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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
---------------
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 2001
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
--------------------------
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 02421
LEXINGTON, MA (zip code)
(Address of principal 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of the common stock on January 9, 2002,
as reported on The Nasdaq National Market was approximately $3,212,000. Shares
of common stock held by each executive officer and director and by each person
who owned 5% or more of the outstanding common stock as of such date have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding on January 9, 2002 was 4,517,079.
Part III of this Form 10-K incorporates by reference information from the
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be
filed by the Company with the Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year.
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WEBHIRE, INC.
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
---- --------
PART I
1. Business.................................................... 2
2. Properties.................................................. 11
3. Legal Proceedings........................................... 11
4. Submission of Matters to a Vote of Securities Holders....... 11
PART II
5. Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 12
6. Selected Consolidated Financial Data........................ 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 25
8. Financial Statements and Supplementary Data................. 26
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 26
PART III
10. Directors and Executive Officers of the Registrant.......... 26
11. Executive Compensation...................................... 26
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 26
13. Certain Relationships and Related Transactions.............. 26
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 27
1
PART I
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 UNDER "FACTORS AFFECTING
FUTURE OPERATING RESULTS" WHICH BEGINS ON PAGE 18 ON THIS FORM 10-K.
ITEM 1. BUSINESS
OVERVIEW
Webhire, Inc. ("Webhire" or the "Company") develops, markets, implements and
supports Internet-based recruitment management solutions. The Company's
solutions enable organizations to strategically manage their talent acquisition
process. Webhire's products provide a range of solutions including managing the
creation and approval process of job requisitions, the sourcing of candidates
through job board postings, resume pool searches, operation of the customer's
employment website, activity management of candidates throughout the hiring
process, and the creation of internal and external reports to monitor the
effectiveness of the recruiting process.
The Company delivers the following products and services: WEBHIRE RECRUITER,
CORPORATE EDITION, a recruitment management solution designed for enterprise
level organizations and WEBHIRE RECRUITER, PROFESSIONAL EDITION, designed for
small to mid-sized organizations. The Company also continues to support WEBHIRE
ENTERPRISE, the Company's prior generation of client/server based products.
The Company delivers its Internet solutions to customers using a web
subscription services model that provides direct access for subscribers via a
standard web browser. WEBHIRE ENTERPRISE, the Company's enterprise recruiting
solution, is sold through both the application service provider (ASP) model and
also as licensed software.
The Company has augmented its internal development efforts with technology
acquisitions and strategic third-party relationships. In July 1999, the Company
purchased Hireworks, Inc, a developer of innovative resume searching technology
that automatically searches the Internet for resumes, matching them against
customer specified criteria. In December 1999, the Company acquired the
technology assets of HR Sites International, a developer of an Internet job
posting platform that provided automated connections to online job boards and
career sites (see Note 6 of the Notes to Consolidated Financial Statements).
These technologies have been enhanced and are today integrated into the WEBHIRE
RECRUITER product line.
The Company was incorporated in 1982 as a Massachusetts corporation and was
reincorporated as a Delaware corporation in 1994. As of June 1, 1999 the Company
changed its name to Webhire, Inc. Restrac Securities Corporation, a wholly-owned
subsidiary of Webhire, Inc., was incorporated in September 1996
2
as a Massachusetts securities corporation for the purpose of holding and
managing certain of the Company's cash and investments.
INDUSTRY BACKGROUND
Recruiting has emerged as one of the most strategic and competitive
initiatives for corporations. Hiring and retaining outstanding employees is
critical to corporate success. U.S. Census data indicate that the population of
30 - 45 year olds, the primary labor pool for middle managers at U.S.
corporations, peaked in 1997 and is actually declining in real terms. Despite
the recent downturn in the economy, demographic data indicate the competitive
market for skilled job candidates will remain the norm for years to come.
During the past five years, the Internet has evolved into a sophisticated
and ubiquitous communications infrastructure. The Internet has emerged as an
important medium for recruiting because it quickly brings candidates and
employers together in a directly connected marketplace. On the Internet, an
employer has access to literally millions of resumes, can post job openings on
thousands of online job boards, and can communicate with candidates in seconds.
Internet recruiting has become a central staffing strategy for today's
corporation. How effectively a company utilizes the Internet for recruiting is
rapidly becoming a synonym for how effectively a company recruits.
WEBHIRE INTERNET RECRUITING SOLUTIONS
The Company's Internet-based recruiting services enable organizations to
recruit more efficiently in today's labor market. The Company's services reduce
the time and effort required to locate candidates on the Internet, provide tools
that help corporate recruiters and hiring managers identify the best possible
talent for open positions and enable the management of the entire staffing
process online in a user friendly and cost efficient manner. Because the
Company's primary solutions are provided to employers over the Internet,
start-up times and extensive IT infrastructure requirements are eliminated.
DIRECT INTERNET SOURCING. The Company provides several services that enable
corporate recruiters to directly obtain candidates from the Internet. The
Company, as a result of its business arrangements with Headhunter.net and other
partners, provides customers with access to large pools of candidate resumes on
the Internet. As of November 2001, there were over 1.6 million resumes
accessible for targeted searching through the Company's proprietary recruiting
solutions. The Company, as a result of its acquisition of HireWorks, Inc., also
offers an automated intelligent search agent that conducts resume searching and
ranking across the Internet. It is estimated that over 8 million resumes are
accessible through the Company's agent technology.
INTEGRATED INTERNET JOB POSTING. There are now hundreds of career sites and
thousands of use.net discussion groups on the Internet, each with its own
specific job posting format and protocol. A successful corporate recruiting
strategy includes job posting to use multiple destinations that reach national,
regional and special interest audiences. The Company provides integrated job
posting solutions that enable jobs to be posted to multiple job boards in one
simple operation. Currently there are over 2,000 job boards available for
customers to utilize.
RESUME PROCESSING. The creation of a private online electronic database of
resumes is central to the Company's candidate management solutions. In
connection with its scanning partners the Company processes paper resumes and
faxed resumes using the latest optical character recognition technologies and
processes resumes sent via email or directly over the Internet with its own
proprietary resume processing software. The Company processed approximately 4.0
million resumes during 2001. The processed resumes are stored online in secure
databases that are accessible only to customers. The resulting electronic resume
pool is a knowledge asset that can be shared throughout an organization. Manual
input is virtually
3
eliminated, allowing organizations to collect and store skills and experience
data on hundreds of thousands of candidates. The Company's services provide a
shared, re-useable pool of candidates, limiting the need for organizations to
use employment agencies and advertising to source candidates.
SOPHISTICATED SKILLS MANAGEMENT AND SELECTION. The Company's software uses
a sophisticated search process to rapidly identify and rank qualified candidates
based on skills criteria determined by the user. User searches are enhanced by
the Company's integrated skills library, which translates high-level job
requirements into the words and phrases commonly used by candidates on resumes.
CANDIDATE MANAGEMENT PROCESS. The Company's solutions incorporate a
user-friendly, process-oriented interface designed to simplify the
administration of the candidate management process including job requisition
creation and editing, candidate tracking, and integrated reporting on the hiring
process and sourcing effectiveness. These capabilities reduce delays typical to
the staffing process and eliminate redundancies.
By providing an easily-accessible, shared, re-useable pool of candidates,
the Company's services allow organizations to significantly reduce recruitment
advertising costs and employment agency fees. In addition, the Company's
services are designed to increase recruiter productivity through the elimination
of manual entry of resume information and by increasing the efficiency and
effectiveness of the hiring process. Webhire systems generally provide a
significant return on investment when used effectively.
STRATEGY
The Company has consistently been a market leader in the Internet recruiting
marketplace, and the Company's objective is to leverage this position to broaden
its revenue base and return to profitability. The Company has developed a set of
subscription-based Internet recruiting services that offer a variety of entry
points into the Company's solution set. As customers' Internet recruiting needs
mature and grow, the Company provides additional service offerings that extend
the features and capabilities of its solutions. Individually and collectively,
the Company's services meet the needs of virtually the entire corporate
recruiting marketplace. Today, the Company's solutions are used by companies
with less than 100 employees, are being adopted regularly by companies in the
broad middle market, and continue to be popular at enterprise level
organizations with more than 2,500 employees. The Company estimates that there
are approximately 250,000 corporations in its target audience.
The Company's solutions range in price from a few thousand dollars per month
for entry-level recruiting services, to tens of thousands of dollars a month for
complete enterprise-recruiting solutions. The Company believes that this tiered
approach will broaden its market reach, provide a succession of upgrade paths
for its current customers, and enable it to convert its Enterprise client/server
customers to new Internet-based solutions.
PRODUCTS AND SERVICES
The Company's current product line is comprised of two major service
offerings: WEBHIRE RECRUITER, CORPORATE EDITION (introduced in October 2001),
and WEBHIRE RECRUITER, PROFESSIONAL EDITION (introduced in February 2001).
WEBHIRE RECRUITER, CORPORATE EDITION provides enterprise level organizations
robust functionality customized to their unique needs. WEBHIRE RECRUITER,
PROFESSIONAL EDITION is designed for use by small to mid-size companies and
provides the same robust functionality in "best practices" standard format. The
Company also offers a complete range of options to optimize the entire hiring
process, including the WEBHIRE CORPORATE CAREER CENTER, WEBHIRE EMPLOYEE
REFERRAL PROGRAM, WEBHIRE RECRUITER, MANAGER'S ACCESS and WEBHIRE AGENT.
Depending on the customer's need, these options may be bundled or presented as
optional services. The solutions provided with each of these options are as
follows:
WEBHIRE CORPORATE CAREER CENTER is a service where the Company maintains and
manages its customers' internal and external Internet employment pages. In
conjunction with the WEBHIRE RECRUITER product, it
4
allows organizations to post jobs directly from WEBHIRE RECRUITER to its
corporate career website and internal Intranet sites. The CORPORATE CAREER
CENTER also incorporates the ability for applicants to search available jobs,
apply for those jobs directly on line and be electronically pre-screened for
specific job requirements when appropriate.
EMPLOYEE REFERRAL PROGRAM automates an organization's internal employee job
referral program to increase the effectiveness of the program while decreasing
the administrative burden of managing it.
WEBHIRE RECRUITER, MANAGER'S ACCESS gives hiring managers the appropriate
level of access to initiate, approve, and track job requisitions online. In
addition, customers can choose to enable managers to view current candidates and
manage their recruiting tasks effectively with personalized "To Do" lists.
WEBHIRE AGENT is an intelligent search agent that mines the Internet for
candidates, evaluating and scoring found resumes against customer-defined skills
requirements for a job opening. Webhire Agent returns a relevance ranked list of
the best-qualified resumes it discovers on the Internet. Optionally, Webhire
Agent can initiate an e-mail correspondence with candidates who meet or exceed a
user-specific scoring threshold.
SERVICES AND OPERATIONS
The Company believes that superior services and operations are critical to
customer satisfaction as well as achieving operational excellence. As of
September 30, 2001, the Company's service and operation organization included 54
employees, providing Operations Support, Account Management, Professional
Services, Technical Support and Outsourced Services.
OPERATIONS SUPPORT. The Operations Support Group is responsible for
monitoring the day-to-day operations of the WEBHIRE RECRUITER product line as
well as providing 24x7 support. The group is also responsible for the care and
maintenance of the Company's hosting environment ensuring that the uptime and
availability of the Company's services are optimized.
ACCOUNT MANAGEMENT. The Account Management Group is the direct liaison
between the Company and its customers. The group's focus is maintaining
relationships, scheduling services and renewals, and providing information on
products and future releases.
PROFESSIONAL SERVICES. The Professional Services Group manages system
implementation, provides additional services such as process design and system
tailoring and provides basic and advanced training on-line, on-site during
system implementation and at the Company's Corporate Training Center throughout
the year.
TECHNICAL SUPPORT. The Technical Support Group provides daily technical
assistance to customers via phone, email and on-line help services. The Company
provides support Monday through Friday from 8:30 a.m.-8:00 p.m. Eastern Time.
OUTSOURCED SERVICES. Outsourced Services were introduced by the Company in
July 1996 and consist of scanning services, provided principally through
third-party arrangements, and correspondence generation.
