of interest between SOFTBANK and the other shareholders,
but rather creates an identity of interest which makes Mr. Lax an appropriate
representative for the Company's shareholders in general.
20
NASDAQ Marketplace Rule 4450(a)(2) requires that for continued listing on
the NASDAQ National Market, a company maintain a minimum market value of its
publicly held shares (shares held by persons other than directors, officers and
major stockholders) of at least $5,000,000. The Company is not in compliance
with that requirement. Accordingly, the Company has filed an application
requesting the transfer of the listing of its securities from the NASDAQ
National Market to the NASDAQ SmallCap Market. The Company meets the
requirements for continued listing on the NASDAQ SmallCap Market (including the
requirement that the market value of its publicly held shares be at least
$1,000,000), and anticipates that its application will be approved.
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. Description
(a) None
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2002.
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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: May 15, 2002
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