TECHNOLOGY
WEBHIRE RECRUITER
The WEBHIRE RECRUITER product line, the Company's Internet-based service
offering, is based on an XML-based ASP platform. This Internet recruiting
product platform relies on a stateless multi-tier architecture. The architecture
is hosted on a computing and network infrastructure that provides redundancy at
every level and scalability by the simple addition of more hardware. This
architecture also ensures that these Internet recruiting applications will be
highly available. Client access to the Webhire
5
system is provided through either Microsoft or Netscape web browsers. The system
incorporates key technologies from Microsoft, Oracle and Verity.
WEBHIRE ENTERPRISE
WEBHIRE ENTERPRISE is a Microsoft Windows-based application, which operates
over a standard TCP/IP intranet connection. The application server component of
the product utilizes Microsoft Windows NT Server and Microsoft Internet
Information Server. Client access is provided via both a Windows application and
a browser interface, which is compatible with Microsoft Windows 95/98 or
Microsoft Windows NT. This architecture combines the functionality of a
traditional client/server application with the easy deployability of an intranet
application.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend upon its ability to
enhance its existing software and develop and introduce new services and
functions that keep pace with rapid changes in the marketplace. Research and
development expenses totaled (in thousands) $6,053, $12,191 and $7,798 for
fiscal years 2001, 2000, and 1999, respectively. The savings in expenses from
fiscal year 2001 over the past two fiscal years is due mainly from the Company's
decision to concentrate on its Internet-based products and discontinue further
development of its client/server software solutions, with the focus on
converting current customers from WEBHIRE ENTERPRISE to WEBHIRE RECRUITER,
CORPORATE EDITION. While the Company expects that certain of its new products
and functions will be developed internally, the Company may, based on timing and
cost considerations, expand its service offerings through acquisitions or
strategic relationships. Software programs as complex as those currently under
development by the Company are subject to frequent delays and there can be no
assurance that the Company will not encounter difficulties that could delay or
prevent the successful and timely development, introduction and marketing of
these potential new services.
SALES AND MARKETING
The Company markets its Internet-based services through sales personnel
located in Lexington, Massachusetts, Altadena, California, Foster City,
California, San Francisco, California, Chicago, Illinois, Baltimore, Maryland,
Dallas, Texas, and Salt Lake City, Utah. The Company also utilizes SoftraNet
Technologies, a reseller partner, in Canada. The Company supports its sales
force through comprehensive marketing programs which include public relations,
direct mail, advertising, seminars, trade shows, ongoing customer communication
programs and strategic relationships. While the sales cycle varies from customer
to customer, the average sales cycle for enterprise customers is typically 4 to
6 months while the sales cycle of small to mid-size customers is typically 2 to
3 months.
6
CUSTOMERS
The following is a partial listing of the Company's customers as of
September 30, 2001:
BANKING/FINANCIAL SERVICES HEALTHCARE/PHARMACEUTICALS CONSUMER
Legg Mason Wood Walker, Inc. Bio-Rad Laboratories Dole Food Company
National City Corporation Clarian Health Partners Heinz North America
Softbank Venture Capital GlaxoSmithKline Nestle USA, Inc.
Univest Corporation Tenet HealthSystem Sharper Image
NON-PROFIT ORGANIZATIONS INSURANCE TELECOMMUNICATIONS
Adra International Blue Cross Blue Shield--Texas Arch Wireless Holdings, Inc.
Catholic Relief Services Motorists Insurance Companies AT&T Wireless
Girl Scouts of the USA New York Life Benefit Services, Inc. Polycom, Inc.
National Democratic Unigard Insurance Co.
Institute
E-COMMERCE
Akamai Technologies
MedUnite
Morningstar, Inc.
STRATEGIC RELATIONSHIPS
The Company has established a number of relationships to expand its product
offerings, enhance its technologies and to expand distribution. Strategic
partners are categorized into four groups: Technology Partners, who provide the
Company with innovative technologies that are integrated into the Company's
products; Reseller Partners, who include the Company's products as part of their
solution; Resume Database Partners, who provide pools of resumes which are
integrated into the Company's products; and Career Site Partners, who provide
the Company's customers with the ability to post jobs to over 2,000 online
destinations. The Company's strategic partners include:
HEADHUNTER.NET
In May 2001, the Company announced a new marketing partnership with
Headhunter.net, a leading online job awareness and recruiting site. Through this
partnership, the Headhunter.net resume database has been integrated into the
WEBHIRE RECRUITER CORPORATE and PROFESSIONAL EDITIONS, which provides users with
access to over 1.6 million resumes. The Company and Headhunter.net promote their
respective services to each other's installed base of customers.
SOFTRANET TECHNOLOGIES, INC.
Softranet Technologies, Inc., a reseller partner of the Company, is a human
resource service provider, headquartered in Kanata, Ontario, Canada. Softranet's
focus is to help mid and large-size companies select and implement leading-edge
business critical web-based human resource software applications.
VERITY, INC.
The Company's software incorporates the text search software tools developed
by Verity, Inc., a technology partner, which allows the Company clients to
search through vast amounts of candidate and job data, delivering only the most
relevant information directly to the desktop.
7
SAZTEC INTERNATIONAL.
SAZTEC International, is a leading provider of information management
services. SAZTEC provides the Company with a variety of resume processing
services, including resume scanning, clean-up and verification, contact
information extraction, and acknowledgement card shipping. SAZTEC processes hard
copy, fax and e-mailed resumes.
CAREER SITE PARTNERS
The Company's career site partners provide customers with access to over
2,000 online job posting destinations. These destinations include major national
career sites, regional career sites, and special interest or affinity sites. The
following is a representative list of the Company's career site partners:
Headhunter.net HotJobs
Monster.com workopolis.com
America's Job Bank Careermag.com
Black Collegian HireDiversity.com
COMPETITION
The marketplace for staffing solutions is intensely competitive and is
rapidly changing. Providers of Internet recruiting services have eclipsed
traditional client/server providers. The growth in the marketplace is coming
from smaller and mid-sized corporations as well as the traditional enterprise
market. Customers are demanding online solutions that leverage the new online
marketplace for candidates.
The Company's chief direct competitors in the Internet recruiting business
services marketplace are BrassRing Systems, Recruitsoft and Peopleclick. All
three are privately held developers of online staffing automation solutions. The
Company also competes against a host of smaller recruiting automation services
providers. In addition, several significant job boards and several major
enterprise resource planning (ERP) companies have competitive products in the
recruitment management space.
The Company believes that the principal competitive factors affecting its
market include product functionality, product performance, quality service
support and implementation and cost of ownership. Although the Company believes
it competes favorably with respect to such factors, there can be no assurance
that the Company can maintain this position against current and potential
competitors.
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
its proprietary rights. The Company believes that, due to the rapid pace of
technological innovation within its industry, the Company's ability to establish
and maintain a position of technology leadership in the industry is dependent
more upon the skills of its development personnel and its existing skills
library than upon the legal protections afforded to its existing technology.
The Company's success is dependent in part upon its proprietary software.
There can be no assurance that the Company's agreements with employees,
consultants and others who participate in the development of its software will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known. Furthermore,
there can be no assurance that the measures taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or independent development by others of similar technology.
The Company is not aware of any patent infringement charge or any violation
of other proprietary rights claimed by any third party relating to the Company
or the Company's products. However, the computer technology market is
characterized by frequent and substantial intellectual property litigation.
8
Intellectual property litigation is complex and expensive, and the outcome of
such litigation is difficult to predict.
The Company relies on certain technology licensed from third parties. The
Company's success will depend in part on its continued ability to obtain and use
licensed technology that is important to the functionality of its products. An
inability to continue to procure or use such technology would likely have a
material adverse effect on the Company's business, financial condition and
operating results.
EMPLOYEES
As of September 30, 2001, the Company had 120 full-time employees,
consisting of 20 in sales and marketing, 30 in product development, 54 in
service and operations and 16 in general and administrative. The Company's
employees are not represented by any collective bargaining organizations, and
the Company has never experienced any work stoppages. The Company considers its
relations with its employees to be good.
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
---- -------- --------
Lars D. Perkins........................... 42 Chairman of the Board
Martin J. Fahey........................... 47 President, Chief Executive Officer and
Director
Stephen D. Allison........................ 56 Chief Financial Officer, Vice President,
Finance, and Treasurer
Robert J. Lederman, Jr.................... 44 Vice President, Sales
Ellen B. Madonia.......................... 37 Vice President, Client Services and
Operations
Edward F. Murray.......................... 46 Chief Technology Officer
Elise J. Sargent.......................... 48 Vice President, Engineering
Russell J. Campanello..................... 45 Director
J. Paul Costello.......................... 62 Director
Charles R. Lax............................ 42 Director
Peter L. Dunn............................. 56 Director
LARS D. PERKINS, co-founder of the Company, has served as Chairman of the
Board of the Company since 1986. Mr. Perkins is Managing Director of idealab!
Boston, a member of the idealab! Network, the leading creator and operator of
Internet businesses, whose focus is on identifying, launching and operating New
England-based Internet businesses. Mr. Perkins served as President of the
Company from 1986 to 1997 and as Chief Executive Officer from 1986 to 1999.
MARTIN J. FAHEY was named Chief Executive Officer in July 1999. Mr. Fahey
was elected President of the Company and as a member of the Board of Directors
in July 1997. Mr. Fahey joined the Company as Vice President and Chief Operating
Officer in May 1996. Prior to joining the Company, he was cofounder and Chief
Executive Officer of Vertigo Development Group, which pioneered the combination
of branded content with technology to produce consumer-oriented multimedia
products for companies such as Dow Jones, Inc. and Intuit. In 1983, Mr. Fahey
joined Lotus Development Corporation as one of its first thirty employees.
During his eight years at Lotus he held a number of management positions
including General Manager of the Advanced Products Division, Director of
Spreadsheet Marketing, Director of Investor Relations, as well as a variety of
sales management positions. Mr. Fahey holds a BBA from the University of Notre
Dame.
STEPHEN D. ALLISON joined the Company as Chief Financial Officer, Vice
President, Finance and Treasurer in February 2000. From May 1997 to January
2000, Mr. Allison was Chief Financial Officer for PRI Automation, the leading
global supplier of advanced factory automation systems and software for
9
semiconductor and OEM process tool manufacturers. Prior to joining PRI
Automation, Mr. Allison was employed at Helix Technology Corporation, the
leading manufacturer of cryogenic vacuum systems serving the global electronics
marketplace, as Vice President and Chief Financial Officer from April 1995 to
April 1997.
ROBERT J. LEDERMAN, JR. was named Vice President of Sales in July 2000. From
June 1999 to June 2000, Mr. Lederman served as Vice President of Internet Sales.
Mr. Lederman joined the Company as Vice President of Human Resources in January
1997. From June 1994 to January 1997, Mr. Lederman was employed by Fidelity
Investments as the Director of Human Resources. From June 1992 to June 1994, Mr.
Lederman was Director of Employment and Employee Relations for Clean Harbors
Environmental Services Company.
ELLEN B. MADONIA was elected Vice President, Client Services and Operations
in August 2001. Ms. Madonia joined the Company in April 1998, participating in
the initial launch of the Company's ASP offerings. Ms. Madonia held the position
of Director of Marketing from February 2000 to August 2001. From May 1997 to May
1998, Ms. Madonia was employed by Compaq Computer Corporation as the Database
Marketing Manager, Installed Base Initiative. From February 1993 to May 1997,
Ms. Madonia was employed by Interleaf, Inc. where she was responsible for
developing that company's marketing communications strategy and managing the
telesales organization.
EDWARD F. MURRAY was named Chief Technology Officer in May 2000. Mr. Murray
joined the Company as Vice President of Development for Electronic Commerce in
November 1998. From September 1996 to November 1998, Mr. Murray was Vice
President and Chief Technologist of the Product Development division of The
Instream Corporation. From October 1989 to October 1995, Mr. Murray was employed
by Lotus Development Corporation where he was responsible for the development of
several product lines including Lotus Works and Lotus Forms.
ELISE J. SARGENT joined the Company as Vice President, Engineering in
January 2000. From February 1997 to December 1999, Ms. Sargent was employed by
Infinium Software, most recently as Vice President of NT Development for the
Infinium suite of business applications. Ms. Sargent had previously served as
Infinium's Director of Development for HR applications. From December 1995 to
January 1997, Ms. Sargent was employed by Intersolv, Inc. as Director, Analysis
and Design Development.
RUSSELL J. CAMPANELLO was elected as a director of the Company in October
1994. Since July 2000, Mr. Campanello has served as Chief People Officer at
NerveWire, a business-to-business Internet professional services firm. From
February 1998 to June 2000, Mr. Campanello served as Senior Vice President,
Human Resources at Genzyme Corporation. From March 1996 to February 1998,
Mr. Campanello was Vice President of Nets Incorporated, an Internet-based
marketing company. From June 1987 to February 1996, Mr. Campanello served as
Vice President of Human Resources of Lotus Development Corporation.
J. PAUL COSTELLO was a co-founder of the Company and a member of the Board
of Directors of the Company since its founding in 1982. Mr. Costello has served
as President of J. Paul Costello Associates, Inc., a consulting company, since
1969 and for many years was President of Costello & Company, Inc., a national
contract recruiting company and outplacement firm. Mr. Costello has been a human
resource management consultant for over thirty years.
CHARLES R. LAX was elected as a director of the Company in September 1999.
Mr. Lax is a general partner of SOFTBANK Capital Partners, a firm he co-founded
in July 1999. Mr. Lax is also managing director of Mobius Venture Capital
(formerly known as SOFTBANK Venture Capital), which he co-founded in November
1997. Mr. Lax is also a Director of SOFTBANK Investment America Corporation.
Mr. Lax founded GrandBanks Capital, a venture capital partnership, sponsored by
SOFTBANK and Mobius Venture Capital in January 2001. He is its Managing General
Partner and its Chief Investment
10
Officer. Prior to joining SOFTBANK, Mr. Lax was a venture partner at VIMAC
Partners LLC, a venture capital firm specializing in investments in the
information technology and Internet-related industries from June 1993 to July
1996. Mr. Lax also serves on the public boards of 1-800-Flowers.com, Inc.
(FLWS), and Interliant, Inc. (INIT), an Internet hosting and services company.
Mr. Lax also serves on the board of a number of private companies, including
Clearcross, Inc., Coradiant and Ember Corporation. Mr. Lax is a MAGNA CUM LAUDE
graduate of Boston University where he earned a Bachelor of Science.
PETER L. DUNN was elected as a director of the Company in August 2000.
Mr. Dunn is Chief General Counsel and Corporate Secretary of Korn/Ferry
International.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Lexington,
Massachusetts, where it occupies approximately 43,000 square feet of office
space under a lease expiring in February 2004. In addition, the Company has a
regional sales and service office in Foster City, California under a lease
expiring in January 2002. The Company also leases office space in Chicago,
Illinois.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
STOCK SPLIT
On May 17, 2001, the stockholders of the Company approved an amendment to
the Company's Third Amended and Restated Certificate of Incorporation to effect
a 1-for-5 reverse split of the shares of the Company's common stock (the
"Existing Common"). The reverse split became effective as of 9:00 a.m. on June
18, 2001. No fractional shares of newly issued common stock ("New Common") were
issued and, in lieu thereof, stockholders holding a number of shares of Existing
Common not evenly divisible by five received cash in lieu of fractional shares
of New Common. In the following paragraphs, accompanying financial statements
and related notes, all share and per share amounts have been retroactively
adjusted to reflect the reverse stock split.
MARKET PRICE OF COMMON STOCK
The Company's common stock (Nasdaq symbol: HIRE) began trading publicly on
the National Market System of the Nasdaq Stock Market on July 23, 1996. The
following table sets forth, for the period indicated, the high and low closing
prices of the common stock as reported on The Nasdaq National Market. These
prices do not include retail markups, markdowns, or commissions.
COMMON STOCK PRICE
PERIOD HIGH LOW
------ -------- --------
October 1, 1999--December 31, 1999.......................... $88.75 $40.00
January 1, 2000--March 31, 2000............................. $84.38 $43.13
April 1, 2000--June 30, 2000................................ $77.50 $10.16
July 1, 2000--September 30, 2000............................ $26.88 $10.63
October 1, 2000--December 31, 2000.......................... $16.25 $ 2.50
January 1, 2001--March 31, 2001............................. $10.63 $ 3.13
April 1, 2001--June 30, 2001................................ $ 5.45 $ 2.00
July 1, 2001--September 30, 2001............................ $ 4.40 $ 2.43
The closing sale price of the common stock on September 30, 2001 was $2.95.
On January 9, 2002 the closing price reported on the Nasdaq National Market for
the common stock was $1.66.
The market price of the Company's common stock has fluctuated significantly
and is subject to significant fluctuations in the future.
HOLDERS OF COMMON STOCK
As of January 9, 2002, there were approximately 72 shareholders of record of
the Company's common stock and 4,517,079 shares of common stock outstanding.
DIVIDEND POLICY
The Company has never paid any cash dividends on the common stock and does
not anticipate paying dividends in the foreseeable future. The Company intends
to retain any future earnings for use in the Company's business. The payment of
any future dividends will be determined by the Board of Directors in light of
conditions then existing, including the Company's financial condition and
requirements, future prospects, restrictions in financing agreements, business
conditions and other factors deemed relevant by the Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
On December 29, 2000, the Company entered into an agreement with @viso
Limited ("@viso"), pursuant to which @viso agreed to purchase 217,500 shares of
common stock for issuance to @viso or its nominees, at a price per share of
$4.60, for an aggregate purchase price of approximately $1 million. The purchase
price of $4.60 per share represents the average closing price of the common
stock for the twenty days ending with the closing date of the transactions
contemplated by the agreement.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for the three fiscal years ended September 30, 2001,
2000, and 1999 and the balance sheets at September 30, 2001 and 2000 are derived
from the consolidated financial statements of the Company included elsewhere in
this Form 10-K. The selected financial data set forth below with respect to the
years ended September 30, 1998 and 1997 are derived from the consolidated
financial statements of the Company previously released on December 29, 1998.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Form 10-K.
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Services revenue--Internet......... $ 12,518 $ 9,930 $ 5,056 $ 2,117 $ 811
Services revenue--Enterprise....... 7,922 10,764 12,484 11,912 10,454
Product revenue.................... 1,443 4,110 7,755 16,826 10,783
Cost of revenue--Internet.......... 12,208 19,570 10,710 2,023 518
Cost of revenue--Enterprise........ 1,726 5,552 6,286 6,978 6,543
Research and software
development...................... 6,053 12,191 7,798 5,588 5,446
Sales and marketing................ 6,993 13,066 11,446 10,613 8,703
General and administrative......... 4,260 8,256 6,297 4,322 3,541
Non-cash write-off of other
assets........................... -- 1,000 -- -- --
Amortization of intangible
assets........................... 2,180 1,748 -- -- --
-------- -------- -------- ------- -------
(Loss) income from operations...... (11,537) (36,579) (17,242) 1,331 (2,703)
Other income, net.................. 465 545 455 593 671
-------- -------- -------- ------- -------
(Loss) income before provision
(benefit) for income taxes....... (11,072) (36,034) (16,787) 1,924 (2,032)
Provision (benefit) for income
taxes............................ (69) 1,165 (568) 577 (752)
-------- -------- -------- ------- -------
Net (loss) income.................. $(11,003) $(37,199) $(16,219) $ 1,347 $(1,280)
Diluted net (loss) income per
common share..................... $ (2.47) $ (11.97) $ (8.11) $ .79 $ (.79)
Diluted weighted average number of
common shares outstanding........ 4,454 3,108 2,001 1,704 1,611
SEPTEMBER 30,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
Balance Sheet Data:
Cash, cash equivalents and short
term investments................. $ 3,677 $ 14,545 $ 20,126 $16,436 $15,155
Restricted cash.................... $ 1,500 $ -- $ -- $ -- $ --
Working capital.................... $ (351) $ 3,171 $ 16,848 $15,304 $14,684
Total assets....................... $ 16,091 $ 34,303 $ 45,358 $31,431 $27,053
Total liabilities.................. $ 9,543 $ 18,006 $ 11,342 $11,108 $ 8,513
Stockholders' equity............... $ 6,548 $ 16,297 $ 34,016 $20,323 $18,540
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
OVERVIEW
The Company's products and services and the markets it serves have evolved
and expanded in concert with the rapid advancements in technology and the
elevated focus on human resource management. From its inception in 1982 through
the first half of fiscal year 1993, the Company's product revenue consisted
primarily of DOS-based applicant tracking and succession planning systems. In
June 1993, the Company introduced a Windows-based, client/server staffing
solution, which incorporated high-volume resume-scanning, skills management and
search capabilities. In November 1997, the Company broadened its offerings with
the introduction of WEBHIRE RECRUITER, a service that provides candidate
management functions via the Internet and the World Wide Web. In June 1998, the
Company released WEBHIRE ENTERPRISE, the next-generation enterprise-level
automated recruitment solution designed specifically for corporate intranets.
The new product and service releases in fiscal year 1998 enhanced the Company's
enterprise software operating segment and solidified its emerging Internet and
transaction-based solutions segment. WEBHIRE JOBPOST was added to the Internet
service offerings with the completion of a purchase of the Junglee job post
technology from Amazon.com in November 1998. In fiscal 2000, several new
Internet service offerings were added including WEBHIRE AGENT, OUTSOURCED
WEBHIRE ENTERPRISE and WEBHIRE JOB SITE HOSTING. During fiscal 2001, the Company
developed its latest versions of WEBHIRE RECRUITER, named WEBHIRE RECRUITER
PROFESSIONAL EDITION, released in February 2001, and WEBHIRE RECRUITER CORPORATE
EDITION, released in October 2001. The Company also released MANAGER'S ACCESS
and its EMPLOYEE REFERRAL PROGRAM, enhanced its WEBHIRE AGENT service,
redesigned the WEBHIRE JOB SITE HOSTING SERVICE--now known as WEBHIRE CORPORATE
CAREER CENTER--and refined its other services during fiscal 2001.
Total revenue consists of services revenue and product revenue. Services
revenue from WEBHIRE RECRUITER PROFESSIONAL AND CORPORATE EDITIONS, WEBHIRE
AGENT, MANAGER'S ACCESS, EMPLOYEE REFERRAL PROGRAM, OUTSOURCED WEBHIRE
ENTERPRISE and WEBHIRE CORPORATE CAREER CENTER is recognized ratably over the
service term and is attributed to the Internet and transaction-based solutions
segment. Other types of Internet services revenue include Webhire Jumpstart and
outsourced services (e.g., scanning, acknowledgement mailings), which are
recognized as the related services are performed. Services revenue attributed to
the enterprise software operating segment include customer maintenance fees for
postcontract support, which is recognized ratably over the maintenance term
(typically 12 months), and revenue from training, installation and consulting,
which is recognized as the related services are performed. Product revenue is
generated in the enterprise software operating segment and is derived from
perpetual end-user licenses to use the Company's products. Product revenue is
recognized upon delivery, provided there are no significant Company obligations
remaining and collectibility of the revenue is probable.
14
RESULTS OF OPERATIONS
($ EXPRESSED IN THOUSANDS)
The following table sets forth, for the periods indicated, the percentage of
total revenue represented by each item reflected in the Company's Consolidated
Statements of Operations.
FISCAL YEAR ENDED
------------------------------------
SEPTEMBER 30,
------------------------------------
AS A PERCENTAGE OF TOTAL REVENUE: 2001 2000 1999
--------------------------------- -------- -------- --------
Revenue:
Services revenue--Internet.......................... 57% 40% 20%
Services revenue--Enterprise........................ 36 43 49
Product revenue..................................... 7 17 31
--- ---- ---
Total revenue..................................... 100 100 100
--- ---- ---
Cost of revenue:
Services revenue--Internet.......................... 43 42 16
Services revenue--Enterprise........................ 6 17 22
Product revenue..................................... 2 4 3
Amortization of acquired technologies............... 13 37 26
Non-cash write-off of other assets.................. -- 1 --
--- ---- ---
Total cost of revenue............................. 64 101 67
--- ---- ---
Gross profit.......................................... 36 (1) 33
--- ---- ---
Operating expenses:
Research and development............................ 28 49 31
Sales and marketing................................. 32 53 45
General and administrative.......................... 19 33 25
Amortization of intangible assets................... 10 7 --
Non-cash write-off of other assets.................. -- 4 --
--- ---- ---
Total operating expenses.......................... 89 146 101
--- ---- ---
Loss from operations.................................. (53) (147) (68)
Other income, net..................................... 2 2 2
--- ---- ---
Loss before (benefit) provision for income taxes...... (51) (145) (66)
(Benefit) provision for income taxes.................. (1) 5 (2)
--- ---- ---
Net loss.............................................. (50)% (150)% (64)%
=== ==== ===
REVENUE
SERVICES REVENUE. Services revenue--Internet increased 26% to $12,518 for
fiscal 2001 from $9,930 for fiscal 2000, and increased 96% to $9,930 for fiscal
2000 from $5,056 for fiscal 1999. The increases were attributable to the
increase in average selling price of our WEBHIRE RECRUITER products combined
with a growth in the OUTSOURCED WEBHIRE ENTERPRISE customer base. Services
revenue--Enterprise was $7,922, $10,764 and $12,484 in fiscal 2001, 2000 and
1999, respectively, representing a decrease of 26% from fiscal 2000 to fiscal
2001 and a decrease of 14% from fiscal 1999 to fiscal 2000. The decreases were
due in large part to a reduction in maintenance revenue as the Company
transitioned clients from an enterprise to an Internet-based solution.
15
PRODUCT REVENUE. Product revenue was $1,443, $4,110 and $7,755 in fiscal
2001, 2000 and 1999, respectively, representing a decrease of 65% from fiscal
2000 to fiscal 2001 and a decrease of 47% from fiscal 1999 to fiscal 2000,
respectively. Protracted sales cycles resulting from the transition to an
Internet/ intranet product line, the introduction in the market of competitive
Internet-based and outsourced solutions, a general stagnation in sales of
client-server software solutions, as well as a concerted effort by the Company
to transition enterprise clients to an Internet-based solution were the primary
contributors to these decreases.
COST OF REVENUE
COST OF SERVICES REVENUE. Cost of services revenue includes all costs of
maintaining the client services organization and the Internet and
transaction-based solutions segment operations, including salaries and
personnel-related expenses, travel, outside consulting services, facilities
costs and, to a lesser extent, costs of third-party scanning services and
royalty payments for software maintenance.
Cost of services revenue--Internet decreased 8% to $9,445 for fiscal 2001
from $10,303 for fiscal 2000. Cost of services revenue--Internet increased 153%
to $10,303 for fiscal 2000 from $4,068 for fiscal 1999. The decrease for fiscal
2001 was mainly the result of a reduction in headcount as the Company managed
costs relative to revenues. The increase in fiscal 2000 was principally
attributable to costs associated with supporting the expanding WEBHIRE RECRUITER
customer base and the introduction of various new products such as WEBHIRE AGENT
and OUTSOURCED WEBHIRE ENTERPRISE.
Cost of services revenue--Enterprise decreased 68% to $1,360 for fiscal 2001
from $4,235 for fiscal 2000. Cost of services revenue--Enterprise decreased 24%
to $4,235 for fiscal 2000 from $5,580 for fiscal 1999. The reduction for both
fiscal periods is due to management's cost containment measures as well as a
reduction in headcount assigned to this product line and a shift of the
Company's resources towards an Internet and transaction-based solution segment.
COST OF PRODUCT REVENUE. Cost of product revenue includes royalty payments
for third-party software embedded in the Company's products and costs of
documentation and shipping. Cost of product revenue was 25%, 25%, and 9% of
product revenue in fiscal 2001, 2000 and 1999, respectively. The percentage
increase from fiscal 1999 to fiscal 2000 is attributed primarily to increased
royalties due under third-party licensing arrangements for the WEBHIRE
ENTERPRISE product. For fiscal 2001, the cost of product revenue was consistent
to the previous fiscal year, as no new agreements were signed that would
increase this percentage of revenue.
AMORTIZATION OF ACQUIRED TECHNOLOGIES. Amortization of acquired
technologies was $2,763, $9,267 and $6,642 in fiscal year 2001, 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.com
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. For fiscal 2001, the large decrease in
amortization was attributed to the purchase of Junglee job post technology from
Amazon.com that became fully amortized in November 2000, and the HireWorks, Inc.
purchase that was fully amortized at the end of June 2001.
NON-CASH WRITE-OFF OF OTHER ASSETS. The Company did not have any non-cash
write-offs of other assets during fiscal 2001. During fiscal 2000, the Company
recorded a non-cash write-off of other assets of $284 relating to the impairment
of prepaid software licenses for which there was no alternative use.
OPERATING EXPENSES
RESEARCH AND SOFTWARE DEVELOPMENT. Research and software development
expenses include all costs associated with the product engineering and quality
functions, including salaries and personnel-related
16
expenses, travel, outside consulting services and facilities costs. Research and
development expenses were $6,053 or 28% of total revenue for fiscal 2001 as
compared to $12,191 or 49% of total revenue for fiscal 2000 and $7,798 or 31% of
total revenue for fiscal 1999. The decrease in both absolute dollars and as a
percentage of revenue for fiscal 2001 is a result of a reduction in personnel
and consulting expenses as well as the discontinuation of the future development
of the WEBHIRE ENTERPRISE product line.
SALES AND MARKETING. Sales and marketing expenses include promotional costs
and trade shows and costs associated with personnel involved in sales and
marketing functions, including salaries, commissions and other personnel-related
expenses, travel, outside consulting services and facilities costs. Sales and
marketing expenses were $6,993 or 32% of total revenue for fiscal 2001 as
compared to $13,066 or 53% of total revenue for fiscal 2000 and $11,446 or 45%
of total revenue for fiscal 1999. The decreases in absolute dollars and as a
percentage of revenue for fiscal 2001 over fiscal 2000 are due primarily to
reductions in headcount and postponement of certain marketing and sales
programs. The increases in absolute dollars and as a percentage of revenue for
fiscal 2000 over fiscal 1999 were attributed to the increase in sales costs
associated with the ramping up of the Internet sales organization. There were 20
employees in the Internet sales organization as of September 30, 2001 as
compared to 43 and 26 at September 30, 2000 and 1999, respectively. The Company
expects that sales and marketing expenses may vary from year to year as a
percentage of total revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of costs for corporate operations personnel (executive, finance and
accounting, human resources, legal and administrative), professional fees and
other general corporate expenses. General and administrative expenses were
$4,260 or 19% of total revenue for fiscal 2001 as compared to $8,256 or 33% of
total revenue for fiscal 2000 and $6,297 or 25% of total revenue for fiscal
1999. The decrease in absolute dollars and as a percentage of revenue is the
result of a reduction in bad debt expense, a reduction in personnel expenses and
a one-time early cancellation fee with respect to a sales office lease recorded
during the first quarter of fiscal 2000. The increase in absolute dollars and as
a percentage of revenue for the fiscal 2000 period is primarily the result of
increased accounts receivable reserves due to the impending discontinuation of
support of one of the Company's existing products, increased professional fees
due to increased activity in potential domestic and international investment
opportunities and increased audit fees due to a change in external independent
accountants.
AMORTIZATION OF INTANGIBLE ASSETS. In connection with the acquisition of HR
Sites during fiscal 2000, the Company recorded intangible assets totaling $6,551
including non-compete agreements, a customer base and goodwill which are being
amortized over estimated lives of three to five years. The Company recorded
amortization expenses of $2,180 and $1,748 for fiscal years 2001 and 2000,
respectively.
NON-CASH WRITE-OFF OF OTHER ASSETS. The Company did not have any non-cash
write-offs of other assets during fiscal 2001 and 1999. During fiscal 2000, the
Company recorded a non-cash write-off of other assets of $1,000 relating to the
impairment of prepaid royalties for software not then sold.
OTHER INCOME, NET
Other income consists primarily of interest earned on investments, and for
fiscal years 2001 and 2000, the offset of interest expense on Convertible Notes
Payable. Other income was $465, $545 and $455 in fiscal 2001, 2000 and 1999,
respectively. The variances from period to period are primarily due to
fluctuations in the average combined cash and cash equivalents and short- and
long-term investment balances.
PROVISION FOR INCOME TAXES
For fiscal 2001, the Company had $69 in income tax benefits that consisted
mainly of refunds due from overpayments made in prior years to various states in
which the Company does business. For fiscal year
17
2000, the Company recorded a $1,200 valuation allowance to reserve for the full
amount of its net deferred tax assets since, based on the weight of available
evidence, management has concluded that it is more likely than not that these
future benefits will not be realized. For fiscal year 1999, the Company had a
benefit of $568 in income tax expense that consisted mainly of a refund of
federal income taxes paid in prior years.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board (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.
In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS. SFAS No.
141 requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The Company does not expect SFAS No.
141 to have an impact on the Company's financial results of operations.
In June 2001, the FASB also issued SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. SFAS No. 142 requires, among other things, the cessation of
goodwill amortization. In addition, the standard includes provisions for the
reclassification to goodwill of certain existing intangible assets, reassessment
of the useful lives of existing intangible assets, reclassification of certain
intangible assets out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairment of
goodwill. Early application is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the interim financial statements
have not previously been issued. The Company has adopted SFAS 142 effective with
the commencement of fiscal year 2002 and is evaluating its impact on the
carrying value of its intangible assets and goodwill.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had cash and cash equivalents and
short-term investments of $3,677, a decrease of $10,868 from $14,545 at
September 30, 2000.
Cash used in operating activities was $7,305 during fiscal year 2001. Cash
used in operating activities consisted mainly of the net loss for the 2001
fiscal year of $11,003, the fluctuation of accrued expenses of $3,197 and the
variation of deferred revenue of $3,722, partially offset by the effects of
depreciation and amortization of $7,343 and the fluctuation in accounts
receivable of $3,328.
Cash used in investing activities was $4,273 during fiscal year 2001. Cash
used in investing activities consisted primarily of payments related to the
fiscal 2000 acquisition of HR Sites of $3,425, the deposit of restricted cash of
$1,500 and the capitalization of internally developed internal-use software of
$624, offset by the net change in short and long-term investments of $1,715.
Net cash that was provided by financing activities for fiscal year 2001 was
$2,425. Cash provided by financing activities consisted primarily of the
proceeds from the bank line of credit of $1,500 and a private placement of the
Company's common stock of $1,000, which was consummated in December 2000.
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.
18
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 equivalents and
short-term investments will be sufficient to meet its working capital
expenditure requirements through fiscal 2002.
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 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 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 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 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
19
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 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.
20
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.
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
21
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 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 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.
22
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 Company's
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 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 the 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.
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 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 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
23
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; 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
24
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations. All of these
market-risk sensitive instruments are classified as available-for-sale. The
Company does not own derivative financial instruments in its investment
portfolio. The investment portfolio contains instruments that are subject to the
risk of a decline in interest rates.
Interest Rate Risk--The Company's investment portfolio includes investment
grade debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from the
Consolidated Financial Statements and Supplementary Data of the Company set
forth on pages F-1 through F-20 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by reference
to the text appearing under Part I, Item 1--Business under the caption
"Executive Officers and Directors" in this Form 10-K, and by reference to the
information included under the headings "Information Regarding Directors",
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference
to the information under the heading "Executive Compensation" in the Company's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference
to the information under the heading "Principal and Management Stockholders" in
the Company's definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders to be filed by the Company within 120 days after the close of its
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference
to the information under the heading "Certain Relationships and Related
Transactions", if any, in the Company's definitive Proxy Statement for the 2001
Annual Meeting of Stockholders to be filed by the Company within 120 days after
the close of its fiscal year.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
1. Report of PricewaterhouseCoopers LLP dated December 21, 2001 (See
Page F-2 hereof).
2. Report of Arthur Andersen LLP dated October 21, 1999 (See Page F-3
hereof).
3. Consolidated Balance Sheets as of September 30, 2001 and 2000. (See
Page F-4 hereof).
4. Consolidated Statements of Operations for the years ended
September 30, 2001, 2000 and 1999 (See Page F-5 hereof).
5. Consolidated Statements of Stockholders' Equity for the years ended
September 30, 2001, 2000 and 1999. (See Page F-6 hereof).
6. Consolidated Statements of Cash Flows for the years ended
September 30, 2001, 2000 and 1999. (See Page F-7 hereof).
7. Notes to Consolidated Financial Statements. (See pages F-8 through F-23
hereof).
(A)(2) FINANCIAL STATEMENT SCHEDULES
1. Report of PricewaterhouseCoopers LLP dated December 31, 2001
2. Schedule II: Valuation and Qualifying Accounts
Other schedules are not provided because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
(A)(3) EXHIBITS
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Form 10-K.
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of July 9, 1999, by
and among Webhire, Inc., HWK Acquisition Corp.,
Hireworks, Inc. and the stockholders of Hireworks, Inc.
(Incorporated by reference to the relevant exhibit to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission on August 16, 1999)
3.1 Fourth Amended and Restated Certificate of Incorporation of
the Company (Incorporated by reference to the relevant
exhibit to the Company's Current Report on Form 8-K, filed
with the Commission on June 18, 2001)
3.2 Amended and Restated By-laws of the Company (Incorporated by
reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) registration statement on Form S-1, as
amended (File No. 333-03521), originally filed with the
Commission on May 10, 1996)
4.1 Specimen certificate for shares of Common Stock, $.01 par
value, of the Company (Incorporated by reference to the
relevant exhibit to the Company's (f/k/a Restrac, Inc.)
registration statement on Form S-1, as amended (File
No. 333-03521), originally filed with the Commission on May
10, 1996)
10.1 Stock Purchase Agreement dated January 5, 1994, as amended,
by and between the Company and the Purchasers identified
therein (Incorporated by reference to the relevant exhibit
to the Company's (f/k/a Restrac, Inc.) registration
statement on Form S-1, as amended (File No. 333-03521),
originally filed with the Commission on May 10, 1996)
27
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.1 Stock Purchase Agreement dated July 19, 1999, between
Webhire, Inc. and SOFTBANK Capital Partners, LP
(Incorporated by reference to the relevant exhibit to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission on August 16, 1999)
10.2 Stock Redemption Agreement dated January 5, 1994 between the
Company and J. Paul Costello, Lars D. Perkins and John P.
Jopling (Incorporated by reference to the relevant exhibit
to the Company's (f/k/a Restrac, Inc.) registration
statement on Form S-1, as amended (File No. 333-03521),
originally filed with the Commission on May 10, 1996)
+10.2 Yahoo! Inc. and Webhire, Inc. Services Agreement dated as of
June 3, 1999, by and between Yahoo! Inc. and Webhire, Inc.
(Incorporated by reference to the relevant exhibit to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission on August 16, 1999)
10.3 Registration Rights Agreement dated January 5, 1994 between
the Company and Lars D. Perkins, J. Paul Costello and John
P. Jopling (Incorporated by reference to the relevant
exhibit to the Company's (f/k/a Restrac, Inc.) registration
statement on Form S-1, as amended (File No. 333-03521),
originally filed with the Commission on May 10, 1996)
+10.3 Amendment No. 1 to Yahoo! Inc. and Webhire, Inc. Services
Agreement dated July 27, 1999, by and between Yahoo! Inc.
and Webhire, Inc. (Incorporated by reference to the relevant
exhibit to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on August 16, 1999)
10.4 Restrac, Inc. 1994 Stock Option Plan (Incorporated by
reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) registration statement on Form S-1, as
amended (File No. 333-03521), originally filed with the
Commission on May 10, 1996)
10.5 Restrac, Inc. 1996 Stock Option and Grant Plan (Incorporated
by reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) registration statement on Form S-1, as
amended (File No. 333-03521), originally filed with the
Commission on May 10, 1996)
10.6 Restrac, Inc. 1996 Employee Stock Purchase Plan
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) Quarterly Report on
Form 10-K, filed with the Commission on December 27, 1997)
10.7 Paid-up Software License dated as of January 1, 1993 by and
between the Company and Costello and Company, Inc.
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) registration statement on
Form S-1, as amended (File No. 333-03521), originally filed
with the Commission on May 10, 1996)
+10.8 VAR Agreement dated November 27, 1991 between the Company
and Verity, Inc. and amendments #1 and #2 thereto
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) registration statement on
Form S-1, as amended (File No. 333-03521), originally filed
with the Commission on May 10, 1996)
+10.9 Value Added Reseller License Agreement dated August 31, 1992
by and between The Analytic Sciences Corporation and the
Company and all amendments thereto (Incorporated by
reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) registration statement on Form S-1, as
amended (File No. 333-03521), originally filed with the
Commission on May 10, 1996)
10.10 Stock Purchase Agreement dated July 10, 2000 by and among
the Company, Korn/Ferry International, SOFTBANK Capital
Partners LP, GMN Investors II, L.P., Aventine International
Fund and Bricoleur Partners II, L.P. (Incorporated by
reference to the relevant exhibit to the Company's
registration statement on Form S-3, as amended (File
No. 333-88995), originally filed with the Commission on
October 14, 1999)
28
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.12 Form of Director's Indemnification Agreements (Incorporated
by reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) registration statement on Form S-1, as
amended (File No. 333-03521), originally filed with the
Commission on May 10, 1996)
10.13 Form of Employment Agreement with Senior Management
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) registration statement on
Form S-1, as amended (File No. 333-03521), originally filed
with the Commission on May 10, 1996)
10.14 Form of Addendum to Employment Agreement with Senior
Management (Incorporated by reference to the relevant
exhibit to the Company's (f/k/a Restrac, Inc.) registration
statement on Form S-1, as amended (File No. 333-03521),
originally filed with the Commission on May 10, 1996)
10.15 Agreement Pertaining to the Election of Directors dated
January 5, 1994 by Lars D. Perkins, J. Paul Costello and the
Purchasers identified therein (Incorporated by reference to
the relevant exhibit to the Company's (f/k/a Restrac, Inc.)
registration statement on Form S-1, as amended (File
No. 333-03521), originally filed with the Commission on
May 10, 1996)
10.16 Shareholder Agreement dated January 5, 1994 by and among the
Company and the Shareholders identified therein
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) registration statement on
Form S-1, as amended (File No. 333-03521), originally filed
with the Commission on May 10, 1996)
10.17 Agreement Pertaining to Certain Activities dated January 5,
1994 by and between Lars D. Perkins and the Company
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) registration statement on
Form S-1, as amended (File No. 333-03521), originally filed
with the Commission on May 10, 1996)
10.18 Termination Agreement dated September 30, 1995 by and among
the Company and Borwick International, Inc. and Irving P.
Borwick (Incorporated by reference to the relevant exhibit
to the Company's (f/k/a Restrac, Inc.) registration
statement on Form S-1, as amended (File No. 333-03521),
originally filed with the Commission on May 10, 1996)
10.19 Finder's Fee and Non-Competition Agreement dated
September 30, 1995 between the Company and Irving P. Borwick
(Incorporated by reference to the relevant exhibit to the
Company's (f/k/a Restrac, Inc.) registration statement on
Form S-1, as amended (File No. 333-03521), originally filed
with the Commission on May 10, 1996)
10.22 Lease Agreement dated November 12, 1996 between Boston
Properties, Inc. and the Company (Incorporated by reference
to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) Quarterly Report on Form 10-K, filed with the
Commission on December 27, 1997)
+10.24 Amendment #3 to VAR Agreement dated November 27, 1991,
between the Company and Verity, Inc. (Incorporated by
reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc.) Quarterly Report on Form 10-K, filed with the
Commission on December 27,1996)
+10.25 Amendment #4 to VAR Agreement dated November 27, 1991,
between the Company and Verity, Inc. (Incorporated by
reference to the relevant exhibit to the Company's (f/k/a
Restrac, Inc. ) Quarterly Report on Form 10-K, filed with
the Commission on December 29, 1998)
29
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
+10.26 VAR Agreement dated June 25, 1998, between the Company and
Prime Recognition Corporation (Incorporated by reference to
the relevant exhibit to the Company's (f/k/a Restrac, Inc.)
Quarterly Report on Form 10-K, filed with the Commission on
December 29, 1998)
+10.27 Software and Trademark License Agreement dated November 18,
1998 between the Company, Amazon.com, Inc. and Junglee
Corporation (Incorporated by reference to the relevant
exhibit to the Company's (f/k/a Restrac, Inc.) Quarterly
Report on Form 10-Q, filed with the Commission on
February 16, 1999)
10.28 Amended and Restated Restrac, Inc. 1996 Stock Option and
Grant Plan (Incorporated by reference to the relevant
exhibit to the Company's (f/k/a Restrac, Inc.) Proxy
Statement, filed with the Commission on January 7, 1998)
10.29 Amended and Restated Restrac, Inc. 1996 Employee Stock
Purchase Plan (Incorporated by reference to the relevant
exhibit to the Company's (f/k/a Restrac, Inc.) Proxy
Statement, filed with the Commission on January 7, 1998)
10.30 Asset Purchase Agreement dated December 13, 1999 by and
among the Company, Human Resources Sites
International, Inc. and the Stockholders (Incorporated by
reference to the relevant exhibit to the Company's Quarterly
Report on Form 10-Q as amended, originally filed with the
Commission on February 11, 2000)
10.31 Amended and Restated Restrac, Inc. 1996 Stock Option and
Grant Plan (Incorporated by reference to the relevant
exhibit to the Company's Proxy Statement, filed with the
Commission on January 24, 2000)
10.32 Line of Credit Agreement dated March 27, 2001, between the
Company and Citizens Bank of Massachusetts. (Incorporated by
reference to the relevant exhibit to the Company's Quarterly
Report on Form 10-Q, filed with the Commission on May 14,
2001)
21.1 Subsidiaries of registrant (Incorporated by reference to the
relevant exhibit to the Company's (f/k/a Restrac, Inc.)
Quarterly Report on Form 10-Q, filed with the Commission on
December 27, 1997)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
+ Confidential treatment requested as to portions of this document.
(b) Report on Form 8-K.
The Company has not filed any Form 8-K's during the fourth quarter of fiscal
2001.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 14th day of
January, 2002.
WEBHIRE, INC.
By: /s/ MARTIN J. FAHEY
----------------------------------------
Martin J. Fahey,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARTIN J. FAHEY Director, President and Chief
-------------------------------------- Executive Officer January 14, 2002
Martin J. Fahey (Principal Executive Officer)
/s/ STEPHEN D. ALLISON Chief Financial Officer (Principal
-------------------------------------- Financial Officer and Principal January 14, 2002
Stephen D. Allison Accounting Officer)
/s/ LARS D. PERKINS
-------------------------------------- Director, Chairman of the Board January 14, 2002
Lars D. Perkins
/s/ RUSSELL J. CAMPANELLO
-------------------------------------- Director January 14, 2002
Russell J. Campanello
/s/ J. PAUL COSTELLO
-------------------------------------- Director January 14, 2002
J. Paul Costello
/s/ CHARLES R. LAX
-------------------------------------- Director January 14, 2002
Charles R. Lax
/s/ PETER L. DUNN
-------------------------------------- Director January 14, 2002
Peter L. Dunn
31
WEBHIRE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Public Accountants.................... F-2
Report of Independent Public Accountants.................... F-3
Consolidated Balance Sheets as of September 30, 2001 and
2000...................................................... F-4
Consolidated Statements of Operations for the Years Ended
September 30, 2001, 2000 and 1999......................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 2001, 2000 and 1999............. F-6
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2001, 2000 and 1999......................... F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Webhire, Inc.:
In our opinion, the accompanying consolidated balance sheets as of September
30, 2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of Webhire, Inc. and its subsidiaries at September 30,
2001 and 2000, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 31, 2001
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Webhire, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Webhire, Inc. for the year ended
September 30, 1999. These consolidated financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
of Webhire, Inc. and its cash flows for the year ended September 30, 1999, in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole for the year ended September 30, 1999.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 21, 1999
F-3
WEBHIRE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,982 $12,135
Short-term investments.................................... 695 2,410
Accounts and installments receivable, less allowance for
doubtful accounts of $484 and $1,587 at September 30,
2001 and September 30, 2000, respectively............... 2,041 4,772
Restricted cash........................................... 1,500 --
Other current assets...................................... 1,822 1,684
------- -------
Total current assets.................................. 9,040 21,001
------- -------
Long-term installments receivable, net.................... 63 153
Property and equipment, net............................... 2,518 4,248
Acquired technologies, net of accumulated amortization of
$18,672 and $15,909 at September 30, 2001 and September
30, 2000, respectively.................................. 826 3,589
Intangible assets and goodwill, net of accumulated
amortization of $3,928 and $1,748 at September 30, 2001
and September 30, 2000, respectively.................... 3,246 4,803
Other assets.............................................. 398 509
------- -------
TOTAL ASSETS.......................................... $16,091 $34,303
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--bank....................................... $ 1,500 $ --
Current portion of capital lease obligations.............. 234 254
Convertible notes payable................................. -- 3,425
Accounts payable.......................................... 1,930 1,504
Accrued expenses.......................................... 1,305 4,502
Deferred revenue.......................................... 4,422 8,145
------- -------
Total current liabilities............................. 9,391 17,830
------- -------
Other liabilities........................................... 152 176
------- -------
Total liabilities..................................... 9,543 18,006
------- -------
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock, $.01 par value--Authorized--5,000,000
shares, Issued and Outstanding--none at September 30,
2001 and September 30, 2000............................. -- --
Common stock, $.01 par value--Authorized--30,000,000
shares, Issued--4,648,055 and 4,421,994 shares at
September 30, 2001 and September 30, 2000, respectively,
Outstanding--4,510,675 and 4,284,614 shares at September
30, 2001 and September 30, 2000, respectively........... 46 44
Additional paid-in capital................................ 70,192 68,940
Treasury stock, at cost--137,380 shares at September 30,
2001 and September 30, 2000, respectively............... (831) (831)
Accumulated deficit......................................... (62,859) (51,856)
------- -------
Total stockholders' equity................................ 6,548 16,297
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $16,091 $34,303
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED SEPTEMBER 30,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenue:
Services revenue--Internet............................. $ 12,518 $ 9,930 $ 5,056
Services revenue--Enterprise........................... 7,922 10,764 12,484
Product revenue........................................ 1,443 4,110 7,755
---------- ---------- ----------
Total revenue...................................... 21,883 24,804 25,295
---------- ---------- ----------
Cost of revenue:
Services revenue--Internet............................. 9,445 10,303 4,068
Services revenue--Enterprise........................... 1,360 4,235 5,580
Product revenue........................................ 366 1,033 706
Amortization of acquired technologies.................. 2,763 9,267 6,642
Non-cash write-off of other assets..................... -- 284 --
---------- ---------- ----------
Total cost of revenue.............................. 13,934 25,122 16,996
---------- ---------- ----------
Gross profit............................................. 7,949 (318) 8,299
---------- ---------- ----------
Operating expenses:
Research and software development...................... 6,053 12,191 7,798
Sales and marketing.................................... 6,993 13,066 11,446
General and administrative............................. 4,260 8,256 6,297
Amortization of intangible assets...................... 2,180 1,748 --
Non-cash write-off of other assets..................... -- 1,000 --
---------- ---------- ----------
Total operating expenses........................... 19,486 36,261 25,541
---------- ---------- ----------
Loss from operations..................................... (11,537) (36,579) (17,242)
Other income, net........................................ 465 545 455
---------- ---------- ----------
Loss before income taxes................................. (11,072) (36,034) (16,787)
(Benefit) from provision for income taxes................ (69) 1,165 (568)
---------- ---------- ----------
Net loss................................................. $ (11,003) $ (37,199) $ (16,219)
========== ========== ==========
Basic and diluted net loss per common share.............. $ (2.47) $ (11.97) $ (8.11)
========== ========== ==========
Basic and diluted weighted average number of common
shares outstanding..................................... 4,454,389 3,108,144 2,000,932
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK TREASURY STOCK (ACCUMULATED
-------------------- ADDITIONAL -------------------- DEFICIT) TOTAL
NUMBER $.01 PAR PAID-IN NUMBER RETAINED STOCKHOLDERS'
OF SHARES VALUE CAPITAL OF SHARES COST EARNINGS EQUITY
--------- -------- ---------- --------- -------- ------------ -------------
Balance, September 30, 1998............. 1,805 $ 18 $19,574 137 $(831) $ 1,562 $ 20,323
Exercise of common stock options........ 18 -- 356 -- -- -- 357
Employee stock purchase plan stock
issuance.............................. 7 -- 104 -- -- -- 104
Compensation expense on stock options... -- -- 49 -- -- -- 49
Issuance of common stock in connection
with acquired technologies............ 396 4 10,243 -- -- -- 10,246
Issuance of common stock in connection
with private placement, net of
issuance costs of $1,017.............. 792 8 18,975 -- -- -- 18,983
Stock-based consideration............... -- -- 173 -- -- -- 173
Net loss................................ -- -- -- -- -- (16,219) (16,219)
------ ---- ------- --- ----- -------- --------
Balance, September 30, 1999............. 3,018 30 49,474 137 (831) (14,657) 34,016
Exercise of common stock options........ 37 -- 775 -- -- -- 775
Employee stock purchase plan stock
issuance.............................. 6 -- 174 -- -- -- 174
Acquisition of technologies and
intangible assets..................... -- -- 3,641 -- -- -- 3,641
Issuance of common stock in connection
with private placement, net of
issuance costs of $1,121.............. 1,361 14 14,865 -- -- -- 14,879
Stock-based consideration............... -- -- 11 -- -- -- 11
Net loss................................ -- -- -- -- -- (37,199) (37,199)
------ ---- ------- --- ----- -------- --------
Balance, September 30, 2000............. 4,422 44 68,940 137 (831) (51,856) 16,297
Employee stock purchase plan stock
issuance.............................. 8 -- 67 -- -- -- 67
Issuance of common stock in connection
with private placement, net of
issuance costs of $122................ 218 2 876 -- -- -- 878
Stock-based consideration............... -- -- 309 -- -- -- 309
Net loss................................ -- -- -- -- -- (11,003) (11,003)
------ ---- ------- --- ----- -------- --------
Balance, September 30, 2001............. 4,648 $ 46 $70,192 137 $(831) $(62,859) $ 6,548
====== ==== ======= === ===== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
------------------------------
2001 2000 1999
-------- -------- --------
Cash Flows from Operating Activities:
Net loss.................................................. $(11,003) $(37,199) $(16,219)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 7,343 13,687 8,754
Stock-based consideration............................... 309 11 173
Provision for doubtful accounts......................... (596) 1,453 802
Non-cash write-off of other assets...................... -- 1,284 --
Deferred income taxes, net.............................. -- 1,068 (187)
Gain on sale of property and equipment.................. (120) -- --
Compensation expense on stock options and warrant
grants................................................. -- -- 49
Changes in operating assets and liabilities--
Accounts and installments receivable.................. 3,328 (1,531) 1,787
Other current assets.................................. (138) (647) (602)
Refundable income taxes............................... -- 700 (565)
Long-term installments receivable..................... 90 291 137
Accounts payable...................................... 426 (418) 123
Accrued expenses...................................... (3,197) 1,352 (122)
Deferred revenue...................................... (3,723) 2,803 (139)
Other liabilities..................................... (24) (52) (178)
-------- -------- --------
Net cash used in operating activities............... (7,305) (17,198) (6,187)
-------- -------- --------
Cash Flows from Investing Activities:
Purchases of acquired technologies and intangible
assets.................................................. (3,425) (1,570) (7,167)
Additions to capitalized internal-use software............ (624) -- --
Purchases of property and equipment....................... (773) (2,328) (3,191)
Deposit of restricted cash................................ (1,500) -- --
Proceeds from sale of property and equipment.............. 223 -- --
Purchases of short and long-term investments.............. (5,459) (13,819) (2,751)
Proceeds from sale and maturities of short and long-term
investments............................................. 7,174 11,409 10,308
Proceeds from returns of security deposits................ 111 134 149
-------- -------- --------
Net cash used in investing activities............... (4,273) (6,174) (2,652)
-------- -------- --------
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 16,000 20,000
Issuance costs in connection with private placement of
common stock............................................ (122) (1,121) (1,017)
Proceeds from employee stock purchase plan stock
issuance................................................ 67 174 104
Proceeds from exercise of common stock options............ -- 774 357
Payments of capital lease obligations..................... (20) (446) (251)
-------- -------- --------
Net cash provided by financing activities........... 2,425 15,381 19,193
-------- -------- --------
Net (decrease) increase in Cash and Cash Equivalents........ (9,153) (7,991) 10,354
Cash and Cash Equivalents, beginning of period.............. 12,135 20,126 9,772
-------- -------- --------
Cash and Cash Equivalents, end of period.................... $ 2,982 $ 12,135 $ 20,126
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest................................................ $ 258 $ 15 $ 13
-------- -------- --------
Income taxes............................................ $ 18 $ 9 $ 395
-------- -------- --------
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Issuance of warrants in connection with financing
commitment................................................ $ 309 $ -- $ --
-------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS
The Company develops, markets, implements and supports Internet-based
recruitment management solutions. The Company's solutions enable organizations
to strategically manage their talent acquisition process. The Company's products
provide a range of solutions including managing the creation and approval
process of job requisitions, the sourcing of candidates through job board
postings, resume pool searches, operation of the customer's employment website,
activity management of candidates throughout the hiring process, and the
creation of internal and external reports to monitor the effectiveness of the
recruiting process.
Effective June 1, 1999, the Company effected a name change from Restrac,
Inc. to Webhire, Inc.
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has sufferred recurring losses
resulting in an accumulated deficit. The Company currently anticipates that its
available cash will be sufficient to meet its anticipated working capital and
capital expenditure requirements through fiscal 2002. However, the Company may
need to raise additional capital to meet its needs in the longer term to fund
more rapid expansion to develop new services and to enhance existing services in
response to competitive pressures, and to acquire complimentary services,
businesses or technologies. In the event its operations are not profitable or do
not generate sufficient cash to fund the business, or if the Company fails to
receive money to meet its obligations, the Company has the intent and ability to
substantially cut back its level of operations to continue to operate as a going
concern through fiscal 2002.
(2) SUMMARY OF SIGNIFICANT 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) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the balance sheet date and the reported amounts of
revenues and expenses during the year. Actual results could differ from those
estimates.
(C) REVENUE RECOGNITION
Services revenue--Internet includes fees for scanning, job posting services,
recruiter training, WEBHIRE RECRUITER PROFESSIONAL AND CORPORATE EDITIONS,
WEBHIRE JUMPSTART, WEBHIRE CORPORATE CAREER CENTER, MANAGER'S ACCESS, WEBHIRE
AGENT, EMPLOYEE REFERRAL PROGRAM and OUTSOURCED WEBHIRE ENTERPRISE. Services
revenue--Enterprise includes customer maintenance fees and fees for training,
installation and consulting. Product revenue includes software license fees.
F-8
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Product revenue from software license fees is recognized upon delivery of
the software and receipt of a binding contract, provided there are no
significant Company obligations remaining and collectibility of the revenue is
reasonably assured. If an acceptance period is allowed, revenue is recognized
upon the earlier of the acceptance or the expiration of the acceptance period,
as defined in the applicable software license agreement.
Installments receivable represent the present value of future payments
related to the financing by the Company of noncancelable term software license
agreements that provide for payment in installments over a five-year period. A
portion of each installment is recognized as interest income in the accompanying
consolidated statements of operations.
Services revenue from WEBHIRE RECRUITER PROFESSIONAL AND CORPORATE EDITIONS,
WEBHIRE CORPORATE CAREER CENTER, MANAGER'S ACCESS, WEBHIRE AGENT, EMPLOYEE
REFERRAL PROGRAM and OUTSOURCED WEBHIRE ENTERPRISE is recognized ratably over
the service term. Services revenue from customer maintenance fees for post-
contract support is recognized ratably over the maintenance term, which is
typically twelve months. Services revenue from Enterprise training,
installation, consulting, resume scanning, recruiter training and WEBHIRE
JUMPSTART is recognized as the related services are performed.
Deferred revenue represents payments received by the Company in advance of
product delivery or service performance.
(D) RESEARCH AND 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. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have not been material.
The Company 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. Costs incurred for the Company's own
personnel and outside consultants who are directly associated with software
developed for internal use are capitalized. Capitalized internal-use software
costs are being amortized over a period of 5 years commencing in the period in
which the software is placed into use. At September 30, 2001 and 2000, the
Company had capitalized software development costs of $624 and $0, respectively,
and no amortization was yet recorded.
F-9
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) CASH AND CASH EQUIVALENTS
Cash equivalents are recorded at amortized cost and consist of highly liquid
investments with remaining maturities at date of purchase of three months or
less. At September 30, 2001 and 2000, cash and cash equivalents consisted of the
following:
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
Cash and money market funds................................ $1,065 $ 577
Commercial paper........................................... 1,917 11,558
------ -------
$2,982 $12,135
====== =======
(F) RESTRICTED CASH
Restricted cash of $1,500 consists of cash and money market funds that
mature in less than one year and represents collateral for the Company's note
payable with a bank (see Note 3). The classification is determined based on the
expected term of the collateral requirement and not necessarily the maturity
date of the underlying securities.
(G) SHORT-TERM INVESTMENTS
The Company classifies its short-term investments as available-for-sale
which have been recorded at amortized cost on the Company's balance sheet, which
approximates fair market value. At September 30, 2001 and 2000, the Company had
short-term investments of $695 and $2,410, respectively. Realized and unrealized
gains and losses for the periods presented were not material.
(H) OTHER CURRENT ASSETS
Other current assets primarily consist of prepaid operating expenses. The
Company capitalizes prepaid expenses and amortizes them over the applicable
period of their use. Prepaid expenses amounted to $1,757 and $1,638 at September
30, 2001 and 2000, respectively.
F-10
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) PROPERTY AND EQUIPMENT
The Company records property and equipment at cost and provides for
depreciation on a straight-line basis over the estimated useful lives of the
assets, as follows:
SEPTEMBER 30,
ESTIMATED -------------------
ASSET CLASSIFICATION USEFUL LIFE 2001 2000
-------------------- ------------- -------- --------
Computer and office equipment................... 3--5 Years $ 10,480 $10,195
Software........................................ 3 Years 1,946 1,803
Furniture and fixtures.......................... 3--7 Years 641 641
Leasehold improvements.......................... Life of Lease 467 458
Equipment under capital lease................... 3 Years 568 568
-------- -------
14,102 13,665
Accumulated depreciation........................ (11,584) (9,417)
-------- -------
$ 2,518 $ 4,248
======== =======
Depreciation expense for the years ended September 30, 2001, 2000 and 1999
amounted to approximately $2,400, $2,673 and $2,112, respectively.
(F) INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized using the straight-line
method over the assets' estimated useful lives, which range from two to five
years. Intangible assets consist mainly of capitalized research and development
costs, amortized over five years, and goodwill from the purchase of HR Sites,
Inc., which has been amortized using the straight-line method over three years
since the Company's purchase in December, 1999.
(J) 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.
(K) CONCENTRATION OF CREDIT RISK
The Company has no significant off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company places its cash, cash equivalents and short-
and long-term investments in highly rated institutions or securities. The
Company's accounts receivable credit risk is not concentrated within any
geographical area and no single customer accounts for greater than 10% of total
revenue.
(L) NET LOSS PER SHARE
SFAS No. 128, EARNINGS PER SHARE, establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. In accordance
F-11
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with SFAS No. 128, basic net loss per share for 2001, 2000 and 1999 is
calculated by dividing net loss by the weighted average number of common shares
outstanding for those periods. Diluted net loss per share is calculated by
dividing net loss by the diluted weighted average number of common shares
outstanding for all periods presented. The following table reconciles the
weighted average common shares outstanding to the shares used in computation of
diluted weighted average common shares outstanding:
YEARS ENDED SEPTEMBER 30,
---------------------------------
2001 2000 1999
--------- --------- ---------
Weighted average common shares
outstanding............................... 4,454,389 3,108,144 2,000,932
========= ========= =========
As of September 30, 2001, 2000 and 1999, 719,108, 506,829 and 324,226
potential common shares were outstanding, respectively, but not included in the
above calculation, as their effect would have been antidilutive.
(M) STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
measurement of the fair value of stock options granted to employees to be
included in the statement of operations or disclosed in the notes to the
consolidated financial statements. The Company determined that it will continue
to account for employee stock-based compensation under Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related
interpretations, and elect the disclosure only alternative under SFAS No. 123.
The Company accounts for options granted to non-employees at fair value as
prescribed in SFAS No. 123.
(N) RECENT ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board (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.
In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS. SFAS No.
141 requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The Company does not expect SFAS No.
141 to have an impact on the Company's financial results of operations.
In June 2001, the FASB also issued SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. SFAS No. 142 requires, among other things, the cessation of
goodwill amortization. In addition, the standard includes
F-12
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provisions for the reclassification to goodwill of certain existing intangible
assets, reassessment of the useful lives of existing intangible assets,
reclassification of certain intangible assets out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairment of goodwill. Early application is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
interim financial statements have not previously been issued. The Company has
adopted SFAS 142 effective with fiscal year 2002 and is evaluating its impact on
the carrying value of its intangible assets and goodwill.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), ACCOUNTING
FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--AN INTERPRETATION OF APB
OPINION NO. 25. FIN 44 clarifies the application of APB No. 25 to certain issues
including: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock option or award; and the accounting for the
exchange of stock compensation awards in a business combination. FIN 44 became
effective on July 1, 2000, but certain conclusions in FIN 44 are applicable
retroactively to specific events occurring after either December 15, 1998 or
January 12, 2000. FIN 44 was adopted by the Company in fiscal 2001 and had no
material impact on the Company's financial results of operations.
(O) FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments, which
include cash equivalents, short- and long-term investments, accounts and
installments receivable, accounts payable and debt, approximates their carrying
value.
(3) NOTES PAYABLE--BANK
On March 27, 2001, the Company secured a $3,000 line of credit from Citizens
Bank of Massachusetts, that expires and is payable in full on March 27, 2003.
This line of credit is collateralized by all assets of the Company. Interest
under this line of credit is to be charged at a fluctuating rate that is equal
to the daily prime rate, or at such other rate agreed to from time to time by
the Company and Citizens Bank. The average rate for fiscal 2001 was 7.0%. A rate
of 0.25% is used to calculate interest on the unused portion of the line of
credit. The borrowing base of this line of credit will initially be equal to
100% of the Company's pledged cash, not to exceed $3,000. This line of credit
has a feature which, once all evidence is given to the bank's conditions of
lending, will increase the borrowing base to the sum of 100% of the Company's
pledged cash plus 70% of qualified accounts receivable plus the lesser of $1,000
or 50% of the Company's deferred qualified accounts. At September 30, 2001,
$1,500 was outstanding under this line of credit, collateralized by $1,500 of
cash, with $1,500 still available.
(4) RELATED PARTY TRANSACTION
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 $5,000,
if necessary. In consideration of such commitment, the Company issued a warrant
to the investor to purchase 100,000 shares of the Company's common stock at a
F-13
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) RELATED PARTY TRANSACTION (CONTINUED)
price of $6.25 per share. The warrant was fully vested on January 11, 2001 and
expires after January 11, 2004. For fiscal 2001, the Company recorded a charge
of $309 as interest expense for the fair value of these warrants.
(5) YAHOO! INVESTMENT AND SERVICE AGREEMENT
In connection with the service agreement dated June 3, 1999 between Yahoo!
and the Company, the Company granted to Yahoo! warrants to purchase 39,843
shares of common stock at $24.75 per share. The warrants were accounted for
under the variable method of accounting until fully vested on June 3, 2000. The
Company recognized the expense related to the warrants over the vesting period.
For fiscal 2001, 2000 and 1999, the Company recorded a charge of $0, $11 and
$173, respectively.
(6) ACQUIRED TECHNOLOGIES
On December 13, 1999, the Company acquired certain assets of 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. The Company paid $1,500
in cash plus junior subordinated convertible promissory notes (the "Notes") with
face amounts totaling $3,425. The assets and intangible assets acquired from HR
Sites are being amortized over periods of three to five years. The assets are
recorded under Acquired technologies on the balance sheet and are equal to $826,
net of accumulated amortization, as of September 30, 2001. Goodwill and
non-compete agreements are recorded on the balance sheet under Intangible Assets
and are equal to $2,623, net of accumulated amortization, as of September 30,
2001. The interest rates on both Notes were 5.6% per annum and were repaid in
fiscal 2001. The Company recorded the value ascribed to the beneficial
conversion feature as the difference between the fair value of the Notes of
$7,066 and the face value of the Notes of $3,425 in additional-paid-in-capital
during fiscal 2000. The total acquisition consideration amounted to $8,640
including the cash paid of $1,500. The purchase price was allocated to the
following identifiable assets with the following estimated lives:
AMOUNT ESTIMATED LIFE
-------- --------------
Acquired technology.................................... $2,069 3 years
Non-compete agreements................................. 157 3 years
Customer base.......................................... 24 5 years
Fixed Assets........................................... 20 1 year
Excess purchase price over identifiable assets......... 6,370 3 years
------
$8,640
======
F-14
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(7) COMMITMENTS AND CONTINGENCIES
The Company's corporate headquarters are located in Lexington,
Massachusetts, where it currently occupies approximately 43,000 square feet of
office space under a lease expiring in February, 2004. The Company also has a
regional sales and service office in Foster City, California, where it occupies
approximately 6,000 square feet, under a lease expiring in January 2002.
Capital lease obligations consist of amounts due under a software lease
agreement that had an original maturity of March 2001. This obligation was
restructured in fiscal 2001 so that payments are made quarterly starting
November 2001 and ending with the final payment in August 2002. At September 30,
2001 and 2000, the cost and accumulated depreciation of the related software was
$568 and $426 and $568 and $237, respectively.
Future minimum rental payments as of September 30, 2001 under both the
operating and capital leases, are shown in the following table:
CAPITAL OPERATING
LEASES LEASES
-------- ---------
2002............................................... $240 $1,122
2003............................................... -- 1,077
2004............................................... -- 449
---- ------
240 $2,648
======
Less--amounts representing interest.............. (6)
----
Present value of minimum lease payments.......... $234
====
Aggregate net rental expense included in the accompanying statements of
operations for the fiscal years ended September 30, 2001, 2000 and 1999 is
approximately $1,397, $1,908 and $1,633, respectively.
Leases with escalating rents or free rent periods are expensed on a
straight-line basis over the fixed term of the lease. Deferred rent of
approximately $152 and $176 is included in other liabilities in the accompanying
consolidated balance sheets at September 30, 2001 and 2000, respectively.
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.
(8) PRIVATE PLACEMENT OF COMMON STOCK
On December 29, 2000, the Company entered into an agreement with @viso
Limited ("@viso"), pursuant to which @viso purchased 217,500 shares of common
stock for issuance to @viso or its designated investors, at a price per share of
$4.60, for aggregate proceeds of approximately $1,000. The purchase price of
$4.60 per share represented the average closing price of the common stock for
the twenty days ending with the closing date of the transactions contemplated by
this agreement.
On July 10, 2000, the Company entered into a stock purchase agreement with
Korn/Ferry International, SOFTBANK, GMN Investors II, L.P., Aventine
International Fund and Bricoleur Partners
F-15
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(8) PRIVATE PLACEMENT OF COMMON STOCK (CONTINUED)
II, L.P. whereby the Company issued in a private placement an aggregate of
1,361,702 shares of Common Stock at a price per share of $11.75, for aggregate
proceeds of approximately $14,900 net of issuance costs of approximately $1,100.
The private placement was consummated between August 2, 2000 and August 24, 2000
upon receipt of the funds.
On July 19, 1999, the Company entered into a stock purchase agreement with
SOFTBANK Capital Partners LP and its affiliates (collectively, "SOFTBANK"),
pursuant to which SOFTBANK purchased in a private placement (the "Private
Placement") 792,079 shares of common stock at a price per share of $25.25, for
aggregate proceeds of $20,000. The purchase price of $25.25 per share
represented the average closing price of the common stock for the twenty trading
days immediately preceding the date the parties entered into the stock purchase
agreement. The Private Placement was consummated on September 24, 1999 upon the
approval of the stockholders of the Company.
Also on July 19, 1999, SOFTBANK entered into a separate stock purchase
agreement with Amazon.com, Inc. ("Amazon") to purchase 334,054 shares of the
common stock of Webhire held by Amazon.
(9) STOCKHOLDERS' EQUITY
(A) STOCK SPLIT
On May 17, 2001, the stockholders of the Company approved an amendment to
the Company's Third Amended and Restated Certificate of Incorporation to effect
a 1-for-5 reverse split of the shares of the Company's common stock (the
"Existing Common"). The reverse split became effective on June 18, 2001. In the
financial statements and accompanying notes, all share and per share amounts
have been retroactively adjusted to reflect the stock split.
(B) EMPLOYEE STOCK PURCHASE PLAN
On May 8, 1996, the Board of Directors authorized the 1996 Employee Stock
Purchase Plan (the Employee Plan). Under the Employee Plan, the Company may
issue up to an aggregate of 80,000 shares of common stock to employees at 85% of
the lower of the fair market value of the common stock on the first or last day
of each six-month purchase period. During fiscal 2001, 2000 and 1999, 8,567,
5,927 and 6,782 shares, respectively, were issued pursuant to the Employee Plan.
On October 1, 2001, 6,404 shares of common stock were issued pursuant to the
Employee Plan.
(C) STOCK OPTION PLANS
The Company has two stock option plans, the 1994 Stock Option Plan (the
"1994 Plan") and the 1996 Stock Option and Grant Plan (the "1996 Plan"). The
plans enable the Company's Board of Directors to grant nonqualified and
incentive stock options ("ISOs") and shares of common stock. ISOs are granted at
the then fair market value. Under the terms of the 1994 Plan and 1996 Plan,
options generally vest over four years and expire ten years after the date of
grant.
F-16
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
The 1994 Plan and 1996 Plan are administered by the Compensation Committee
as appointed by the Board of Directors from time to time. On December 3, 1999,
the Company amended the 1996 Plan to increase the number of shares available for
grant to 700,000 shares of common stock. A total of 128,638 shares of common
stock are reserved for issuance under the 1994 Plan, as amended.
Stock option activity for the 1994 and 1996 Plans is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE
SHARES PER SHARE PRICE PER SHARE
--------- --------------- ---------------
Outstanding, September 30, 1998............ 218,650 $ 2.22 - 85.00 $23.99
Granted.................................. 146,430 18.13 - 55.63 24.42
Exercised................................ (17,946) 2.22 - 31.88 19.88
Canceled................................. (62,751) 10.00 - 41.25 24.15
---------
Outstanding, September 30, 1999............ 284,383 2.22 - 85.00 24.45
---------
Granted.................................. 313,943 11.72 - 62.50 33.48
Exercised................................ (36,550) 2.22 - 45.00 21.19
Canceled................................. (94,790) 10.00 - 85.00 31.16
---------
Outstanding, September 30, 2000............ 466,986 2.22 - 85.00 29.41
---------
Granted.................................. 255,728 2.43 - 10.32 2.70
Exercised................................ -- -- --
Canceled................................. (143,449) 3.10 - 55.63 23.69
---------
Outstanding, September 30, 2001............ 579,265 $ 2.22 - $85.00 $19.04
=========
Available for grant, September 30, 2001.... 115,559
=========
At September 30, 2001, 2000 and 1999 options exercisable were 215,742,
128,347 and 100,517, respectively.
F-17
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about options outstanding and
exercisable options at September 30, 2001.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------- --------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGES OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- ----------- ---------------- -------------- ----------- --------------
$ 2.22 - $ 9.88...... 247,818 9.6 $ 2.63 2,250 $ 2.22
9.89 - 19.75........ 139,209 6.8 15.25 98,275 15.65
19.76 - 29.63....... 57,882 4.3 24.75 52,726 24.66
29.64 - 39.50....... 14,678 6.4 31.84 12,393 31.79
39.51 - 49.38....... 37,482 6.9 45.80 21,562 45.45
49.39 - 59.25....... 51,196 7.9 52.23 21,536 52.18
59.26 - 69.13....... 30,000 8.4 62.50 6,000 62.50
79.01 - 88.88....... 1,000 5.0 85.00 1,000 85.00
--------- ------ ------- ------
579,265 $19.04 215,742 $26.89
========= ====== ======= ======
The fair value of the stock awards, including the options granted under the
1994 Plan and the 1996 Plan, was estimated using the Black-Scholes model with
the following weighted average assumptions:
2001 2000 1999
-------- -------- --------
Expected life..................................... 4 years 4 years 7 years
Risk free interest rate........................... 4.58% 5.82% 5.63%
Volatility........................................ 124.1% 113.4% 129.6%
Dividend yield.................................... 0.0% 0.0% 0.0%
The weighted average fair value per share of the options granted was $2.67,
$26.75 and $22.60 for the years ended September 30, 2001, 2000 and 1999,
respectively.
The pro forma effect of applying SFAS No. 123 would be as follows:
2001 2000 1999
-------- -------- --------
Net loss as reported........................... $(11,003) $(37,199) $(16,219)
======== ======== ========
Pro forma net loss as adjusted................. $(12,453) $(38,861) $(17,557)
======== ======== ========
Basic and diluted net loss per share as
reported..................................... $ (2.47) $ (11.97) $ (8.11)
======== ======== ========
Basic and diluted pro forma net loss per share
as adjusted.................................. $ (2.80) $ (12.50) $ (8.77)
======== ======== ========
F-18
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(10) INCOME TAXES
The provision for (benefit) from income taxes in the accompanying
consolidated statements of operations consisted of the following for the fiscal
years ended September 30, 2001, 2000 and 1999:
2001 2000 1999
-------- -------- --------
Current--
Federal............................................ $ -- $1,165 $(400)
State.............................................. (69) -- --
------ ------ -----
(69) 1,165 (400)
------ ------ -----
Deferred--
Federal............................................ -- -- (168)
State.............................................. -- -- --
------ ------ -----
-- -- (168)
------ ------ -----
Total (benefit) provision...................... $ (69) $1,165 $(568)
====== ====== =====
The deferred tax amounts as of September 30, 2001 and 2000 are as follows:
2001 2000
-------- --------
Deferred tax asset--
Net operating loss carryforward....................... $ 18,201 $ 14,973
Acquired technology and intangible assets............. 6,614 5,595
Nondeductible reserves................................ 792 949
Buyout of distribution rights......................... 120 133
Fixed assets.......................................... 251 251
Credit carryforwards.................................. 1,038 773
-------- --------
Total gross deferred tax asset...................... 27,016 22,674
Less--Valuation allowance............................... (27,016) (22,674)
-------- --------
Net deferred tax asset.............................. $ -- $ --
======== ========
Deferred tax liability.................................. $ -- $ --
======== ========
As of September 30, 2001, the Company had federal net operating loss ("NOL")
and tax credit carryforwards of approximately $45,252 and $585, respectively,
which can be used to offset future federal and state income tax liabilities and
expire at various dates through 2021. As required by Statement of Accounting
Standards No. 109, management of the Company evaluated positive and negative
evidence bearing upon the realizability of its deferred tax assets. Management
has determined that it is more likely than not that the Company will not
recognize the benefits of federal and state deferred tax assets and, as a
result, a valuation allowance of approximately $27,016 has been established at
September 30, 2001.
F-19
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Of the $45,252 NOL carryforward, approximately $2,271 relating to deductions
for exercises of non-qualified stock options and disqualifying dispositions of
incentive stock options will be credited to paid-in capital, if realized.
Ownership changes, as defined in the Internal Revenue Code, may have limited
the amount of net operating loss carryforwards that can be utilized annually to
offset future taxable income. Subsequent ownership changes could further affect
the limitation in future years.
The provision for (benefit) from income taxes differs from the amount
computed by applying the statutory federal income tax rate as follows:
2001 2000 1999
-------- -------- --------
Provision (benefit) at federal statutory rate....... (34.0)% (34.0)% (34.0)%
Effect of change in valuation allowance............. 37.0 41.6 36.9
Amortization of intangible assets and other
permanent items................................... 2.6 1.1 --
State income taxes, net of federal benefit.......... (5.6) (5.5) (6.3)
----- ----- -----
Effective tax rate.............................. 0.0% 3.2% (3.4)%
===== ===== =====
(11) EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan (the Benefit Plan) under
Section 401(k) of the Internal Revenue Code. The Benefit Plan is available to
all full-time U.S. employees. The Benefit Plan allows for employees to make
contributions up to a specified percentage of their compensation. Under the
Benefit Plan, the Company makes non-discretionary contributions to match 50% of
the employees' contributions up to a maximum annual match of 3% of each
employee's salary. The Company contributed approximately $106, $85 and $144
during the fiscal years ended September 30, 2001, 2000 and 1999, respectively.
(12) ACCRUED EXPENSES
Accrued expenses at September 30, 2001 and 2000 consisted of the following:
2001 2000
-------- --------
Payroll and payroll-related costs........................... $ 433 $2,399
Other accrued expenses...................................... 872 2,103
------ ------
$1,305 $4,502
====== ======
F-20
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(13) OTHER INCOME
Other income consisted of the following for the years ended September 30,
2001, 2000, and 1999:
2001 2000 1999
---- -------- --------
Gain on disposal of assets............................. $ 120 $ -- $ --
Reimbursement from terminated agreement................ 300 -- --
Non-cash interest on warrants issued................... (309) -- --
Interest income........................................ 470 730 493
Interest expense....................................... (111) (172) (13)
Other.................................................. (5) (13) (25)
----- ----- ----
$ 465 $ 545 $455
===== ===== ====
(14) BUSINESS SEGMENT INFORMATION
Effective for the year ended September 30, 1998, the Company adopted SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
which requires disclosure of financial and descriptive information about the
Company's reportable operating segments. The operating segments reported below
are the segments for which separate financial information is available and for
which operating profit and loss amounts are evaluated regularly by senior
management in deciding how to allocate resources and in assessing performance.
The Company has two reportable segments: 1) Internet and transaction-based
solutions and 2) Enterprise software solutions, the former 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.
F-21
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(14) BUSINESS SEGMENT INFORMATION (CONTINUED)
The Company's reportable segments are strategic business units that offer
different solutions tailored to a customer's needs.
YEAR ENDED SEPTEMBER 30, 2001:
------------------------------------
INTERNET AND ENTERPRISE TOTAL
TRANSACTIONS SOFTWARE COMPANY
------------ ---------- --------
Revenue...................................... $ 12,518 $9,365 $ 21,883
Gross profit................................. 310 7,639 7,949
Loss from operations......................... (11,468)
Other income, net............................ 465
--------
Loss before income taxes..................... $(11,003)
========
YEAR ENDED SEPTEMBER 30, 2000:
------------------------------------
INTERNET AND ENTERPRISE TOTAL
TRANSACTIONS SOFTWARE COMPANY
------------ ---------- --------
Revenue...................................... $ 9,930 $14,874 $ 24,804
Gross (loss) profit.......................... (9,640) 9,322 (318)
Loss from operations......................... (36,579)
Other income, net............................ 545
--------
Loss before income taxes..................... $(36,034)
========
YEAR ENDED SEPTEMBER 30, 1999:
------------------------------------
INTERNET AND ENTERPRISE TOTAL
TRANSACTIONS SOFTWARE COMPANY
------------ ---------- --------
Revenue...................................... $ 5,056 $20,239 $ 25,295
Gross (loss) profit.......................... (5,654) 13,953 8,299
Loss from operations......................... (17,242)
Other income, net............................ 455
--------
Loss before income taxes..................... $(16,787)
========
F-22
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Q1 2001 Q2 2001 Q3 2001 Q4 2001
-------- -------- -------- --------
Revenue.................................. $ 6,265 $ 5,457 $ 5,269 $ 4,892
Gross profit (loss)...................... 1,059 2,199 2,189 2,502
Net loss................................. (5,579) (3,075) (1,767) (582)
Net loss per share....................... $ (1.30) $ (.68) $ (.39) $ (.13)
Q1 2000 Q2 2000 Q3 2000 Q4 2000
-------- -------- -------- --------
Revenue.................................. $ 6,494 $ 6,283 $ 5,788 $ 6,239
Gross profit............................. 848 95 (1,018) (243)
Net loss................................. (8,381) (9,431) (9,916) (9,471)
Net loss per share....................... $ (2.90) $ (3.24) $ (3.39) $ (2.56)
F-23
REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Webhire, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated December 31, 2001, also included an audit of the financial
statement schedule listed in Item 14 (a)(2) of this Form 10-K. In our opinion,
this financial statement schedule as of and for the years ended September 30,
2001 and 2000, presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 31, 2001
SCHEDULE II
WEBHIRE, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
BALANCE,
BEGINNING OF CHARGED BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR TO EXPENSE WRITE-OFFS END OF YEAR
------------------------------- ------------ ---------- ---------- -----------
Year ended September 30, 2001..................... $1,587 $ (596) $507 $ 484
Year ended September 30, 2000..................... $ 700 $1,453 $566 $1,587
Year ended September 30, 1999..................... $ 400 $ 802 $502 $ 700